By Dr. Lowell Yarusso and Ronald J. Sanderson
Many companies have risen to the top of their industry by creating and sustaining a single competitive advantage. In their 1982 book "In Search of Excellence," Tom Peters and Robert H. Waterman Jr. described companies that rode a specific core competency to industry leadership. While instructive, their work became more revealing when, 10 years later, several of those companies had lost their competitive edge and were rapidly losing their market leadership.
The lesson here is that silver bullets either do not exist or have limited life spans. What does this have to do with the supply chain? Companies such as Wal-Mart, Dell and Honda were able to distance themselves from their competition over several years, or even decades, by focusing on a specific strategic sourcing/supply chain competency. Unfortunately, in today's world of instant communications, viral information transfer, rapid technology changes and fluid movement of people from one organization to another, it is becoming more and more difficult to find, develop and sustain a significant competitive advantage based on specific competencies.
The "Five Forces" analysis of a company's competitive environment, developed by Michael Porter, still provides a useful tool to identify external competitive challenges and, in turn, potential strategies for competitive advantage. In Porter's framework, competitive advantage comes through being the lowest cost supplier, providing differentiated capabilities or focusing on a particular area of strength. But in today's environment, supply chain advantages can more readily and rapidly be matched by competitors through such means as common access to third-party logistics providers (3PLs), advanced communication technology, advanced inventory and distribution center technology and concepts, and fewer entry barriers.
Today, a company's advantage may only last months. Two years of significant advantage based on a single competency is now a nearly unattainable goal. Developing a sustainable competitive advantage in supply chain requires a new focus on creating value in a company. A supply chain needs to be viewed as a "value chain," in which all participants are truly integrated and share a common vision of goals, processes and information sharing. The one shared, high-level goal of all participants is to maximize value in the total supply chain.
To achieve this transformation and truly gain a significant competitive advantage requires a different way of thinking about supply chain performance and structuring. The key is a total commitment to seamless, value-focused supply chain performance. Value is more than simply achieving on-time deliveries or optimal inventory levels. It requires a more collaborative relationship with suppliers, customers and other stakeholders. And it requires a commitment to continuous improvement and the flexibility to adapt to constant changes in the marketplace. Here are six principles for how to accomplish this:
1. Collaborate, Don't Compete — A true value-oriented supply chain consists of an extensive network of integrated suppliers, suppliers' suppliers, internal supply chain participants and customers, all working together to maximize the value of the supply chain. When you develop relationships with suppliers, it is the mirror image of setting up customer relationships. Just as you want your customers to succeed, you should want your suppliers to succeed, too. Each participant's success and increased value has a positive impact on your supply chain performance as well as your bottom line.
Just as you want your business processes and people to be aligned in terms of goals and strategies and operations, your supply chain partners should be aligned to collaborate and develop ideas for mutual competitive advantage. Suppliers can often be the best source for new ideas on technology, process streamlining, inventory reduction and product design improvements. But making this work requires different methods of developing incentives and monitoring performance for partners. Fortunately, there are approaches to joint risk/reward sharing available that can be incorporated into supplier agreements.