Suppy Chain

Supply Chain Competition (E)

What is the role of supply chain in competitive markets? What is the relation between product excellence and service excellence?

Posted: Jun 2009

Today competition between two companies in reality is competition of two supply chains. This is caused by the fact that company can not act as independent, isolated island, but as part of whole supply chain. The company need to create value delivery systems that are more responsive to fast-changing markets and is much more consistent and reliable in the delivery of that value, in order to protect the competitive advantage.

During the recent years, the primary rules for marketing success were obvious: strong brands supported by huge advertising budgets and aggressive selling approach. Obviously, this system now seems to loose its strength. Today the company need to have both components: Product excellence and Service excellence.

The supply chain management plays the crucial role in providing theses levels of product and service excellence. There are several trends in global markets that increases the importance of having effective and efficient supply chain.

One of these trend is "commoditization" in many markets. A commodity market is characterized by perceived product equality in the eyes of customers resulting in a high readiness to substitute one product for another. Research increasingly suggests that consumers are less loyal to specific brands. There is evidence that more and more decisions are being taken at the point of purchase and if there is a gap on the shelf where preferred brand is missing, the another brand will take place in consumer's basket.

Another trend is consolidation of demand. The customers are tending to grow in size but at same time becoming fewer in number. The retail grocery industry is a good example in that in most northern European countries where a handful of large retailers account for over 50 per cent of all sales in any one country.

This tendency to the concentration of buying power is being accelerated as a result of global mergers and acquisitions. The impact of these trends is that these more powerful customers are becoming more demanding in terms of their service requirements from suppliers.

At the same time customers shows tendency to reduce their supplier base. In other words they want to do business with fewer suppliers, in order to simplify their operations.

The successful companies in the coming years will be those that recognize these trends and seek to establish strategies based upon establishing closer relationships with key accounts. Such strategies will focus upon seeking innovative ways to create more value for these customers. 

This transition from volume-based growth to value-based growth will require a much greater focus of the company on managing the core processes that we referred to earlier. The competitive model of the past relied heavily on product innovation. This will have to be increasingly replaced by process innovation.

The basis for competing in this new era of competition will be:

Competitive Advantage = Product Excellence x Process Excellence 

This does not suggest that product innovation should be lost from focus, but simply more emphasis needs to be given todeveloping and managing processes that deliver greater value for customers.