Gaining Competitive

Advantages Through

Supply Chain

Management: Success

Storie

TABLE OF CONTENTS

1. INTRODUCTION..........................................................................................................- 1 -

2. BACKGROUND............................................................................................................- 1 -

3. THEORY........................................................................................................................- 2 -

4. DISCUSSION AND ANALYSIS...................................................................................- 4 -

4.1. ZARA......................................................................................................................- 4 -

4.2. Dell..........................................................................................................................- 6 -

4.3. FedEx.......................................................................................................................- 6 -

4.4. Wal-Mart.................................................................................................................- 7 -

5. CONCLUSIONS.............................................................................................................- 8 -

6. REFERENCES...............................................................................................................- 9 -

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1. INTRODUCTION

The business environment has been suffering from fierce competition since the

escalation of technology evolution and internet growth had become wildly increasing.

To survive in today’s market; the business should be characterized by faster production

pace, shorter product life cycles, more innovative and sophisticated, and well-

organized. That adds much pressure to the supply chain usability. It should react

rapidly, efficiently, and effectively in order to respond to changes happening in the

marketplace so as to sustain, and, most importantly, to create competitive advantage.

According to Towill and Christopher (2002) the key success of a supply chain is

basically determined by the end customer. Delivering the right goods to the right

customers at the right price and time is not a guarantee for companies to stay

competitive in the market, but it is an inevitable key to survive. As a result, competition

between supply chains has become more important rather than competition between

individual companies (Christopher, 1992).

In B2B, an effective supply chain can create a strong competitive advantage for the

firms involved within it. A competitive advantage is defined by the capabilities that an

organization can develop for defensible position over its competitors (Li et al., 2006).

This goal can be reached in several ways, starting by creating a strong collaboration

with companies by working together to make the whole supply chain competitive. The

backbone of this strategy requires wide use of information technology in order to share

information, and also generate future demand. The primary idea in SCM is that the

entire process must be viewed as a one united system. The core competencies of

individual organizations are determined and invested for to create supported

competitive advantage for the supply chain.

This report discusses how a supply chain can create a strong competitive advantage for

organizations. In order to give the reader a clear idea about that, several success stories

related to some of the most well-known organizations are reviewed.

2. BACKGROUND The transformation that accompanied the industrial revolution had also a direct

impact on supply chains, which forced the latter to apply some changes in order to keep

the business updated and adapted. In the past, and to differentiate themselves from their

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competitors, companies used a combination of factors including quality, price,

customer service, product features, and availability. The new nature of competition is

driven by critical factors, such as rapid shrinkage of product lifecycles, in which

products are placed and replaced on the market faster. High technology and apparel

industries could be evident examples of that shrinkage, where new products introduced

are quickly replaced by new ones less than within six months. Another driving factor is

the growth of internet networks. Selling goods through via webs positively affect sale

growth for companies because of the possibility to be connected directly to their end

customers.

E-business dramatically changed the way companies produce, sell, and distribute

products, and even the way they share information with their suppliers and partners.

Previously, companies considered information as confidential that need to be protected

instead of being shared. The nature of competition has been shifted from company-

based to supply-chain-based competition, which encouraged sharing information along

a supply chain. Having efficient information systems, companies have not to own all

the pieces of a supply chain network, instead, they may consider working as a

cooperative supply chain that functions as a single entity. A supply chain that assures

secure and smooth flow of information can react faster to fulfill the customer’s needs

and be adapted to the market changes. Coordination and information exchange between

partners within a supply chain is the key to stay competitive. Such change requires set

of business processes including planning, ability to receive regular feedbacks, and

usage of information technology.

3. THEORY

A supply chain is a network of organizations performing various processes and

activities to produce value in the form of products and services for the end customer

(Christopher, 1992). In other words, and according to (Stapleton et al., 2006), supply

chain management is the integration of all network activities which manufacturers,

suppliers, , retailers and distributers are involved to improve products, services, and

information flow throughout the chain from suppliers to the end customers, without

ignoring the need for cost reduction while maintaining target service level.

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Supply chain management is undertaken to achieve four major goals including time

compression, waste reduction, and unit cost reduction, flexible response. For waste

reduction, companies that use SCM strive for waste reduction at all levels within the

supply chain, through minimizing duplication by keeping inventories maintained and

managed efficiently, and seeking to achieve uniformity of operations and systems

among supply chain actors. Another important goal of SCM is time compression of

order-to-delivery cycle time, since it helps in reducing inventories, and therefore, all

entities in the supply chain become able to operate in more efficient way. That also

allows a quick response whenever problems occur, and speeds up the cash flow and

financial performance connected to the system. The third goal of SCM is to develop

flexible response to meet customer’s needs in cost effective manners that may include

order size, configuration, and product variety. The fourth goal of SCM is reducing cost

per unit to end users (Hutt & Speh, 2004).

According to (Day, 1994), the competitive advantage has traditionally been gained

through focusing on price and product performance attributes to conserve the market

share of the current customer. However, competition is considered as a war of

movement that relays on quick responding to market needs by creating superior

competencies required to add a customer value and achieve cost efficiency and

profitability (Stalk et al., 1992). Competitive advantages are built up on five main

dimensions. The first dimension is price/cost, which is the ability to compete with

lowest possible prices (Li et al., 2006). The second dimension is providing customers

with appropriate product qualities (Koufteros, 1995). The third dimension is delivery

dependability, which means providing the clients with their right products, at the right

quantity, and on time (Li et al., 2006). The fourth dimension is product innovation,

which could be seen as the reintroduction of product features to the market place

(Koufteros, 1995). The fifth dimension is time to market, which is the time required to

react (Li et al., 2006).

SCM efficiency and effectiveness are enhanced by three important drivers

including powerful information systems. The most important driver is internet, which is

regarded as essential for managing all types of integrated supply chain systems. The use

of internet helped business marketers to achieve several benefits such as reducing

customer support costs, minimizing channel inventory, and targeting new customers.

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The third driver is the SCM software applications that support managing the flow of

information and material throughout the network (Hutt & Speh, 2004).

Logistics is the critical element in supply chain management. The main task of

logistics facilitates is managing material and information flows. This task is a key part

of the overall task of SCM. SCM is concerned with managing the entire chain of

processes from raw material supply to the end-customer (Hutt & Speh, 2004).

4. DISCUSSION AND ANALYSISSince integrating supply chain management requires a comprehensive view

through the business chains, driving success factors that could bring competitive

advantages may be reflected by enormous ways. Besides, there are too many relevant

models and tools that could be considered and make supply chain management very

wide perspective in today’s business. Therefore, our insight for this report is to show

some success stories of business leaders who could manage to gain competitive

advantage using effective supply chain management. Among global companies, we find

the success stories of Zara, Dell, FedEx and Wal-Mart quite interesting to discuss in

this report. The main discussion is mainly built on the role of powerful information

systems, internet technology and supply chain software as drivers for SCM to gain

competitive advantages to achieve SCM goals including time compression, waste

reduction, unit cost reduction, and flexible response.

4.1. ZARA

ZARA is a Spanish company regarded as the most dynamic and successful apparel

business in the world. Even though their manufacturing system is similar with the other

competitors, they could manage to surpass them by uniquely integrating SCM. They

inspired many aspects of that benefiting from experience of Toyota in lean enterprise.

Additionally, ZARA continuously dedicate innovation relevant to the overall process.

The stores of ZARA are globally linked to headquarters, where employees can easily

add the daily change of customer demand across countries. That plays a very significant

role in keeping designers and trends trackers updated with which styles are more

favourable from economic perspective. This kind of data transparency enables getting

closer to the real customer needs and reduces the waste of efforts dedicated to styles

that may not achieve significant sails in a certain area. Furthermore, design-led

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procurement improves the responsiveness to the market by observing the drawn trends

soon they can give helpful indications to what should be focused on in the near future.

Design-led procurement also prevents building up excess inventories. There are broad

and diverse collections of styles that customers at the level of B2B have to pull. That

also contributed in waste reduction, since stocks are constantly kept refreshed and

updated. Once the order is left, there are two times weekly ZARA deliver their products

in, and few products are available for more than month.

ZARA could not be able to take the advantage of time compression until they

adopt appropriate sourcing policy to their industry. Some items supplied with a good

quality by Asian suppliers are imported to Spain, while the rest of items are available

with a quick responsiveness. The main policy that ZARA follow for sourcing is having

a broad suppliers’ base that offers the most featured selections of fabrics at very low

prices. Additionally, they do not seem to be attracted to depend on certain groups of

suppliers. We think that this policy is specifically dependant on the type of industry.

That makes sense if the dynamic aspect of apparel industry that requires high

customization is considered. On the other hand, more than 50% of the materials are

purchased locally from the gray market. All items are dyed and printed by a Galician

subsidiary, while the local workshops are employed to conduct final sewing or

assembly and quality control. Therefore, although many operations are conducted

outside, they still keep their quality standards controllable. Moreover, they could be

able to design a SC able to postpone not only colour but also final design changes.

Thus, they only pay for the completed garments, which limits the business risk.

Speaking of numbers, ZARA produce their products to a couple of distribution

centres. They are both fed twice a week. The delivery processes are done within 24

hours, and the overall lead-time is 4-5 weeks, while it is several months for the

competitors. Generally, the driving strategy involves employing a smart sourcing

policy, while only keeping locally the operations that enhance cost efficiency including

dying, cutting, labelling and packaging. The centralization could help ZARA to support

rapid production of new collections in a coordinated and consistent manner. ZARA

align design with the SC to reduce the potentials of supply chain failure and ensure the

accuracy of supplies. That shows a unique example of how to integrate lean enterprise,

while showing agile performance.

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4.2. Dell

Dell is one of the biggest and most well-known PC makers in the world. They

could also gain competitive advantages over other competitor, such as IBM, through

applying significant changes in the supply chain. Dell reengineered its processes and

relationships with suppliers and logistics providers so that the overall processes of

building, customizing, and shipping PCs does not take longer than eight hours. Unlike

what ZARA follow, Dell created long-term relationships. However, competitors as

IBM and Toshiba had the same aspect of long-term relationships. Dell reduced the

number of logistics providers from 130 to 60, and suppliers from 204 to 30 companies.

This reduction of connections had the aim of cost reduction and time compression. Dell

dedicated VMI (Vendor Managed Inventory), where components are never ordered.

The actors are selected so that they have warehouses with no more than 8-10 days

capacities, which are as maximum located 15 minutes away from Dell’s factories.

Moreover, Dell rely on very capable information system that enables suppliers to

reschedule their operations every two hours. All actors have accessibility to extranet

that provides them with updated forecasting records. They could also access hub-level

inventory holdings, where all relevant information about shelves and stock are

available. That all resulted in reducing the inventory to only four days, while it is 20-30

days for the competitors. Dell could be able to improve inventory turns to 24 hours,

while the competitors had to wait for 35 days for payments through primary dealers.

Furthermore, the internet contributed significantly through e-commerce in the sales

growth. Through internet, Dell gain average sales accounts for 1 million dollar per day

(McWilliaims & White, 1999).

4.3. FedEx

As business leader in courier and logistics industry, FedEx passed through

historical stages to bring competitive advantages through network improvements. Such

improvements could be redefined as SC practices. FedEx started differentiating

themselves by providing better services to their B2B customers in terms of data

availability. What would make B2B market relies on FedEx services is being able to

track their packages, and thus, better control their businesses. This reality was not that

clear for FedEx in the beginning (Huttenlocher, 2004). But after integrating reliable

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information system, and internet-based access, the form of value proposition became

clearer. The company focused on excelling in information availability as a competitive

advantage. That required increasing the transparency of data by integrating innovative

technology. The FedEx Institute of Technology at the University of Memphis is

assigned to develop and support the dependency on technology innovation through 150

researchers. The mailrooms are designed so that the operations such as tracking are

sophistically automated. Moreover, the dedicated client/server network is one of the

world’s largest ones (FedEx, 2013). The most recently “3D wizardry” and Wi-Fi

networks systems have been incorporated as fundamental elements of the overall

structure. FedEx exceeded the technological limits that others are stuck to. The

company introduced a 3D globe with use of a webcam that could analyse data and

produce statistics on the business world and update information on current economic

situations, in the all countries FedEx are located. The number of website visitors

recorded then successive significant increases. Moreover, for integrating easy social

connectivity to smaller businesses, FedEx use social media to allow companies to track

their packages. All these practices have been integrated to the SC of FedEx not only to

offer very transparent and featured way of sharing information, but also to let their B2B

customers survive and thrive, as that account to the overall return on investment.

4.4. Wal-Mart

Using efficient supply chain practices to win competitive advantages could not be

reflected more perfectly without showing some respect to the experience of Wal-Mart

in America. Wal-Mart is undoubtedly the cost and market leader in American retailing.

They could overcome competitors, such as Kmart, and leave a large difference later on.

No competitor could get even close. We do not know even if the term “competition” is

relevant in their case. But focusing on the historical review of Wal-Mart is for sure

helpful. Wal-Mart invested generously in integrating innovation and information

technology systems in retailing. They constantly considered re-engineering in

processes, waste elimination, and performance efficiency. They are the first who

dedicated Bar-codes technology in their operations, especially, inventory management

system. They also deployed all possible technologies, such as EDI (Electronic Data

Interchange), to facilitate the best possible communication atmosphere. They adoption

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of technology continued through employing wireless scanning guns and supporting

software that captures data relevant to stock holding and sales patterns. That

contributed not only in better inventory management, but also in significant cost

savings. The result was introducing available final product at low prices, which

accounted for improved customer satisfaction. Wal-Mart took the lead of adopting

models that had not been regarded as efficient ones. They depended on centralized

distribution network with cross-docking warehousing method, which also reduced the

holding cost extremely.

5. CONCLUSIONS

There are three main competitive advantage drivers dedicated through supply chain

management including information system, internet, and supply chain software. The

main goals of supply chain management are time compression, waste reduction, unit

cost reduction, and flexible response. The SCM strategies may gain competitive

advantages in many different ways. The type of industry and the geographical

distribution may affect the driving strategies of SCM. The success stories of ZARA,

Dell, FedEx, and Wal-Mart reflect many different aspects of how supply chain can

come up with competitive advantage. Each case shows different improvements built up

within the supply chain. For instance, ZARA depended on short-term relationship for

sourcing, while the type of Dell’s industry enforces them to adopt long-term

relationship. The customer value proposition may impact the type of relationship, as

clearly shown in the case of FedEx, where data sharing is a crucial customer value.

Generally, all stories are characterized by many similarities, though they are introduced

in different manners. All companies rely on powerful information system characterized

by high connectivity of supply chain actors. Re-engineering of processes and waste

inventory reduction are essential practices they adopt. Smart integration of relevant

technologies could also be crucial especially for Wal-Mart and FedEx cases, while

internet became more fundamental necessity than an optional feature to offer. However,

behind such success stories, there are many more supply chain failures. That could be

due to integrating inappropriate techniques, misestimating relevant customer value

proposition, applying parts of supply chain management tools and leaving collateral

parts, or any similar reasons.

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6. REFERENCES

Literature Sources:

Christopher, M. G. (1992). Logistics and Supply Chain Management, Pitman Publishing, London, UK.

Day, G. S. (1994). The Capabilities of Market-Driven Organizations, Journal of Marketing.

Huttenlocher, D. (2004). “Differentiating IT” Department of Computer Science, Cornell University. URL: Ketchen, D. J. & Giunipero, L. C. (2004). The intersection of strategic management and supply chain management, Industrial marketing management, Vol. 33, pp. 51-56.

Hutt, M.D. and Speh, T.W. (2004). Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th edition, Fort Worth TX: Dryden.

Koufteros, X. A. (1995), “Time-Based Manufacturing: Developing a Nomological Network of Constructs and Instrument Developmen”t, Doctoral Dissertation, University of Toledo, Toledo, OH.

Li, S., Ragu-Nathan, B., Ragu-Nathan, T. S., and Rao, S. (2006). The Impact of Supply Chain Management Practices on Competitive Advantage and Organizational Performance.

McWiliams, G., and White, J. (1999). Dell to derail: Get into gear online. Wall

Street Journal, December 1, Bl.

Stalk, G., Evans, P. Shulman, L. E. (1992). “Competing on Capabilities: The New Rules of Corporate Strategy”, Harvard Business Review.

Stapleton D., Hanna J. B., and Ross, J. B. (2006). “Enhancing Supply Chain Solutions with the Application of Chaos Theory”, Supply Chain Management.

Towill, D. and Christopher, M. (2002). The Supply Chain Strategy Conundrum: To be

Lean Or Agile or To be Lean And Agile?, International Journal of Logistics: Research & Applications.

Electronic Sources:

FedEx (2013). FedEx Strategy, mission, and values. Available:

http://about.van.fedex.com/mission-strategy-values [2013-02-23].

FedEx (2013). Overview and facts. Available: http://about.van.fedex.com/fedex-

overview [2013-02-23].

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