Supply Chain Management - Case Study Example

In today's global business environment, most of the companies are attempting to manage their business strategy in line with their operational delivery. The need of the hour in today's business world is to develop strategies of Supply Chain Management in such a way that they payback in terms of competitive advantage along with cost reduction. This essay focuses on this particular aspect explaining the facts about both Core competencies of the firms and Supply Chain Management with examples. Core Competencies The Core Competencies of the corporation is an article written by C.K. Prahlad and Gary Hamel in the year 1990. In this particular article the authors mentioned the term core competency which can be defined as the collective learning and coordination skills behind the product lines of a firm (Hamel). It was further stated by the authors that core competencies are the main source of competitive advantage and hence they enable the firm to introduce an array of new products and services into the market. The Concept of Competitive Advantage Competitive advantage is the critical advantage that a firm possesses in the market over a competitor in the industry. Almost all the firms in the market try to achieve a sustainable competitive advantage ((ICMR), Marketing Management). The other way of expressing the same would be - when sustained profits that are beyond the average industry profits are earned by a firm, then the firm is said to possess a competitive advantage over its competitors present in the market (Administration). The goal of much of business strategy of every firm would be to achieve a sustainable a competitive advantage. There are two basic types of competitive advantages as identified by Michael Porter (Porter). They are the cost advantage and differentiation advantage. A firm that offers the consumer the same value as the competitors, but at a lower cost is said to possess cost advantage, whereas a company that offers superior value to its customers when compared to its competitors, possesses differentiation advantage. These two advantages are called positional advantages as they represent the firm's leading capability in the industry in either of these advantages. The resources of an organization along with its skills create unique competencies. These competencies in turn help the firm identify its cost or differentiation advantages and ultimately create value for the customers (Harvard Business Review). The resources of the organization include its brand value, technological know-how, patents and trademarks, and the goodwill of the firm in the market. The skills include its service quality, employee skills and efficiencies (Andrew C. Gross et al). Core Competencies are the basis for the development of core products. Core products are not the ones which are directly sold to the end-user. Instead they are used in the manufacturing or building of a large array of end products. Let us consider an example for this. Motors are core products which can be used for the manufacturing of many end products like cars, air coolers etc. The business units of the firm are required to tap the few relative core products and then develop a number of end-products that can be used by the end-user by making use of the prevailing technology of core products. The blend of both the market opportunities and the core competencies is the basis for the origin of a new business. If a set of core competencies and the available market opportunities are rightly identified and combined then there is a possibility of launching any number of arrays of new businesses (Michaelson). Ways to develop Core competencies The integration of multiple technologies and the diverse skills production gives rise to core competencies (Taylor). Examples of core competencies may be Sony's ability of miniaturizing electronics and Lenovo's Retina identification technology. There are three basic points which help in the identification of core competencies which are discussed as under. Core competencies should Provide access to a wide variety of markets Contribute significantly to the end-product Be difficult for competitors to imitate The ability to integrate and co-ordinate the various groups of the organization is the main aim of core competency. It is not sufficient if a company hires brilliant people of a particular technology. This does not simply mean that the company has gained core competence. It is only when there is effective coordination among all the groups involved in developing a particular product and bringing it into the market, the firm is said to have gained core competence. Developing core competence does not really cost much to a firm. There are possibilities to acquire the missing aspects of the core competencies at a considerably low cost by way of licensing agreements and alliances. During the recent times, most of the organizations are having designs that facilitate sharing of core competencies which in turn would result in effective and optimal utilization of those core competencies for a very little cost or even no cost. Core competencies do not entail certain things like rivals or competitors who overspend on Research & Development, business units that share costs and vertical integration. Understanding these would help firms in the development of core competencies in a better way. It may some time so happen that certain moves that are taken by firms in order to cut costs would result in the loss of ability to build core competency. Decentralization is one such thing. When a firm decentralizes itself then there is a chance that autonomous units or groups outsource certain critical tasks. Once these critical tasks are outsourced, then the firm is prevented from developing core competencies in those critical tasks. This is because the firm no longer consolidates the know-how that is spread throughout the firm. If a firm fails in recognizing its core competencies then there are chances that it can make decisions leading to the failure of the business. For example, Motorola divested itself of its semiconductor DRAM business at 256kb level, and then was unable to enter the 1 MB market on its own. The same happened also with the U.S. manufacturers of television (Business India). Most of the U.S. manufacturers divested themselves of their television manufacturing businesses assuming that the television manufacturing industry is far more mature and high quality and low cost televisions are available in the Far East. This led to them losing the core competence in video and this loss further led to the handicap in the newer digital television industry. If a company recognizes its core competencies and understands clearly the time that is required to build those core competencies then there is every possibility that the firm can make better divestment decisions (Donald). Supply Chain Management - An Overview The supply chain can be described as the network, covering the various stages in the provision of products or services to customers. It includes not only manufacturers and suppliers, but also transporters, warehouses, distributors, retailers, etc. The number of stages in the supply chain depends on the customers' needs, and the role each stage plays in fulfilling their needs. Supply Chain Management (SCM) integrates procurement, operations and logistics to provide value added products or services to customers ((ICMR), Operations Management). Effective management of the supply chain helps organizations meet customer requirements on time, with the desired quality specifications, in a cost-effective manner, through the coordination of different activities which transform raw materials into final products or services. Supply Chain Management can provide both tangible and intangible benefits to an organization. Tangible benefits include revenue growth, improved facility utilization, optimized inventory management, etc. Intangible benefits include improvement in quality, improvement in customer satisfaction, and enhanced customer and supplier techniques. Business Drivers in Supply chain Performance Supply Chain Management has become on of the key areas that organizations are focusing on to reduce costs and improve the efficiency of the production process (Chopra). Four key drivers of supply chain performance are inventory, transportation, facilities and information. They help determine not only the responsiveness and effectiveness, but also the strategic fit of the supply chain. Inventory - Inventory includes raw materials, work-in-progress, and finished goods in the supply chain. Inventory exists in organizations due to a mismatch between demand and supply. Inventory is also maintained to increase the responsiveness of organizations to sudden increases in customer demand. Transportation - Organizations use transportation to move components and products between the different stages of the supply chain. Transportation decisions are made on the mode of transportation and route to use in the transfer of products from one point to another. Facilities - Facilities are the locations in the supply chain where the raw materials and finished goods are stored, and where work-in-progress materials are assembled or fabricated, and from which finished goods are distributed. Facility's capacity and location has significant affect on the performance of the supply chain. Information - Sometimes, the value of information as a supply chain driver is undermined due to its abstract quality. However, in reality, it is one of the key drivers affecting the performance of the supply chain. As the supply chain is made up of various entities, proper coordination is the key to improving the efficiency of the supply chain system. The flow of information also affects the performance of other drivers. With proper information, organizations can predict the quantity to produce, when it is needed and where it is needed. This makes the supply chain more effective and responsive to market demand. In order to service the needs of customers and fulfill their expectations and to meet the organizations' growth and profitability objectives, managers focus on improving the effectiveness of the supply chain (Martinich). If an organization follows the principles of supply chain management, it can attain a balance between customers' expectations and its growth and profitability objective. The principles of Supply Chain Management are as follows: Segment Customers Based on Service Needs - Most organizations segment customers based on the industry, product or trade channel without differentiating their specific requirements. In order to serve customers properly, organizations should segment markets based on the specific customer needs. Customize the Logistics Network - Companies usually design their logistics system either to meet the average service requirements of all customers or to satisfy the toughest requirements of a single customer. Plan Based on Market Demand - Traditionally, each department in an organization makes demand forecasts for the same set of products independently. But the assumptions and measures made by each department differ significantly from those of other departments. Therefore, their forecasts also vary widely (Marien). Enhance Ability to Meet Customer Requirements - Organizations traditionally set their productions goals on the basis of demand forecasts (Knod). They also kept a cushion of extra inventories of finished products to offset forecast errors. They assumed that the lead-time to convert raw materials into finished goods was constant. They could also cut costs by reducing their set up time, and by using just-in-time techniques, etc. Improve relationships with the Suppliers - Companies can derive significant cost advantages if they maintain strong and long-term relationships with their suppliers. Organizations should demand the highest level of service from their suppliers, but they should not forget that their suppliers also play a significant role in reducing cost. On the basis of market positions and industry structure, manufacturers can decide how to approach suppliers - invite competitive biddings, enter into long-term contracts, make strategic alliance, outsource etc. Have a Supply Chain-Wide Technology Strategy - There is a need to adopt enterprise-wide systems and replace inflexible and poorly integrated systems. Through electronic connectivity, organizations can improve the supply chain considerably (Kumar). Devise a Complete Supply Chain Performance Measure - Instead of just having inward-looking performance measures, organizations should develop a comprehensive system to measure overall performance of the supply chain system. Forces Shaping Supply Chain Management Various business and economic forces influence the effectiveness of a supply chain. They include the consumer demand, globalization, competition, information and communication, regulation and environmental concerns. The basic forces that govern the Supply Chain Strategy are the internal i.e. issues related to the business and the external i.e. the economic and political factors. The major factors influencing the Supply Chain Strategy are as follows: Mergers Price Fluctuation Political and economic pressure Cost of field development The Supply Chain framework is base on a functional model of the Supply Chain Management system. This basic framework is a development tool that assists in the development of a well-integrated Supply chain Management system in an organization. The framework consists of several components that define key functions, processes and best practices. There are a few organizational behaviors known as Supply Chain Management enablers that support the organization's overall performance. Conclusion: In the last ten years, a revolution has occurred in the way in which companies manage their business strategy and its operational delivery. Called Supply Chain Management (SCM), it is a strategic business model that has been developed in response to increasing global competitive pressures. Many companies have already chosen to outsource all "non-essential" activities thereby transforming them from fixed to variable costs, to re-focus on their core competencies. And while this type of outsourcing plays well with investors in the short-term; the solution that it offers is only a temporary one - unless it is accompanied by a robust SCM strategy. This is because much of the value offered by companies to their customers is generated externally by the company's suppliers. So, if the company is unable to manage or develop its suppliers or if the suppliers fail to perform, the company's performance is affected too. In recent years, companies as diverse as IBM, Wal-Mart, Toyota and Dell have all undergone nothing short of a supply chain revolution and today, all regard supply chain management as an essential part of their overall business strategy. Evidence suggests that for those firms who are prepared to develop SCM strategies, the payback in terms of competitive advantage and cost reduction can be considerable. References 1. (ICMR), ICFAI Center for Management Research. Marketing Management. ICFAI Center for Managemetn Research, 2004. 2. -. Operations Management. Hyderabad: ICFAI Center for Management Research, 2003. 3. Administration, Internet center for Management & Business. Strategic Management. 14 July 1997. 17 December 2007 . 4. Andrew C. Gross et al, . Business Marketing. AITBS Publishers, 1998. 5. Business India. "Cool Blue and Casual." Business India (2002): 11-24. 6. Chopra, Sunil. Supply Chain Management: Strategy, Planning & Operation. Delhi: Pearson Education Inc., 2003. 7. 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