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Supply Chain Network Optimization and Competitive Advantage – Part 1

SC Digest’s editor Dan Gilmore has a recent post about Supply Chain Network Optimization and Competitive Advantage and how a few companies are adopting this particular aspect of Supply Chain Management in their processes so much so that it maybe a source of competitive advantage.
While I am quite convinced about the need for strategic planning for supply chains at the highest echelons of management using the very kinds of tools that Dan Gilmore is talking about, I am hesitant, if not quite in the opposite camp, when the use of such tools is deemed to confer, even offer, a competitive advantage. The opportunity of deriving a competitive advantage this way is minimal at best. What is competitive advantage and what is not is the subject of this part of the series. In following parts, I hope to identify what supply chain planning and optimization really is.
In order to explain myself, I need to first elucidate the very notion of competitive advantage and strategy (or strategizing). I refer you to the excellent article on strategy: All strategy is local by Bruce Greenwald and Judd Kahn. The byline of their article states that:

True competitive advantages are harder to find and maintain than people realize. The odds are best in tightly drawn markets, not big sprawling ones.

The aim of true strategy in their opinion is,

to master a market environment by understanding and anticipating the actions of other economic agents, especially competitors. But this is possible only if they are limited in number. A firm that has privileged access to customers or suppliers or that benefits from some other competitive advantage will have few of these agents to contend with. Potential competitors without an advantage, if they have their wits about them, will choose to stay away. Thus, competitive advantages are actually barriers to entry {emphasis is mine}. Indeed, the two are, for all intents and purposes, indistinguishable.

Greenwald and Kahn contend that true competitive advantages, whatever their source, are really barriers to entry – in the sense that gaining such a competitive advantage presents a significant threshold to be scaled. The conclusion is an acceptable one and as you can imagine begins to chip away at the notion that the use of supply chain strategic planning tools in some way offer a competitive advantage. I think there is a case to be made about sources of competitive advantage with regards to all aspects of supply chain management within a firm. I do not see that the output of supply chain strategic planning (which is a streamlined and robust supply chain network) offers any real competitive advantage. To belabor the point, any competitive advantage that can be easily replicated is not an advantage, it is the entry price for remaining in the competitive arena.

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About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

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April 2007