If I were to saunter down to a manufacturing/operations floor and impress upon the line managers that what they should really be doing in their operations is creating competitive advantage, chances are I’d be shown the door toute suite. Perhaps, I should be. A wise consultant does not get his head chopped off by spouting well worn academic/business terminology even if it is essential to business survival.
T’is something that I have learnt from working with managers – a commandment to savor – Thou shall not confuse the managers you seek to change.
What is the Competitive Advantage Model of Michael Porter?
Competitive strategy is about taking offensive or defensive action to create a defendable position in an industry in order to cope successfully with competitive forces and generate a superior return on investment (ROI).
And more or less:
The basis of above-average performance within an industry is sustainable competitive advantage of which there are two essential types:
1. Cost leadership (low cost)
2. Differentiation
No matter the scope of the above two types, the resultant competitive strategy is:
3. Focus
If one were to adpat such a model into one’s framework of developing a supply chain, it is quite obvious that both cost leadership and differentiation can be adapted.
Here’s a view of how a firm can create sustainable competitive advantage by Innovation labs.
The only way a competitive advantage of any kind can be made to sustain is through innovation.
This might logically lead you to ask how we define innovation. In our view, innovation is improvement in the value that a company offers to its customers, or reduction in the cost of delivering value to customers.
They go on to differentiate continuous innovation which is characterized as small and incremental and discontinuous innovation which is characterized by breakthroughs and disruptions. But is there any reason to think that even innovation can be sustainable ad infinitum – I think not. How about the process of continuous and discontinuous innovation? Perhaps, they can be sustained a little longer than the actual service/product created.
Going back to the outline from Porter’s model:
More than cost leadership, which may be a function of continuous improvement and strategic decision making to outsource or offshore low-value added activities, differentiation – real differentiation, seems to be the more significant lever of creating true sustained competitive advantage. How? – I’ll try to elucidate that in the next few posts.
The article deals with a new book put out by two partners at PRTM – Shoshanah Cohen and Joseph Roussel called Supply Chain Management: The 5 Disciplines for Top Performance.
Too many senior officers don’t view their supply chain as a strategic business asset,” commented Cohen, co-author and partner at PRTM. “But when aligned with the overall business strategy, supply chain management provides major opportunities to impact both the top- and bottom-lines.”
The above is probably because there is a disconnect between business strategy (which thanks to Porter’s work) and supply chain strategy which has always been seen as an operational thingy that happens regardless. The companies that have successfully competed using their supply chains (eg: Dell, Walmart) as a competitive advantage view things slightly differently.
According to the authors,
The five core disciplines for top supply chain performance are:
1. View your supply chain as a strategic asset
2. Develop an end-to-end process architecture
3. Design your organization for performance
4. Build the right collaborative model
5. Use metrics to drive business success
Again, here the operational thingy of a supply chain seems to figure prominently and perhaps for the right reason – because a top performing supply chain is primarily about execution and getting things done. However, what about the very structure of the supply chain, which components should be finely tuned and focussed on relentlessly etc etc? You can only get things done within the framework that is imposed on from above by a company culture, philosopy or business strategy. As more and more companies turn onto the quest of using their supply chains as a strategic asset, I’d hope to see the supply chain strategy rise up to the level of being a business strategy.
And that should be a whole lot of fun!
Is RFID reshaping Supply Chain Management?
If you go by the talk of the town or are collared by the US Department of Defense or Walmart, then chances are that RFID is one of those uber initiatives that are top priority. From my viewpoint, which is from that of a large warehouser (GENCO is a large warehousing company principally) and that of a 3PL provider, RFID is at the pilot stage but nothing more than that.
What RFID does of course, in theory, is create a feedback situation i.e. if you’re aware or even comfortable using an analogy from Control Theory. In the past, the only recourse that managers typically had to determine whether something was stocked in the warehouse was to trust that the ERP/WMS system said that it was so. Frequently, such trust could often turn out to be misplaced, the magnitude of the error quite likely to be directly proportional to the state of completion/success/health of the ERP/WMS processes.
So along comes RFID (there are two main kinds: Passive and Active RFID) to close the loop in a sense that a WMS/ERP system could ascertain the actual state of affairs (I guess damaged tags being an issue not addressed yet).
Passive RFID refers to the technology that uses tags that need to be powered by the reader and then transmit information to the reader. They’re cheaper and will probably be the backbone of the first wave of adopters.
Active RFID refers to tags that contain power elements such as batteries and transmit information to the reader by themselves and also can be linked to other sensors (such as temperature/pressure sensors).
No new technology comes into being without a wrangle over standards. However, RFID seems to have escaped the brunt of such a battle. The EPCGlobal standard for RFID is the standard for embedding information in RFID.
What is of great interest to me is the increase in SKU level informaiton that is going to at once flood all levels of the supply chain. In order to manage a supply chain information, one thinks that one would require accurate and detailed information. That will quite likely happen with the widespread adoption of RFID. However, what are also equally necessary are data collection, manipulation and reporting tools (such as those from Business Objects or the like) that create a better reporting structure.
Says Bruce Tompkins in …Lean Thinking for the Supply Chain
A lean supply chain is one that produces just what and how much is needed, when it is needed, and where it is needed.
That’s brevity for you that masks the utter transformation that an entire firm – its supply chain, manufacturing, personnel, accounting, finance, sales and management, have to go through in order to be lean. And that’s the destination – being lean.
There are two conceptual definitions in Lean thinking – Value and Waste.
What is Value?
Value, in the context of lean, is defined as something that the customer is willing to pay for. Value-adding activities transform materials and information into something a customer wants. Non-value-adding activities consume resources and do not directly contribute to the end result desired by the customer.
I’ve always been suspicious of “Best Practices” but that probably is because of my background in R&D and the irrelevant pride that often goes with – the NIH (Not Invented Here) syndrome. Atleast, I recognize it in myself. However, “Best Practices” is the “lazy” approach to execution in the Supply Chain space as opposed to the “hard” approach which is to knock yourself against the immutable laws of business success, fail and try again until you get it right. Sure, you save money and time using the “lazy” or well-trodden and tested path but the trade-off is in learning especially organizational learning in the supply chain space.
I’ve got to make a confession here too – I’ve got a soft corner for gaining competitive advantage through supply chain design and execution which is why I’ve a preference for the latter “hard” approach of doing things. Adopting the “Best Practices” approach implies that you’re adopting what works and your competitive advantage w.r.t to others in the industry is marginal at best. Ofcourse, there is nothing that stops the firm from adopting cross-industry best practices or innovating up from the best practices floor that is adopted.
With regards to best practises in Supply chain execution, here are some pointers from the consultants at Tompkins Associates. Here are the 7 best practices for supply chain execution implementation:
1. Realistic objectives and expectations – Defining business requirements
2. Right Systems – Meeting business objectives
3. Right Team
4. Right Processes
5. Right Plan
6. Right Training
7. Right Timing and Support – Minimizing impact to customers
Says Patricia E. Moody in the May 1, 2006 edition of Supply Chain Management Review (…)
Technology may not necessarily be the be-all and end-all. But in the supply management space, it’s certainly the quickest and most direct route to cutting costs and improving profitability. The companies profiled here show how – with the right people and processes in place, technology can deliver stunning performance results.Technology may not necessarily be the be-all and end-all. But in the supply management space, its certainly the quickest and most direct route to cutting costs and improving profitability. The companies profiled here show howwith the right people and processes in place, technology can deliver stunning performance results.
Reading on in the article, she outlines the following in three companies
1. Hewlett-Packard
E-sourcing – A new buzzword for what was always the aim of upstream (or downstream if you were a supplier) supply chain collaboration with a bit of bidding/auctions thrown in. But think about this for a minute, what might the unintended consequence of this mode of supplier collaboration be? As users of this mode of procurement adopt this technology, all that it involves is poring over competitive bids of the “widget” being delivered – wouldn’t a computer be able to do this as well, faster and more efficiently if there are a number of competing “widget” characteristics. A supplier relationship might be transformed from a people based process to a people-computer process.
Procurement risk management – This is one of the innovations (incidentally, also won an award ) that makes working in supply chain management exciting. As the article elaborates:
The software helps HP tackle uncertainty in demand, supply, price, and material costs. It quantifies the risk and the likelihood of certain changes and allows the company to manage risk over a longer time horizon.
There is no one reason why I wanted to set up this blog. Actually, there are several reasons. I made the jump from R&D into Supply Chain Management about 4 years ago. I’d like to think that blogging is one way to expand my thinking on Supply Chain Management.
So here it is!!
