Gaining Competitive Advantage through Operations and Supply Chain Management
Published in Operations & IT Articles category by MBA Skool Team, Published on November 12, 2015
Competitive Advantage is all about how your organization is being different from your competitor. Firms these days, whether small or large, new age companies like Amazon, Ola or age old Firms like the Tatas, the Godrejs or Maruti, they all want to gain competitive advantage. Firms can gain competitive advantage through many ways, be it Cost leadership, catering to niche markets. With the advent of Digital age, even digital technology has been used in almost every field to harness its power to gain advantage.
Operations and Supply Chain both play important parts in any organization. Firms stand at a very crucial stage, today. For one, they need to make themselves respond quickly to the change in the needs of customers. Moreover they also need to adapt to new product and process development and new technologies.
This essay focuses on how Firms can use Operations Management and Supply Chain Management to gain competitive advantage. The ways in which competitive advantage in operations management can be achieved are explained with special focus on game-changing trends in operations and supply chain management.
Cost reductions can be achieved by eliminating waste. Various techniques have been used by Firms to reduce or eliminate waste. The concept of Lean Management has been built on completely eliminating waste. Lean has described waste as any non-value added activity in the process. 5S Management System is another way to reduce or eliminate waste. It focuses on identifying, eliminating and preventing waste.
Lean manufacturing also emphasizes on Just in Time. By getting material just before their use in production or consumption helps reduce cost by not having to store it. An example here can be given of Hero’s factory in Gurgaon, where outsourced material are received just a couple of hours before they are being consumed in production.
Removing variability is another area where Lean Management focuses on. The more there is variability in the system, more there is waste. Removing variability allows managers to move material on schedule which in turns add value at each step of the production process. JIT technique is used to reduce variability.
“Inventory hides problems, they are then hard to find”
Better scheduling helps drive down inventory in the process. Level scheduling and Kanban are paramount to help reach JIT goals. Level scheduling requires producing in smaller lots frequently rather than in a few larger batches. Kanban is basically a signal that moves production parts via a ‘pull’. For example, Kanban has been used extensively in Harley Davidson’s plant to reduce inventory.
In simple words, reliability can be defined as producing or providing consistent quality of products or services over a period of time. In every field of management, Quality has implications on a company’s reputation. Quality kept not in check results in huge losses by recalling products. In service organization, loss may be in terms of loss of customer share or loss of customer loyalty.
Apart from Quality, an organization can become reliable which can forecast very well. The chief of Disney’s theme park daily receives only 2 numbers, one is the forecast of yesterday’s attendance at the park and the second is actual attendance. The forecasting team does a whole lot of work. The team also provides daily, weekly, monthly and annual estimations and based on these numbers they plan their activities, labour requirement etc.
Distribution channels also play a very important role in making an organization reliable. A happy distributor apart from selling their products also helps in identifying which products are being sold at a greater pace, which products have low demand etc.
For any organization, there are always some customers, especially in B2B area, who give order on the last minute, and these customers are too important to decline. Also the major chunk of profit for any organization comes from such customers. So, it becomes very important for any organization to be agile enough to accommodate these customers and change production schedule accordingly.
Short Throughput time
There is no denying in saying that with decrease in throughput time, cycle-time the production increases and the efficiency of the system increases. By employing all the above discussed techniques, any organization can reduce its throughput time and thus gain competitive advantage.
Supply chain trends in modern business environment-Giving Competitive Edge to firms
A game changer can be a process, a product or simply a strategy that completely changes the way something is done. What is a game changing trend in supply chain? Game changing trends are the trends that
• Have a very big impact on a firms economic profits and shareholder value
• Are difficult to implement to implement successfully
There is a massive shift in the way companies are approaching supply chain today from what they did few years back. This change in approach has set the game changing trends on track in the years to come. The following literature some of the game-changing trends in supply chain that can give a competitive edge to firms.
Customer Relationship Management-
The first trend talks about customer relationship management. Keeping all the customers satisfied and still improving the firm’s economic profits is a very tough job and that’s where prioritizing customers comes in to picture. Customer relationship management talks specifically about that. Customers are prioritized to maximize the firm’s revenues and profitability by targeting the available resources. According to the earlier approach, standardized services were provided to all the customers irrespective of how big or small the customer is. But the new approach manages each customer or customer segment as a unique service relationship. A supply chain based on close customer relationships has the greatest potential to generate unique solutions that combine elements of timeliness, availability and consistency to exactly match desired values at prices customers are willing to pay. The success of the tailored service relationships depends upon the firm’s managers’ understanding of their strengths in comparison to the differing needs and desires of each customer or customer segment. Once the specific needs of each customer or segment are understood, the customers or the segments must be prioritized based upon their strategic importance.
This approach has its own challenges as well. Marketing and sales Firms are normally reluctant to classify any paying customer as less important. The second challenge is a lack of implementation tools.
Collaborative Supply Chain
The second game changer is collaborative relationships with suppliers and customers. It is about developing win-win situations with suppliers and customers. These types of collaborations can help firms in the following ways
• Increase in in-stock fill rates
• Reduction in lead times
• Improvement in forecast accuracy
• Increase in inventory turnover
The facilitators to collaborative relationships are as follow
• Both parties should address the collaboration’s negative aspects
• To have a good collaboration both the parties should share the risks and rewards and to do that they must develop supporting organizational and inter-organizational structures
• Mutual trust has to be there for trust and mutual integration.
Transformational Agile Strategy-
Agility can be defined as a firm’s ability to quickly adjust tactics and operations within its supply chain to respond to changes, opportunities and threats in its environment. Very few firms today have a clear cut supply chain strategy, let alone transformational agile strategy. Firms must have a lucid strategy to achieve game changing supply chain. A transformational agile strategy may lead to
• Reduced Inventory levels
• High service levels
• Reduced costs
• Improvement in customer satisfaction
Most firms lack an agile transformational supply chain strategy. To develop an agile and transformational supply chain, firms must identify the total cost-to-serve as a framework based on multiple scenarios and not limited to historical solutions. For situations outside the norms of current business, business analytics and modelling skills must be developed. Finally, firms can use decision support and IT tools to identify trends if any, assess potential performance and manage new processes. The features of an agile supply chain are as follow-
• Alertness-Ability to quickly detect changes, opportunities and threat
• Accessibility-Ability to access relevant data
• Decisiveness-Ability to use the available information to make decision resolutely
• Swiftness-Ability to implement decisions quickly
• Flexibility-Ability to modify the tactics and operations to the extent needed.
In today’s scenario, when companies are looking to get the best out of the available resources, process integration is what they are looking for. Supply chain professionals, instead of asking for more resources, are looking for partnerships with companies where silos don’t exist.. Focussing on the next level of cross-functional integration will require companies to make a move from the traditional view-sales-marketing and supply chain integration-(design-plan-buy-make-move)-to the new and progressive view that integrates sales and marketing, supply chain, finance, regulatory and customer services. Such a move will depend upon certain factors the important ones of which are listed below
• Decision making should include cross-functional participation
• There has to be transparency, data visibility and information sharing between the parties
• Functional cost optimization has to give way to total cost or margin optimization
• The parties must be able to assess trade-offs holistically, respond to each value chain segment and manage profitability through the product and customer lifecycle.
Cross-functional integration is perhaps the most challenging task because of the following reasons
• Operating model- It’s quite a challenge to change the existing operating model. It may require significant changes in the structure and culture of the organization
• Metrics alignment-Firms normally have functionally oriented metrics and given the cross-functional nature of supply chain business processes these functionally oriented metrics can lead to conflicts between different functional areas.
• Supply chain strategy alignment-The supply chain strategy should be devised in such a way that it enables the corporate strategy but it seldom happens. Most of the times it is not aligned with the firm’s core competencies or strategy to compete
• Tools-The business tools for important processes don’t enable cross-functional integration and involvement.
Relative Value for customers-
There is a need of a new metrics/goal settings systems aligned with a transformational strategy to change the supply chain game. Today firms are moving from the supplier scorecards of the 80’s and the balance scorecards of the 90’s to the masses of data from multiple sources that are usefully organized in data warehouses to link outcomes with drivers and turn data into true insight. The right supply chain KPIs along with the right accountabilities to help the firm to deal effectively with trade-offs and proactively drive the right behaviours to support the supply chain strategy.
The metrics framework can be established using four key principles
• Creating the right cross-functional accountability- Shared accountability between the supply and demand sides of the organization for inventory, forecast accuracy and product availability
• Establishing a driver based metric framework-A framework needs to be established so that the individuals in the organization can clearly see how every sub-metric flows into shareholder value
• Setting appropriate goals-Too many companies use internal comparisons and feel good about achieving those. This may lead to complacency.
• Ensuring that the metrics can’t be easily gained
End-casting or Demand Management-
End-casting is a heightened focus on final consumer demand. Big data has led to the development of the concept of end-casting. With the ubiquity of scanners, data is now available for analysis and for developing insights into demand patterns not just from channel partners but also from end customers. Big data can be used to sense demand forecast and reduce forecasting errors by 40%. These are game changing norms in performance that can turn into considerable financial gains.
Virtual integration is the use of internet to replace physical components that a firm has with timely and useful information. Firms engaged in virtual integration own only their brand and their clients thus eliminating the need to produce, ship or handle any such products as they are now outsourced. Outsourcing to a third-party service provider should be done only if the firm has a well-defined strategy that optimizes the edge they provide.
Firms are moving towards virtual integration because of the problems faced in traditional approach of vertical integration. Some such relevant problems are listed below-
• Requirement of considerable capital investment
• Complex organizational structure
• Lack of available and dedicated workforce
Because of these problems and the benefits of virtual integration most firms are now slowly moving toward the latter. Some of the benefits of virtual integration are as follow
• Helps to overcome financial burden of capital
• Gives access to a larger pool of skilled labour and management
• Potential for reduced price and labour cost
• Increased knowledge
• Access to a large customer base
Information sharing and visibility-
Firms have started to find out links that connect the huge loads of information that is generated from multiple sources and are analysing the data using powerful hardware systems and business analysis expertise.
In the current scenario, management of information is one of the keys to supply chain excellence How can firms improve their information sharing ability is the question to be answered today. The above question can be answered by the ability and willingness to collaborate with partners and customers. Considering the volume, velocity and variety of data in today’s scenario, it’s easier said than done. Given that today’s supply chains require reliable access to timely and cross network data, high-quality information begins with a scalable integration platform which has the ability to connect all participants in the extended network. And this creates a need for one-to-many and many-to-many sharing of data and information. This approach enables all relevant participants to access a shared version of the truth in real time. This approach of information sharing also provides access to a variety of experts who work together with real time and accurate data throughout the network. The key issues that may be faced while adopting this approach of total information sharing can be
• Big Data and key insights
• Data Quality
• Breadth of the anticipated Supply Chain
Value Based Management-
Most of the firms have started realizing the fact that their supply chain can prove to be the most critical lever in increasing shareholder value. Supply chain of a firm drives shareholder’s value because it controls the heartbeat of the firm which is the fundamental flow of material and information from suppliers through the firm to its customers.
Generating economic profits is the prime goal of all the firms and economic profit drives shareholder’s value. Supply chain excellence can deliver the most upside to economic profit because its full potential has been underutilized which creates a gradient for improvement in the utilization of supply chain.
• Supply chain controls movement of inventory
• It controls 60-70% of the cost.
• It improves product availability and thus provides a foundation for revenue generation
This article has been authored by Abhinav Modi & Pinaki Mohanty from XIMB
Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.
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