General

The growth and success of regional economic groupings like the European Union (EU), the North American Free Trade Agreement (NAFTA) and the Association of South East Asian Nations (ASEAN) as the competing economies of the present day world in replacement of nation states underscores the reality of interdependence among national economies. Economics and not politics are in the driver’s seat in the inexorable march of political economies of the world towards partnerships transcending national boundaries.

At the functional levels, the corporate world has now discovered the power of teamwork. Restructuring of organisations and businesses from the shop floor to the boardrooms on team basis, dismantling traditional intra organisational boundaries reflects this transition from the individual to the collective and complimentary efforts in enterprises as a route to growth and development in the competitive environment of today.

Under the pressure of these fundamental changes, presence of independent business as competitive units, however large and vertically integrated appears anachronistic in a globalised economy. Business have now come to realise the value of co-operation and partnership and accept the centrality of the supply function in their performance. As a consequence, they will, sooner than later, have to coalesce into supply chains to serve the customers in a world characterised by fierce competition. The battle of the “giants” will, for sure, yield place to battle of the “joints”.

This being the trend of developments, need for studying the strategies for successfully forging and positioning such supply chains and then fielding them as integrated wholes, becomes self-evident.

Fundamental need

Supply chains are nothing if not alliances for mutual benefit of all constituents and like all alliances, their effectiveness is predicated upon mutual trust and visibility. Every downstream link in the chain is the customer of its immediate upstream neighbour and unless they abjure adversarial commercial relationship from link to link, no chain can endure. The mutually hostile attitudes must give way to a climate of confidence born out of shared information, complimentarily of skills, experience and knowledge base applied synergistically in pursuit of customer service to provide a solid foundation for supply chains to grow and succeed.

Trust unfortunately is seldom built through legal provisions so characteristic of the traditional contractual agreements. Trust is underpinned by implicit faith and shared moral as well as ethical codes besides genuine belief in collective good through collective effort. In any case, conflict resolution through legal remedies becomes unworkable in an international environment. Trust is the bedrock of all supply chain management and thus the fundamental need for companies considering this strategy. Those who cannot be team players must not consider supply chain route. No strategy will be of any avail, if trust among constituents does not exist.

Forging of supply chains

That businesses are, in the ultimate analysis, a stylized form of warfare, is clear from the universal acceptance of the Sun Tzu’s classic work “The Art of Warfare” as essential reading in management schools the world over. His edict “If you do not seek out helpers and allies, then you will be isolated and weak” might well have been a prescription for modem business to form strategic alliances and develop powerful supply chains for survival. Lessons from combat have a direct application in the business world and the experience of war must be drawn upon to forge winning alliances and balanced array of forces that are knit together through a unity of purpose and operate as a homogenous whole in pursuit of clear goals. The exercise of forging supply chains should therefore begin with an identification of the core competencies of the individual constituents, which are to form the backbone of the alliance; the principal purpose of the exercise being to so array those competencies that the cumulative result is a pre-eminent market presence. When prudence in procurement, excellence in manufacturing practices utilising frontier technologies, combine with effectiveness in distribution and fulfillment functions handled by people committed to delight the customer, the result cannot but be enhanced market share and growth of all partners.

As a corollary to the identification and arraying of core competencies is the determination of those functions and activities which the constituents perform sub-optimally in comparison with others both within the chain and outside and to carefully weed out or reallocate the same where the application of resources will be most profitable. This is a simple exercise in substitution, enhancing in the process, the overall performance to the point where it peaks. Benchmarking supply chain costs, link by link, element by element and activity by activity from the raw material procurement to the price finally paid by the ultimate customer against the industry best should help not only in re-allocation and refinement of functional responsibilities but also in indicating the standards to be achieved by those entrusted with the relevant functions within the developing, learning and continually fine-tuning supply chain.

At the systems level, potential effectiveness and profitability of a given supply chain can be assessed through a form of systems cost analysis where both the individual cost elements and overall costs are compared with the competitors as well as the industry leaders. The main elements would normally include the material procurement costs, manufacturing set up costs “on materials” by way of inventories carried, materials handling, packaging and unitisation as well as internal movement and external transportation, not to mention the administrative and associated overhead costs. The entire exercise must be aimed at identifying the sources of avoidable costs that need to be reduced if not eliminated altogether. Excessive material and component costs, wastages of all types, duplication of effort, redundancies, defects, re-work, large inventories and inefficient production processes with old and antiquated equipment as well as high marketing and distribution costs, high wage rates coupled with low productivity bear careful examination. Such costs need to be addressed as a supply chain strategy and cannot remain the concern of the individual constitute in whose domain these costs reside. This is where information sharing and co-operative efforts will have to be at their best for the overall health of the supply chain.

Once such costs have been addressed and reduced to the minimum possible levels consistent with the level and quality of service, which the supply chain has chosen to collectively provide, it is then necessary for it to identify its competitive advantages as a chain as apposed to competitive advantages as individual units. Naturally such advantages have to be seen in the light of those of the competing chains. It is in the exploitation of those advantages and safeguarding against identified disadvantages that the secret of success are to be found.

Positioning the supply chains

Positioning of the supply chain, in essence involves consideration of the following issues:-

Geographical positioning : Strategy and costs are inter-related. No amount of operational or tactical efficiency can make up for the cost ineffective strategies. If the production units and the warehousing facilities are so located in relation to the sources of raw material and the markets for finished products as to involve excessive transit times over tortuous routes and high transportation costs, it is unlikely that the emerging supply chain will ever be able to gain any significant competitive advantage in the market. In choosing supply chain partners, the locations from where they participate, would be a matter for very careful consideration.

Allocation of production responsibilities : In multi-location production units, with or without inter unit input/output linkages, the allocation of production responsibilities among units becomes a matter for strategic choice. The product mix of different units has to be so determined as to both maximise use of production capacities and minimise logistic costs involved in attendant inter unit moves as well as distribution and order fulfillments costs. Also relevant in this connection are the decisions relating to product customisation in relation to market demands and prescribing the plants as well as stages at which such customisation may take place so as to retain a high degree of flexibility in resource utilisation.

Inventory levels : Inventories have long been recognised as sources of avoidable costs but their optimisation has somehow been left to the operational and tactical levels; believing that the new found techniques applied tactically will discover both the causes and the remedies to generate competitive advantage. This is simplistic view of a very complex problem and indicates a tendency to push down responsibility. Inventory related decisions are as much strategic as geographical positioning and production responsibilities determination and errors at the level can irreversibly add major costs to the entire supply chain operations. With inventory carrying cost exceeding 20% in most cases, it is for the boardrooms to decide whether they wish to operate in high or low inventory environments. Present research suggests that a low inventory environment is more conducive to the health of the supply chain and must be chosen a matter of strategic policy.

Modes of transportation : There exists a direct relationship between the inventory levels at various locations and the modes of transportation chosen to connect the supply chain end to end. Slower transportation modes involve large stocks at each location in comparison with faster modes, which can replenish more speedily. It becomes a matter of strategic decision making to choose inter location modes that best meet the cost effectiveness criteria consistent with the service and assurance levels desired at each location.

Fielding supply chains

In order to best utilise its strengths, every supply chain must at the very outset, carefully formulate and continually review its value proposition to reflect its understanding of the changing customer needs, the competitive environment and its own operating systems and costs in order both to serve and survive as a collective endeavour. It is prudent for the supply chains to segment the customers based on the service levels demanded and tailor their service to meet those expectations thereby optimising total operating costs.

Best of structures and organisation need imaginative operational plans to fully develop their potential and apply it in pursuit of organisational goals. Perceptive military commanders know the strengths and weaknesses of their forces in relation of those of the enemy and then proceed to so maneuver them into positions of advantage as to strike the enemy when and where he is the weakest. Supply chains must similarly get the maximum value out of the their areas of excellence while carefully avoiding exposing their weaknesses. “In the wise leader’s plans, considerations of advantage and of disadvantage will be blended together. If our expectations of advantage be tempered in this way, we may succeed an accomplishing the essential parts of our schemes. “. If, on the other hand, in the midst of difficulties we are always ready to realise on advantage, we may extricate ourselves from misfortune “ preached Sun Tzu when it came to the tactical handling of troops.

In a dynamic market situation, tactics have to be continually adapted to the advantage of the supply chain always using its inherent strength born out of the collective core competencies of the constituents. It is at the cutting edge, where the supply chain faces the ultimate customer that all the performance is to be measured and that will be positive only if the value promises are fulfilled or exceeded. Equally, it is necessary to measure performance not only of the individual links but also of the chain as a whole on systems basis. Customer feedback must be assiduously sought and valued in order to continually improve overall performance.

Conclusion

The logic of supply chain formation being irrefutable, competitive advantage will go to those alliances, which put together the best possible combination of core competencies followed by scientifically determined positioning of resources and artful handling of the synergy resulting from their collective effort. They must also never ever forget that their survival will depend upon the faith and trust which they develop not only among themselves but also in their relationship with their customers, earning in their process long-term customer loyalty; a goal to be cherished both for building an image and for the more practical reasons of cost benefits that accrue from serving customers who trust the chain.