Business organizations will always seek a competitive edge over others. A competitive edge is critical because business organizations operate to make profits. Profit maximization entails providing value for customers who, in return, reward the organization with loyalty and increased purchases. Initially, competition was based on many things over which the organization had direct control. As competition increased or becomes stiff, new competition frontiers emerge. One such new competition frontier is the supply chain.
Supply chain is a process that entails organizing people, resources, and technology to facilitate the movement of goods or services from the producer to the customer, who is the end-user through the supply chain, goods, and services exchange hands to the final end-user. The supply chain actors, in their individual capacity, add more value to the product or services being offered. The product transformation process starts before even the deliverance of raw materials to the producer and continues until the finished products reach the end-user.
For example, there are two important retailers of photocopying paper in the UK i.e., UKofficedirect, which directly competes with Euroffice. These two companies source their products from a number of competing companies. The competing manufacturers of copying paper include E4, the famous HP, and of course, Canon. These five companies operate in the same supply chain. The mentioned companies are competitors, although they operate in the same supply chain. E4 is best placed to succeed if it adds value to its products. However, it can as well gain a competitive advantage if it is going to have a way of influencing the competing retailers. Consequently, there is high competition, and it is only by coming up with supply chain specific strategies that the companies can gain a competitive advantage.
One of the greatest reasons why the rivalry between companies has turned to the supply chain is that the supply chain adds value or actually transforms. Currently, product distribution is carried out as a different entity from the other set of businesses. Most supply chain actors are self-established businesses, which involve planning and managing all activities involved in sourcing and procurement as well as transporting goods and services from the supplier to the end-user. Product distribution is lucrative business where individual organizations easily curve a niche for themselves.
One of the commonly used supply chain strategy is long-term relationships with fewer suppliers who are of reputable nature and who truly understand the objective of the organization. By making use of this strategy, a company can develop trust on such supplier, and be confident that their supplies will be available at the right amount, place and time while required. Similarly, organization can still opt for vertical integration where they make use of the ability to produce what was previously purchased or simply buy the supplier or distributor. In this case, an organization will benefit from reduced cost of operation as what was being previously expensively purchased can now be produced at a cheaper price.
Considering the example already mentioned i.e. the copy paper supply chain in the UK, strategic partnerships can work very well for the companies. For example, to outwit competition in the supply chain, HP could form a strategic partnership with Euroffice. By doing so, it will be assured of a distribution channel that is stable and one that it can influence directly. This will unquestionably argument the company’s revenue. Joint venture is yet another supply chain strategy that can give the organization some strategic advantage. Through joint venture, an organization can boost chances of challenging its competitors. A joint venture can strengthen an organization on many spheres. In most cases, a joint venture will be effective when the unified businesses are operating on the same measure or trading on similar products. However, joint ventures come with their own challenges that an organization has to overcome.
Another supply chain strategy that an organization can put into use is the lean manufacturing strategy. Lean manufacturing entails a company using few resources and yet coming up with goods and services that satisfy the customers. In this strategy, the organization can immensely benefit from reduced cost of production, which will definitely offer the organization a strategic advantage over its competitors. Similarly, the supply chain Strategy will provide a more efficient operation compared to its competitors. This means that the organization’s operations will adhere with the set time and resources and hence reduce financial and time waste.
Lean Strategy will as well help in avoiding wastage that ensue from using reduced amount of resources while at the same time being able to produce goods and services that are pleasurable to the customers. By using lean manufacturing strategy, a company is able to benefit more than another company using other manufacturing strategy such as total quality manufacturing or Just in Time manufacturing strategy. Compared to this other two strategies, lean strategy is the most effective and definitely make use of the least resources while producing the best or customer appealing products.
Agile supply chain strategy on the other hand is a strategy that helps gives excellent customer services by responding quickly to the changing conditions. Such changing conditions may include mass customization, where many customers may wish make orders on specific setting of goods and services they need. Such strategies can auger well with companies involved with production or purchasing from suppliers of goods that are bound to experience sudden changing conditions such as unexpected change in demand.
The positive attributes connected to the supply chain are some of the reasons why competition today is no longer between companies. The above stated supply chain strategies including joint venture, vertical integration, agile and lean strategies are some of the strategies that can offer an organization some strategic advantages to challenge its competitors.
Strategic Reasons Why a Firm May Consider “Green” Supply Chain Strategies
A green supply strategy is an approach that a company may deploy in the course of its operations. In this strategy, the company is more focused on minimizing the environmental degradation, through reducing the amount of carbon emissions into the atmosphere. In the course of distributing products from the supplies to the end user, the organization may increase carbon emissions into the atmosphere.
Analyzing some of the reasons for turning Green
Lower the amount of environmental pollution
Environmental pollution is one issue that has troubled many people around the world. A supply firm contributes to environmental pollution through carbon emissions by transportation vehicles into the atmosphere. By going green, the firms will be looking for ways and means of reducing the environmental pollution. This can be achieved for example through encouraging efficiency, which will help mitigate emissions, reduce the cost of transport, energy consumption and reduction in waste. The other reason that can make a firm opt for ‘green’ supply strategies is to comply with the government obligations to go green.
Going green delivers a real competitive advantage where customers or consumers are environmentally conscious. To reap best from this strategy, an organization is best placed if it comes out above the competitors as “green”. The firm will have a smooth ride afterward while the rest of the competitors will be busy struggling to comply with the regulations. Because almost all companies and firms are turning green, the customer base of a company is likely to increase due to its decision to turn green. The choices of the organization may entice the customers to change their attitude and turn green.
By going green, the organization will be trying to reduce the cost of operation. This cost ensues from the fact that the government has established compulsory taxation on environmental pollution. Pollution related tax will add to the cost of performing the business, and finally it will mean reduced earnings out of extra cost incurred.
Differentiation from competitors is yet another strategic reason why a company may tempt to go green. Considering that going green requires re-engineering processes, it will thus be largely differentiated from the rest of the companies that have not re-engineered their processes. Product and processes differentiation will help towards building the brands in an organization or the brand that the organization is.
Most organizations have found access to given markets only after observing given environmental measures. As of now, environmental conservation is of concern worldwide. Consequently, consumer groups have come up with measures or demands that have to be met by suppliers. Any organization, which has opted for the green supply strategy finds the support of such consumer groups. Through support of such consumer groups, the organization derives a lot of benefit, starting from increased customer base to improving the brand name.
General electric has for sometime been in the bad books of many customers in America due to an incidence where it was linked with pollution of the Hudson River. However, since 2006, the company took to going green as a strategy. This strategy was critical as a way of pulling away from the negative image of “polluter” that it had earned. Consequently, it has been investing heavily in eco-friendly tools and equipment. This strategy has worked for it. People no longer associate it with environmental degradation but rather with environmental conservation. As customers come to it for eco-friendly products, its revenues increase. This is a clear example that going green in manufacturing or in the supply chain makes a difference.
Total Quality Management
Total Quality management refers to a customer-focused approach, which aims at delivering quality for the customers’ money. The approach aims at providing the best quality products at the lowest cost possible. The approach similarly aims at preventing defects and the objective is to have zero defects. In order to have no defect, high quality management usually emphasizes efficiency, which means that the inputs used to produce these products are used effectively and efficiently. During the production process, quality is the key concern and the process is analyzed at every level to detect for any defect. Incase there is no defect, the production process is continued and finally a defect less product is manufactured.
Similarly, total quality entails the management of quality from the supplies to the production process. Concern is on how the suppliers produce the raw material and how they deliver the materials. If the suppliers can deliver raw materials that are free of defects, the quality of product is assured. Quality supplying incorporates the just in time principles. JIT is supply approach that aims at reduction of loss caused by storage related costs and wastage. Just in Time production ensures raw materials are delivered and used in good time. Often, JIT approaches are combined with lean manufacturing strategies. Lean manufacturing is a manufacturing approach, which also helps towards minimizing wastage of resources. For lean production to succeed, quality processes are instituted to assure effectiveness and efficiency in production.
When applying both JIT and lean, focus is on production of goods of high quality. Definitely, the quality of goods produced by a company determines the competitive advantage a company will have over its competitors. The high quality products generate more and better revenue than the competitors and thus the organization in stake will enjoy high profit. Correspondingly, the high quality products will attract more customers in the company. In this perspective, the customer base of the manufacturing company will receive a big boost, which may result to be very consequential in the future. The other benefit that might accrue from production of high quality products is that these products acts like a benchmark, where the quality of the products can not be lowered than the one already with the products.
The word quality often denotes different things. However, in common usage, high quality products denote either excellent products or products that satisfy customer interests or desires. A product is excellent, if the product is without any defect and thus completely satisfies the customer’s interest. On the other hand, when quality is considered in terms of the extent to which a product or service achieves customers satisfaction; it is a relative measure of quality.
It has to be considered that one product may have the features that satisfy the interests of one customer while not satisfying another. The relativity of quality, based on customer satisfaction, results from the fact that the customer, himself or herself, gives parameters that frame the quality of a product. Relative quality makes it tricky when manufacturing products because the organization has to meet the diverse interests of different customers. However, in often cases, excellent products will satisfy all customers of a company.
All said and done, adopting total quality management as a strategy pays dividends. For some time now, it is widely believed that US manufacturers fair poorly against Japanese manufactures. The main reason for poor performance of US manufacturers is relative inefficiency when compared to Japanese counterparts. The relative efficiency in Japanese firms is associated with adoption of total quality management tools and practices such as KAIZEN.
In the UK, one of the companies whose success is largely associated with implementation of TQM and its related tools is Ford Motors. Through practices like quality assurance as opposed to quality inspection, just in time production etc, Ford has re-invented itself in many ways as to remain relevant in the industry.
An organization of reputable magnitude usually runs many activities or operations that require expert personnel to handle. Among the many activities that have to be handled strategically in such organizations is procurement. Procurement refers to the process of buying goods ands services from the supplier. Manufacturing organizations such as sugar manufacturers procure raw materials from suppliers to produce goods. Distributors on the other hand, procure their products of trade from suppliers or producers to deliver to the end user.
Strategic procurement is an approach of purchasing goods and services with an intention of helping the company to do better than its competitors. Strategic procurement involves long term planning and using of definite strategies to contribute to the strategic goals of the organization. In often cases, strategic procurement involves instating long-term measures such as formation of a partnership with the supplier.
The partnerships contracts are usually long-term and they are not just about the buying of products or services but also about product design and the supplier capacity. The supplier capacity refers to the capability of the supplier to provide the required supplies at the right time and place. Such partnership and capacity building becomes vital especially in cases where a supplier may be dealing with multinational organizations that trade across many boundaries. Such multinationals often require huge supplies and thus need to work closely with supplier to ensure sustainable supply.
To illustrate the importance of strategic procurement, Siemens recently entered a strategic procurement contract with Saudi Aramco. Siemens produces equipment required by Saudi Aramco in its Oil business. Such a long-term contract or partnership assures Saudi Aramco of quality and timely delivery of tools and equipments in requires. On the other hand, Siemens gains by having a guaranteed outlet for its products. With a binding agreement or contract in place, the two companies are obligated towards each other. Consequently, the contract cushions the two companies against flux that leads to change of alliances in the supply chain.
Strategic sourcing on the other hand is a process of identifying and choosing a supplier that is informed by proper analysis of supply markets. Such analysis helps towards understanding the assortment of suppliers and the analysis helps towards making sourcing solutions that bring value for organizational money. Strategic sourcing requires proper understanding of the strategic objectives of the organization. Therefore, with the pre-determined goals in mind, the procurement officers make decisions that advance them. Strategic sourcing activities of a transnational organization comprise of ways of establishing and working with a suitable supplier.
There are many reasons why an organization should identify and work with a suitable supplier. Among these reasons is the question of economies of scale. Economies of scale are realised when an organization sources for volumes that either lower costs in terms of transportation or maximise discounts. Economies of scale are improved because of sourcing with multinational organisations in a number of ways. For one, due to large-scale dealings such as getting supplies in bulk, the cost of supplying an individual unit of supply is reduced.
Strategic sourcing also consists in diversifying source of supplies. The company dealing with multiple suppliers is likely to benefit from increased competition among suppliers. In this case, the increased competition is likely to benefit the company from reduced cost as each supplier tries to outdo the other. Correspondingly, the involved multinational company is also likely to benefit from the uninterrupted supply of the required products.
Strategic procurement and strategic sourcing, as processes, are not in any way different from each other. While procurement deals with purchasing, what an organization requires and the rest of the activities, which will enable such products, reach the destination, sourcing, on the other hand, deals with looking for a good supplier and working with him. In the case of sourcing, an organization can work with a single supplier, multiple suppliers i.e., single sourcing or multiple sourcing.