Executive Briefings

Five Keys to Competitive Advantage

Many companies have risen to the top of their industry by creating and sustaining a single competitive advantage. In their book In Search of Excellence, authors Tom Peters and Robert H. Waterman Jr. described a number of companies that rode a specific core competency to industry leadership. While instructive, their work became even more revealing when, 10 years later, several of those companies had lost their competitive edge and were rapidly losing their market leadership.

The lesson to be gleaned from such books is that silver bullets either do not exist or have limited life spans. What does this have to do with the supply chain? Many companies such as Wal-Mart, Dell and Honda were able to distance themselves from their competition over several years or even decades by focusing on a specific strategic sourcing / supply chain competency. Unfortunately, in today's world, it is becoming more and more difficult to find, develop and sustain a significant competitive advantage based on specific competencies.

Today, a company's advantage may only last months. Two years of significant advantage based on a single competency is now a nearly unattainable goal. Today, sustaining competitive advantage is not about fanatical and single-minded implementation of a "killer app."  The key is a total commitment to continuous improvement coupled with the adoption of a dynamic strategy (based on a compelling vision for the company's future) that emphasizes assessment of and adaptation to the constant changes in the marketplace.  Here are five principles for how to do so:

1. Remember the Goal - Many strategic sourcing / supply chain organizations tend to get overwhelmed by the task at hand and lose sight of the bigger picture.  This is a more significant tendency in organizations where people tend to identify more with their function than with their company.  One of most common traits of successful supply chain professionals is the recognition that ultimately, while not as directly involved, they are as responsible for selling product as any member of the sales force. In other words, cost savings aren't sought to meet some functional objective but rather to improve the competitiveness and profitability of the end product. 

It seems simple, but aligning goals with the company's overall direction has always been critical to the success of a supply chain.  In the best circumstances, supply chains that have developed a competitive advantage actually work to create their company's vision and direction, not just respond to it.  Dell Computer, for example, established a clear advantage in the late 1990s by streamlining its strategic sourcing / supply chain processes and focusing on servicing a market segment through its distribution strengths.  The supply chain created a competitive advantage that became Dell's corporate identity.

2. Recognize the Complex, Manage the Simple - The buzz for many companies over the past few years has been about avoiding complexity.  Unfortunately, the supply chain is not cooperating and, despite anyone's best efforts, the exact opposite is occurring.  Global marketplaces, outsourcing of non-core activities, extended supply chains with multiple layers of suppliers, shorter lead-times / product life cycles, etc. combine to grow the complexity of the business environment at alarming rates.  The key, therefore, is to simplify and clarify processes wherever possible. The successful companies constantly work at reducing the complexity in how they work internally as the only possible counter to the growing complexity they experience externally. 

While this seems like a basic concept, many of the issues facing, for example, implementation of new ERP systems, are the result of either relying solely on the technology to remove complexity (without addressing process complexity) or becoming enamored with the capabilities of a system and actually adding non-essential elements to strategic sourcing / supply chain processes, i.e., Building a Rocket Ship to get to Cleveland.  At the end, redesigning supply chain processes and implementing technology should be about simplifying the way business is conducted, not about jumping on the newest technology bandwagon.  A reasoned approach that focuses on simplifying the complex should be carried throughout the supply chain.

3. Treat the Issue, Not the Symptom - The supply chain can be analogous to the human body.  The human body and the supply chain are highly complex and provide a wide range of metrics that can be used to assess their health. Doctors typically focus on a relatively small number of key metrics to guide their effort to find an appropriate course of action when a patient experiences ill health. The key to the efficiency and effectiveness of the doctor's intervention is the ability to interpret those initial metrics and to quickly find the right combination of additional tests to complete the overall picture. Then, of course, the doctor has to draw accurate conclusions and predict the impact of various treatment options.

The same process should be used with the supply chain.  A small set of key metrics should be monitored on an ongoing basis to confirm the health of the supply chain.  If the key metrics reveal an overt symptom of something gone awry, the supply chain professional needs to analyze the key metrics, gather additional data, and craft a response that gets at the underlying issues.  If, for example, a key metric reveals an increase in missed shipments from suppliers, the fix is not to expedite product but to determine why there has been an increase (receiving issues, freight issues, vendor performance, etc).  While this seems obvious, many companies do not include root-cause analysis as part of their operations and, consequently, frequently treat symptoms rather than causes.

4. Focus on Cost Drivers and Business Impacts - It should not be surprising that understanding what makes up the costs of your supply chain is critical to obtaining value from strategic sourcing / supply chain activities. Creating a sustainable competitive advantage requires more than that. Costs are symptoms; cost drivers are the cause. As we saw above, creating a sustainable competitive advantage requires that your focus on causes, not symptoms. Across the entire supply chain, your sourcing and supply chain professionals have to know more than just the cost difference between two possible solutions to a specific problem. They have to be able to answer the question, "Why is there a difference?" and do so in depth.

In addition, strategic sourcing and supply chain metrics have to be tied in some fashion to economic/financial results. That is why most world-class strategic sourcing / supply organizations either employ financial analysts or work in concert with finance people to conduct regular financial reviews of their operations.  Doing so makes it possible to become more accurate in predicting and more confident in describing the financial impact of strategic sourcing / supply chain decisions. The ability to link a supplier's cost driver with a business impact that affects your company's bottom line is a critical competency for professionals in this arena.

5. Don't Waste an At-Bat - If an idea is worth pursuing, it is worth pursuing to its full and natural conclusion. Opportunities to make a sustainable competitive impact are all too frequently missed because strategic sourcing / supply chain personnel "drove one off the fence" and merely trotted down to first base, content that they had gotten a hit. To make a significant impact on the business, strategic sourcing and supply chain professionals need to understand that, over the course of a season, the difference between "hall of fame" and "journeyman" hitters is largely that the hall-of-famer is driven to excel on every swing. The utility players frequently take an at-bat off to "celebrate" their last extra base hit.

In the strategic sourcing / supply chain world, all too often an RFP is simply sent to a handful of known suppliers because it is the easy answer. Some savings result and little thought is given to the potential for achieving a much greater impact if someone has taken the time to research all potential suppliers for that good or service. Decisions are far too often based on price rather than understanding what is the true value impact to a company because fewer internal feathers are ruffled by that approach. Regardless of the reason, when strategic sourcing / supply chain professionals take half-hearted swings, they are wasting the future of their company as well as settling for less than the best for them and their suppliers. If strategic sourcing / supply chain professionals are going to make a sustainable, competitive difference, they have to swing for the fences every time, whether in their dealing with suppliers or in their interactions with their internal stakeholders.

At the end of the day, the hardest part of achieving a competitive advantage is sustaining it.  There is always a new financial vehicle, software package, logistics platform, manufacturing expertise, and product enhancement emerging somewhere in the world.  The key is to build an atmosphere of constant improvement and not present competitive advantage as a one-time revolution but rather as a continuing evolution.  This means the strategic sourcing / supply chain team must keep up to date on emerging strategies and technologies and critically evaluate how any ideas can help create or sustain an advantage in the marketplace for their specific company.  Management must take the time to invest in training, internal and external, to help generate ideas, must take time to insert themselves in the process, and must ensure cross-functional participation so that major issues / opportunities aren't missed.  It takes discipline and patience but once the ball starts rolling, the benefits will accelerate the transformation. Success breeds success and, in this realm, will drive a company to create, renew and maintain its competitive advantage.

Source: Mpower Group

Many companies have risen to the top of their industry by creating and sustaining a single competitive advantage. In their book In Search of Excellence, authors Tom Peters and Robert H. Waterman Jr. described a number of companies that rode a specific core competency to industry leadership. While instructive, their work became even more revealing when, 10 years later, several of those companies had lost their competitive edge and were rapidly losing their market leadership.

The lesson to be gleaned from such books is that silver bullets either do not exist or have limited life spans. What does this have to do with the supply chain? Many companies such as Wal-Mart, Dell and Honda were able to distance themselves from their competition over several years or even decades by focusing on a specific strategic sourcing / supply chain competency. Unfortunately, in today's world, it is becoming more and more difficult to find, develop and sustain a significant competitive advantage based on specific competencies.

Today, a company's advantage may only last months. Two years of significant advantage based on a single competency is now a nearly unattainable goal. Today, sustaining competitive advantage is not about fanatical and single-minded implementation of a "killer app."  The key is a total commitment to continuous improvement coupled with the adoption of a dynamic strategy (based on a compelling vision for the company's future) that emphasizes assessment of and adaptation to the constant changes in the marketplace.  Here are five principles for how to do so:

1. Remember the Goal - Many strategic sourcing / supply chain organizations tend to get overwhelmed by the task at hand and lose sight of the bigger picture.  This is a more significant tendency in organizations where people tend to identify more with their function than with their company.  One of most common traits of successful supply chain professionals is the recognition that ultimately, while not as directly involved, they are as responsible for selling product as any member of the sales force. In other words, cost savings aren't sought to meet some functional objective but rather to improve the competitiveness and profitability of the end product. 

It seems simple, but aligning goals with the company's overall direction has always been critical to the success of a supply chain.  In the best circumstances, supply chains that have developed a competitive advantage actually work to create their company's vision and direction, not just respond to it.  Dell Computer, for example, established a clear advantage in the late 1990s by streamlining its strategic sourcing / supply chain processes and focusing on servicing a market segment through its distribution strengths.  The supply chain created a competitive advantage that became Dell's corporate identity.

2. Recognize the Complex, Manage the Simple - The buzz for many companies over the past few years has been about avoiding complexity.  Unfortunately, the supply chain is not cooperating and, despite anyone's best efforts, the exact opposite is occurring.  Global marketplaces, outsourcing of non-core activities, extended supply chains with multiple layers of suppliers, shorter lead-times / product life cycles, etc. combine to grow the complexity of the business environment at alarming rates.  The key, therefore, is to simplify and clarify processes wherever possible. The successful companies constantly work at reducing the complexity in how they work internally as the only possible counter to the growing complexity they experience externally. 

While this seems like a basic concept, many of the issues facing, for example, implementation of new ERP systems, are the result of either relying solely on the technology to remove complexity (without addressing process complexity) or becoming enamored with the capabilities of a system and actually adding non-essential elements to strategic sourcing / supply chain processes, i.e., Building a Rocket Ship to get to Cleveland.  At the end, redesigning supply chain processes and implementing technology should be about simplifying the way business is conducted, not about jumping on the newest technology bandwagon.  A reasoned approach that focuses on simplifying the complex should be carried throughout the supply chain.

3. Treat the Issue, Not the Symptom - The supply chain can be analogous to the human body.  The human body and the supply chain are highly complex and provide a wide range of metrics that can be used to assess their health. Doctors typically focus on a relatively small number of key metrics to guide their effort to find an appropriate course of action when a patient experiences ill health. The key to the efficiency and effectiveness of the doctor's intervention is the ability to interpret those initial metrics and to quickly find the right combination of additional tests to complete the overall picture. Then, of course, the doctor has to draw accurate conclusions and predict the impact of various treatment options.

The same process should be used with the supply chain.  A small set of key metrics should be monitored on an ongoing basis to confirm the health of the supply chain.  If the key metrics reveal an overt symptom of something gone awry, the supply chain professional needs to analyze the key metrics, gather additional data, and craft a response that gets at the underlying issues.  If, for example, a key metric reveals an increase in missed shipments from suppliers, the fix is not to expedite product but to determine why there has been an increase (receiving issues, freight issues, vendor performance, etc).  While this seems obvious, many companies do not include root-cause analysis as part of their operations and, consequently, frequently treat symptoms rather than causes.

4. Focus on Cost Drivers and Business Impacts - It should not be surprising that understanding what makes up the costs of your supply chain is critical to obtaining value from strategic sourcing / supply chain activities. Creating a sustainable competitive advantage requires more than that. Costs are symptoms; cost drivers are the cause. As we saw above, creating a sustainable competitive advantage requires that your focus on causes, not symptoms. Across the entire supply chain, your sourcing and supply chain professionals have to know more than just the cost difference between two possible solutions to a specific problem. They have to be able to answer the question, "Why is there a difference?" and do so in depth.

In addition, strategic sourcing and supply chain metrics have to be tied in some fashion to economic/financial results. That is why most world-class strategic sourcing / supply organizations either employ financial analysts or work in concert with finance people to conduct regular financial reviews of their operations.  Doing so makes it possible to become more accurate in predicting and more confident in describing the financial impact of strategic sourcing / supply chain decisions. The ability to link a supplier's cost driver with a business impact that affects your company's bottom line is a critical competency for professionals in this arena.

5. Don't Waste an At-Bat - If an idea is worth pursuing, it is worth pursuing to its full and natural conclusion. Opportunities to make a sustainable competitive impact are all too frequently missed because strategic sourcing / supply chain personnel "drove one off the fence" and merely trotted down to first base, content that they had gotten a hit. To make a significant impact on the business, strategic sourcing and supply chain professionals need to understand that, over the course of a season, the difference between "hall of fame" and "journeyman" hitters is largely that the hall-of-famer is driven to excel on every swing. The utility players frequently take an at-bat off to "celebrate" their last extra base hit.

In the strategic sourcing / supply chain world, all too often an RFP is simply sent to a handful of known suppliers because it is the easy answer. Some savings result and little thought is given to the potential for achieving a much greater impact if someone has taken the time to research all potential suppliers for that good or service. Decisions are far too often based on price rather than understanding what is the true value impact to a company because fewer internal feathers are ruffled by that approach. Regardless of the reason, when strategic sourcing / supply chain professionals take half-hearted swings, they are wasting the future of their company as well as settling for less than the best for them and their suppliers. If strategic sourcing / supply chain professionals are going to make a sustainable, competitive difference, they have to swing for the fences every time, whether in their dealing with suppliers or in their interactions with their internal stakeholders.

At the end of the day, the hardest part of achieving a competitive advantage is sustaining it.  There is always a new financial vehicle, software package, logistics platform, manufacturing expertise, and product enhancement emerging somewhere in the world.  The key is to build an atmosphere of constant improvement and not present competitive advantage as a one-time revolution but rather as a continuing evolution.  This means the strategic sourcing / supply chain team must keep up to date on emerging strategies and technologies and critically evaluate how any ideas can help create or sustain an advantage in the marketplace for their specific company.  Management must take the time to invest in training, internal and external, to help generate ideas, must take time to insert themselves in the process, and must ensure cross-functional participation so that major issues / opportunities aren't missed.  It takes discipline and patience but once the ball starts rolling, the benefits will accelerate the transformation. Success breeds success and, in this realm, will drive a company to create, renew and maintain its competitive advantage.

Source: Mpower Group