COMPETING IN GLOBAL MARKET THROUGH SUPPLY CHAIN MANAGEMENT
- By Subhash Lovekar(The author is General Manager (Commercial Plant Management), MICO, Bangalore, Vice-President (South) and Co-Chairman, Board of Studies)
With the proposed entry of India into WTO, the barriers on the imports of goods are being liberalized in a phased manner. The world is now becoming a truly global market place. Net enabled trade and global trading opens ample cost reduction opportunities. It facilitates multinational companies to compete with the local manufacturers. Globalization thus generates serious threats to the industries, which were so far operating in protected atmosphere. The industries are facing three major challenges:
- increasingly competitive markets with new entrants providing superior products and services
- visible shift from seller to a buyer's market with increasing consumer emphasis on price and quality
- the necessity for an industry to succeed in globalised economy.
Competitiveness - Supply Chain Management Approach
How can Supply Chain Management contribute to improve the competitiveness of the company? It is essential for a manager to acquire the skill to perceive things through the eyes of the customers, so that the company can plan strategies to maximize customer service and product quality in order to exceed the expectations of the customers. In today's era, speed is the key word. The customers are becoming more and more demanding, as they are having more options. Companies are required to offer products and services to customers in such a way, that they retain the competitive edge over the competitors. Supply chains, if designed properly to meet these objectives, will add value to the customers. The focus, today is really shifting from competitors to their supply chains. Companies with the best supply chain will have certain strategic business advantage.
Supply Chain Management in Global Scenario
With the globalization of the business, the dimensions of business are changing rapidly. With the emergence of competition at global level, the customer is the one who is benefited the most. He has now options, as he can choose, what he would like to buy from various alternatives, and also he can dictate terms. In order to attract customers, companies are introducing products with innovative features. This leads to the products with lower life cycle. The ability of a company to introduce new models at short notice depends heavily on the ability of its suppliers to provide support by way of supply of components at the right time. For example, capacity of Telco to introduce new models at rapid speed depends on the ability of Tata Cummins to develop and supply the engines required for new applications in time. The system becomes extremely complex when the manufacturer of a product has to rely upon many suppliers for supply of key aggregates or components.
In order to meet international levels of pricing, the companies have to deploy innovative ways of achieving cost reduction. The business is to be restructured in such a way that companies can derive the advantage of volume so as to be able to produce the products at cost advantage. International companies today take benefit of their centralized facilities such as research and development, as well as designing, for manufacturing products at different centers in the world. Further, companies concentrate on their core strengths, and outsource all the activities, which can be purchased at cost advantage.
It is therefore not sufficient to build the system that facilitates monitoring of internal performance in the company, but the system should be flexible enough to ensure that key suppliers of the companies complete various tasks as per the schedule. Thus, the supply chain that helps you in extracting the performance from your suppliers can provide you with definitive competitive advantage.
Net led Business Revolution
Another major development, that is bringing the revolution in the business scenario, is the emergence of the net. Aggressive supply chain managers can convert Internet into major opportunity for not only achieving substantial cost reduction, but also to develop excellent transparency with their customers. Shopping on net provides the supply chain manager an access to sources anywhere in the world, and generates the opportunities to find low cost, high quality suppliers. Further, if the supply chain manager decides to avail net based auctioning to source his items, he may have to deal with a different supplier at each time for the same item.
Companies like General Motors and Ford have come together to develop portals, to support them in their purchasing activity. It is very clear that over a period, most of the competitors will end up in buying specialized items from the same source, leaving not much difference at input level.
How does one design the supply chain in such a fluid scenario? It is very clear that supply chain should be flexible and should offer many options, from which a manager can choose appropriate options each time. The ability of a company to design its supply chain, by either eliminating or minimizing the activities that add value to the customer, is an important factor in enhancing competitiveness of the company. The supply chain should be transformed into a value chain, i.e. supply chain should enable company to add more value to customers than its competitors.
A strong focus on material flow from vendor to end customer will lead to the identification of elements, which do not add sufficient value to the supply chain. Involvement of suppliers and customers in the process of optimisation of the Supply chain may give remarkable results. Improving competitiveness by decreasing lead-time is an excellent strategy during downturn, and this can be successfully employed by turning supplier relationship into strategic partnership. Companies can gain strategic advantage over their competitors, especially in the process of new product introduction, as the involvement of suppliers from R&D stage in product development process can lead to drastic reduction in lead-times. The ability of companies to introduce speedily, the changes in the product features, as per the customer desires, will definitely improve the level of customer satisfaction.
Lead-time management is a key word, especially during the slow down of the economy. Companies like Dell computers have used their ability of supplying products to their customers at the shortest notice to their advantage, either by way of neutralising their competitors or gaining precious market share at the cost of their competitors. Further, Dell could effectively use supply chain to improve its cash flow dramatically to make it financially strong.
Logistics: An Integral Part of Efficient Supply Chain
Logistics is a key area of activity that gets immense importance in connection with reduction of lead-time. Successful companies have reoriented their logistics function for increasing revenues and optimising the costs. A strong logistics focus enables the companies in implementing innovative ideas leading to the reduction of total cost of the product. The successful companies in this era, compete not on price per piece but on total cost of supplying the item. This approach is of critical importance, for sustaining the competitive strength of the company.
Designing of an efficient chain involves identifying various links in the chain, and designing their dependence on each other in such a way that there is maximization of value to the customer at the optimum cost. It means to aim at overall integration of the whole chain so that there is continuous flow of the goods without any bottlenecks. Catterpiller decided not to compete on cost, but aimed at providing world-class service to customers in order to retain their loyalty, as well as to retain the premium position of the brand. While designing the logistics network, the company had arrived at the locations of warehouses in such a way that the company was in a position to supply the spare parts any where in USA, within a few hours, and at the same time hold bare minimum inventory at warehouses. Designing of logistics system involved supply of manufactured parts from factories at short notice. In order to enable the company to hold minimum inventory of parts in the factories, ways and means were to be identified to synchronize the manufacturing program with the market requirement. All these objectives were to be achieved in such a way that cost of logistics was the least. A systematic approach in defining the objectives, and designing the system in accordance with the objectives, paid dividend to Caterpiller.
Caterpiiler faced problems when they wanted to extend the same philosophy of competing on world class service outside USA. Logistics system, as was functioning in US, could not be made operative outside US, due to the infrastructure availability, legal and social conditions, and customer behaviour pattern. This resulted in development of smart cards, which were installed on the equipment sold by Caterpiller. With the help of these smart cards, the service centers could get important feedback about the predicted failures of key parts. The company was in a position to score over its competitors, and retain the customers.
Efficient logistics system is a key factor in leading an enterprise towards customer satisfaction. Even if a company is capable of producing world class products, the customer is likely to be unhappy if products are not delivered to customer in time, due to weak logistics system. A logistics system which is flexible enough to accommodate the demands of global supply requirements, and which is fully integrated to perform in tune with the customer needs by ensuring smooth flow of the goods, is the key for providing strength to the supply chain.
Supply Chain as Link for Information Flow
The supply chain is not only to deal with materials and money but it has a vital role to play in information flow. An efficient supply chain manager tries to understand and foresee changes in the market place so that the company can be proactive in avoiding delays and bridging the communication gaps. It is therefore important for the supply chain manager to understand and anticipate the behaviour of customers. Supply chain managers have to coordinate gathering of information from suppliers as well as customers and channelize it in the organisation, so that improvements are facilitated on a continuous basis. The organisations that are tuned to external reality, and that react speedily to the changing demands of the market, have a fair chance of success even during global competition.
Supply Chain Management: Contribution in Cost Reduction
In view of the sensitivity of the company to the changing market conditions it is necessary that, in order to achieve desired level of results, the business development efforts are supported by well-monitored cost reduction program. The capability of the company to plan and implement cost reduction programs even in an adverse situation has a lasting effect on its profitability. When a company is selling products in a seller's market, emphasis on cost reduction is unfortunately diluted. The competitiveness of the company will certainly improve if there is a strong focus on cost reduction, even in normal business environment.
Purchased goods and services can account for 50 to 80 percent of a company's expenditure. Purchase and supply chain management has to play an important role in cost reduction program of the company. This role, however, should not be restricted to obtaining price reductions from suppliers, but should also be extended to more constructive areas in which the participation and involvement of purchase and supply chain management is of immense importance.
Supply Chain Management can contribute in more than one way in curtailing product costs. Purchase and supply chain management, if integrated in product development teams, can support sourcing of new items during the stage of development. Further, this provides an opportunity to the company to utilise specialised knowledge and experience of suppliers in speeding the process of development, improving the product design and curtailing the costs.
Supplier base reduction is an excellent cost reduction strategy. The supplier base is trimmed down by identifying and eliminating weak and non-performing suppliers. With a reduced base, suppliers have feasibility of getting higher share of volume and the company derives benefits in terms of lower prices. Smaller supplier base leads to additional advantages, by way of improved coordination, better responsiveness from suppliers leading to quality improvement, product upgradation and reduction in logistic costs. Besides this, the company can control inventories efficiently and reduce cost of managing suppliers.
Supply Chain Management can thus contribute in more than one way in helping a company gain cost and competitive advantage to combat external pressures in global markets. With the emergence of Internet, there is a dynamic change in the way the business is done. Sourcing is now becoming global, as Internet provides access to suppliers all over the world. The concept of long-term relationship with supplier is changing as, with auction playing important role in determining prices, relationship with suppliers is on deal-to-deal basis. Customer tastes are changing rapidly, as customers have many options. Life cycle of the products is becoming shorter and shorter.
In this changing business scenario, supply chain of the company has to be highly flexible and fast. The cost of every activity in the supply chain has to be lower than the value it adds. Supply chain should meet the customer defined quality standards. Supply chain should help company in understanding supply markets and determining the leverage company has over its competitors. It should provide the opportunity for a company to determine how much profitability is being created in the supply network and how this profitability is being shared. Supply Chain Management function, if staffed with motivated persons of high caliber who are capable of using innovative ideas and have a right level of commitment, can substantially contribute to improving corporate performance.
In the dynamic business scenario, companies need to create capability to adapt to such changing environment, and offer the customers the products and services they desire. While being flexible in responding to the situation, the organisation focus on cost and quality should not get diluted.
With the superior capability of the organisation to adapt to the changes, a company can strive for customer delight. Only customer delight can create loyalty. Customer delight is thus a long-term investment that will surely have a dominant influence on the bottom line and improve competitive edge of the company.