Supply Chain as Strategic Asset

The Key to Reaching Business Goals

Vivek Sehgal

• Publisher: Wiley
• Year: 2010
• ISBN:
  9780470939673
• Edition: 1
• Topic: Commerce
• Subtopic: Prise de décision

Hands-on guidance for creating competitive advantages through strategy realization

How can your supply chain create competitive advantages and help achieve business goals? Drawing from the author's abundant research and analysis, this resourceful book shows how aligning the supply chain design with business strategy helps build competitive capabilities, prioritize capital investments, and takes your firm beyond the industry best-practices to create competitive advantages, not just competitive parity. Summarizing the current literature on business and supply chain strategies, this book provides path-breaking new direction to build your own winning supply chain strategy. Real-life cases show how this strategy alignment has produced results for the most successful companies and how it can be achieved in your firm.

• An overview of the concepts of business strategy, the current thinking on supply chain strategy and why it is inadequate to drive competitive advantage through supply chain design
• Process for establishing your own supply chain strategy to build competitive advantage
• The place of technology in creating business capabilities in modern corporations and why managing technology should be a core competence and an integral part of strategy planning
• Step-by-step direction and examples for creating strategy alignment and designing a supply chain that goes beyond supporting your operations
• Case studies including Wal-mart, Cemex, Kmart, HP, Dell, and others

Consolidating the lessons learned along with implementation guidance, Supply Chain as Strategic Asset is the must-read road map for designing a supply chain that will be vital in achieving your business goals.

Chapter 1
Planning and Realizing the Goals of a Business Strategy

The objective of this chapter is to familiarize the reader with the subject of this book as well as set the expectations for how this will be discussed. The basic premise of the book is the concept that a strategy can be realized by creating business capabilities. To that extent, the role of the strategy is to establish the goals and the role of capabilities is to provide a way to realize those goals by creating competitive advantages embedded within regular business operations. This is the precept that we will follow throughout this book.

The capabilities we will be focusing on are specifically the supply chain capabilities of an organization. In recent years, the functional footprints of supply chains have grown to include most of the original value-chain functions envisaged by Michael Porter in his groundbreaking work on business strategy and the creation of competitive advantages. Therefore, the supply chain remains the key to realizing the business goals of a company. While supply chain capabilities include processes and the supply chain network, consisting of facilities for manufacturing, sourcing, stocking, and selling, the warehouse, transport equipment, and labor, it is the process capabilities that tie these resources together and create the ability to leverage these resources in the most effective manner. To that extent, the focus of our discussion implicitly remains on the supply chain processes, even though it is assumed that the physical resources that a process would need are present as required.

Technology is heavily used in enabling the process capabilities and this dependence brings the technology strategy into the equation. We will progressively cover all these topics as we build our case for aligning the strategies.

Strategy

Strategic management has become a mainstay of the corporate world in the past few decades. It started as a balancing act between the external and internal forces in a corporation where the firm matched its (internal) strengths and weaknesses against the (external) opportunities and threats.¹ Porter then provided a more detailed framework to conceive of the corporate strategy through his Five Forces (see Figure 2.2) and three fundamental strategies based on cost, differentiation, and focus. Since then, corporate strategy has evolved in many ways and researchers have enriched the basic concept in several different ways. Business strategy that leads to competitive advantages has many facets: it can be viewed through the lens of the three fundamental types of strategies as Porter suggested, as a balance between the internal and external forces, or as competitive advantage gained through resources, products, technology, and other specific organizational skills that may be difficult for the competition to imitate. As the business environment changes, firms may have to rethink strategy and realign their efforts to leverage the changes in the external business environment.

For example, consider the strategy now being adopted by the big music labels as the Web-based digital downloads become the mainstay for an industry that had traditionally relied on selling CDs through a retail distribution system. After the initial failed attempts to resist the change and throwing legal challenges to the fundamental shifts in the environment, the industry finally had to transform itself and change their strategy from a retail/distribution model to a digital download model. Along the way, they have to redefine their processes, throw away capabilities they had developed over time and create new capabilities that did not exist. Think of the distribution model for music in the 1980s and 1990s compared to the distribution model prevalent today. The physical distribution channels and all related processes of manufacturing, distribution, logistics, and store-based selling are no longer important in the new landscape. The management of inventories as the music charts changed the demand for specific artists/songs, the process for determining what to sell, what to stock and how much, and when to start the clearance sales have ceased to be relevant in an industry that is going digital. The new distribution processes need skills that are very different from the previous ones. The new model concerns itself more with the bandwidth for downloads and electronic copyrights protection algorithms rather than worrying about safety stocks and shipping costs.

Such change is constant. While the pace of change will be different in different industries, change itself remains a constant. Since change is a constant, all corporations must continually move to adapt to such change. Those who have explicitly invested in strategy will continue to move toward their stated objectives in spite of the changes in their environment, while others may just move involuntarily in response to external and internal forces. Most large corporations have a strategy, though the extent of formal discipline applied to the strategy varies from one company to the next. Accordingly, corporate strategy in a company may either be formally structured with a lot of thought put into it or more informal. It can be well articulated or not so well expressed. It may be well accepted and appreciated or not. It is both attractive and effective, however, to have a strategy that is publicly articulated and that can be elaborated in various analyst calls to provide justification for a corporation's actions, investments, direction, and plans.

For now, let us leave the subject of strategy here with the assumption that the basic concepts of strategic management are well understood and a well-established part of corporate management mind-set today. We will revisit the subject in detail later in the book.

Strategy Realization through Functional Capabilities

What comes next is the main concern of this book. To be effective, a strategy must be implemented. This means that the strategy that establishes the corporate intent, through which competitive advantage will be created, must then be expanded to articulate actions that will take the business toward its strategic goals. As shown in Figure 1.1, the whole process can be thought of as consisting of three basic steps:

1. Strategy development, that is, the process of evaluating the internal and external imperatives, analyzing the industry, products, and customers, and defining an overriding principle of how the company will try to grow. This is equivalent to defining the “what” and “why” of the problem.
2. Strategy planning is the process of assessing the current state of the corporation and evaluating various alternatives that can be potentially considered to achieve the stated imperatives of the business strategy. This step consists of analysis, evaluation, articulation, and prioritization of these alternatives, in effect defining the “how” of the problem.
3. Strategy implementation is the process of starting and managing the individual projects to implement the favored alternative from step two.

Figure 1.1 Strategy Life Cycle

Let us refer to the combined steps 2 and 3, the process of analysis, evaluation, prioritization, articulation, and implementation of the components of strategy as the process of strategy realization. This is depicted in Figure 1.2.

Figure 1.2 Scope of Strategy Realization

Why use the term strategy realization? Strategy realization provides the broader context than is provided by a weaker term like strategy execution. It emphasizes the distinction between strategy planning and strategy execution, both of which must be addressed to successfully realize a corporate strategy. Firms cannot jump from strategy development to strategy execution, and strategy planning must connect the two. Therefore, strategy realization is an explicit choice to denote that the realization is much more than execution.

Before any strategy can be executed, it must be analyzed to understand the answers to the following questions. What goals does it establish for the corporation? What capabilities are required to achieve these goals? Which ones of these capabilities are new? Which ones exist but must be enhanced or extended? What is the cost of developing these capabilities? What is the sustainability cost of these capabilities? What kind of competitive advantage do these capabilities create? Can this competitive advantage be sustained? How long can such an advantage be sustained? What are the constraints to such capability development? These and similar questions are what are addressed by the strategy planning step. They help the organization translate strategy into goals and required capabilities. They also help in prioritizing the development of such capabilities, thereby driving capital investment to support the strategy.

Strategy Planning: The Missing Link

While most companies have some level of formally defined business strategy and an ongoing slew of projects creating new capabilities and enhancing existing ones, most do not have a formal process for the activities identified in the strategy planning step. This void is also reflected in the existing literature on corporate strategy: there are plenty of books on strategy development, a few on strategy execution, but practically none on strategy planning that connects development to execution. Strategy execution emphasizes the actual execution activities: program management, project management, change management, communication, training, and all other organizational aspects for successful execution. While that is important, the intermediate analysis provided by strategy planning is the missing link in most modern corporations in any recognizable formal fashion. In absence of this planning step, corporations fail to establish and prioritize the execution efforts that are aligned with the goals of the business strategy, and fail to identify and prioritize the filling of specific capability gaps. Throughout the book, this will become clear as we describe real-life corporate examples, analyze their strategic successes and failures, and relate them to their financial performance and goals.

Consider a corporation that wants to follow a cost leadership strategy. To realize this strategy, the corporation must develop capabilities that would establish cost leadership for its products that are similar to those offered by its competition and provide comparable value to the consumers. The cost advantage can be derived by gaining efficiency in many functions. It may be derived from creative sourcing practices, cheaper manufacturing methods, or reduction in the cost of operations and logistics. Each one of these options will result in providing the corporation with some amount of cost leadership. Each one of these options will also require a definite amount of capital to develop, adopt, and maintain that capability. These options will result into changes: organizational, process, and cultural, that must be managed for successful adoption. Finally, each of these options will provide a strategic advantage with a limited amount of sustainability as other companies race to develop similar capabilities and the advantage is lost. These are the questions that are answered in the strategy plannin...

Table of contents

• Cover
• Table of Contents
• Title
• Copyright
• Dedication
• Preface
• Acknowledgments
• Introduction
• Chapter 1: Planning and Realizing the Goals of a Business Strategy
• Chapter 2: Understanding Strategy
• Chapter 3: Concepts of Business Strategy
• Chapter 4: Exploring Functional Strategy
• Chapter 5: Current Thinking on Supply Chain Strategy
• Chapter 6: Creating a Functional Supply Chain Strategy
• Chapter 7: Technology Strategy
• Chapter 8: Supply Chain Nirvana: Bringing It All Together
• Appendix A: Sample Artifacts for Creating an Effective Supply Chain Strategy
• Appendix B: An Overview of the Scope of the Supply Chain in Modern Corporations
• Appendix C: The Supply Chain and Corporate Financial Performance
• Notes
• Bibliography
• About the Author
• Index
• End User License Agreement