Logistics and Supply Chain Management, 4th Edition

LO G ISTICS, THE SUPPLY CHAIN A N D C O M P E TITIVE STRAT E GY

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productivity can be enhanced through logistics and supply chain management. Whilst

these possibilities for leverage will be discussed in detail later in the book, suffice it to

say that the opportunities for better capacity utilisation, inventory reduction and closer

integration with suppliers at a planning level are considerable. Equally the prospects

for gaining a value advantage in the marketplace through superior customer service

should not be underestimated. It will be argued later that the way we service the cus-

tomer has become a vital means of differentiation.

To summarise, those organisations that will be the leaders in the markets of the

future will be those that have sought and achieved the twin peaks of excellence:

they have gained both cost leadership and service leadership.

The underlying philosophy behind the logistics and supply chain concept is that

of planning and co-ordinating the materials flow from source to user as an inte-

grated system rather than, as was so often the case in the past, managing the

goods flow as a series of independent activities. Thus under this approach the

goal is to link the marketplace, the distribution network, the manufacturing proc-

ess and the procurement activity in such a way that customers are serviced at

higher levels and yet at lower cost. In other words the goal is to achieve competi-

tive advantage through both cost reduction and service enhancement.

The supply chain becomes the value chain

Of the many changes that have taken place in management thinking over the

last 30 years or so perhaps the most significant has been the emphasis placed

upon the search for strategies that will provide superior value in the eyes of the

Value

advantage

Logistics leverage

opportunities:

• Tailored services

• Reliability

• Responsiveness

Cost advantage

Logistics leverage opportunities:

The goal:

superior

customer

value at

less cost

• Capacity utilisation

• Asset turn

• Synchronous supply

Figure 1.6 Gaining competitive advantage

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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customer. To a large extent the credit for this must go to Michael Porter, the

Harvard Business School professor, who through his research and writing

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has

alerted managers and strategists to the central importance of competitive relativi-

ties in achieving success in the marketplace.

One concept in particular that Michael Porter has brought to a wider audience is

the ‘value chain’:

Competitive advantage cannot be understood by looking at a firm as a

whole. It stems from the many discrete activities a firm performs in designing,

producing, marketing, delivering, and supporting its product. Each of these

activities can contribute to a firm’s relative cost position and create a basis

for differentiation … The value chain disaggregates a firm into its strategically

relevant activities in order to understand the behaviour of costs and the existing

and potential sources of differentiation. A firm gains competitive advantage by

performing these strategically important activities more cheaply or better than its

competitors.

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Value chain activities (shown in Figure 1.7) can be categorised into two types –

primary activities (inbound logistics, operations, outbound logistics, marketing

and sales, and service) and support activities (infrastructure, human resource

management, technology development and procurement). These activities

are integrating functions that cut across the traditional functions of the firm.

Competitive advantage is derived from the way in which firms organise and per-

form these activities within the value chain. To gain competitive advantage over

its rivals, a firm must deliver value to its customers by performing these activities

more efficiently than its competitors or by performing the activities in a unique way

that creates greater differentiation.

Firm infrastructure

Human resource management

Technology development

Procurement

Support

activities

Outbound

logistics

OperationsInbound

logistics

Marketing

and sales

Service

Primary activities

M

a

r

g

i

n

Figure 1.7 The value chain

Source: Porter, M.E., Competitive Advantage, The Free Press, 1985