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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The supply chain and competitive performance

Traditionally most organisations have viewed themselves as entities that exist inde-

pendently from others and indeed need to compete with them in order to survive.

However, such a philosophy can be self-defeating if it leads to an unwillingness to

co-operate in order to compete. Behind this seemingly paradoxical concept is the

idea of supply chain integration.

The supply chain is the network of organisations that are involved, through

upstream and downstream linkages, in the different processes and activities that

produce value in the form of products and services in the hands of the ultimate

consumer. Thus, for example, a shirt manufacturer is a part of a supply chain that

extends upstream through the weavers of fabrics to the manufacturers of fibres,

and downstream through distributors and retailers to the final consumer. Each of

these organisations in the chain are dependent upon each other by definition and

yet, paradoxically, by tradition do not closely co-operate with each other.

Supply chain management is not the same as ‘vertical integration’. Vertical

integration normally implies ownership of upstream suppliers and downstream

customers. This was once thought to be a desirable strategy but increasingly

organisations are now focusing on their ‘core business’ – in other words the things

they do really well and where they have a differential advantage. Everything else is

‘outsourced’ – in other words it is procured outside the firm. So, for example, com-

panies that perhaps once made their own components now only assemble the

finished product, e.g. automobile manufacturers. Other companies may also sub-

contract the manufacturing as well, e.g. Nike in footwear and sportswear. These

companies have sometimes been termed ‘virtual’ or ‘network’ organisations.

Clearly this trend has many implications for supply chain management, not the

least being the challenge of integrating and co-ordinating the flow of materials

from a multitude of suppliers, often offshore, and similarly managing the distribu-

tion of the finished product by way of multiple intermediaries.

GANT: creating value across a virtual network

A good example of a virtual organisation is the Swedish clothing brand GANT. At

the centre of the network is Pyramid Sportswear AB, which directly employs fewer

than ten people. Pyramid contracts with designers, identifies trends, uses contract

manufacturers, develops the retailer network and creates the brand image through

marketing communications. Through its databases, Pyramid closely monitors sales,

inventories and trends. Its network of closely co-ordinated partners means it can

react quickly to changes in the market. The network itself changes as requirements

change, and it will use different designers, freelance photographers, catalogue

producers, contract manufacturers and so on as appropriate.

SOURCE: CHRISTOPHER, M., PAYNE, A. AND BALLANTYNE, D., RELATIONSHIP

MARKETING: CREATING STAKEHOLDER VALUE, BUTTERWORTH HEINNEMANN, 2002

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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In the past it was often the case that relationships with suppliers and downstream

customers (such as distributors or retailers) were adversarial rather than co-

operative. It is still the case today that some companies will seek to achieve cost

reductions or profit improvement at the expense of their supply chain partners.

Companies such as these do not realise that simply transferring costs upstream or

downstream does not make them any more competitive. The reason for this is that

ultimately all costs will make their way to the final marketplace to be reflected in the

price paid by the end user. The leading-edge companies recognise the fallacy of

this conventional approach and instead seek to make the supply chain as a whole

Material

flow

Customer

service

Stage one: baseline

Purchasing

Material

control

Production

Sales Distribution

Material

flow

Customer

service

Stage two: functional integration

Materials

management

Manufacturing

management

Distribution

Material

flow

Customer

service

Stage three: internal integration

Manufacturing

management

Distribution

Material

flow

Customer

service

Stage four: external integration

Suppliers

Internal supply

chain

Customers

Materials

management

Figure 1.9 Achieving an integrated supply chain

Source: Stevens, G.C., ‘Integrating the Supply Chain’, International Journal of Physical Distribution and

Materials Management, Vol. 19, No. 8, 1989