A commonly accepted axiom of supply chain management is that business competition is all about “supply chain versus supply chain.”
Like many axioms, I think we often say phrases like this without processing, really, what it means. In this case, it’s not just an academic question – in an age of growing outsourcing and offshoring, it gets to the heart of how a company wins, doesn’t it?
As just one of many examples, I found this in Computer World magazine from 2004: “The classic model of company vs. company is starting to give way to a new model: supply chain vs. supply chain. In the 21st century, being the best at producing or selling a superior product is no longer enough. Success now depends on assembling a team of companies that can rise above the win/lose negotiations of conventional trading relationships and work together to deliver the best products at the best price.”
The sense of the concept in most contexts is that everyone in the chain needs to be competing “as one” to win at the end point of sale, wherever that may be.
I am going to agree and mildly disagree, or at least give it a twist. (See related story in News and Views on "The Return of Vertical Integration?")
Certainly, I trust we all concur that a company’s supply chain is a huge determinant in its overall competitiveness and success. In that sense, the concept of “supply chain versus supply chain” is really a given.
Where it breaks down for me a bit is the fact that in most cases, a given company is part of multiple supply chains that compete with each other. So, for example, if it’s really Wal-Mart versus Target’s supply chain, how is Clorox to think about this? In reality, Clorox is part of dozens of competing supply chains, so how can it think like one with any individual retailer? This scenario also means that innovation on either the buyer or supplier side is generally replicated to competing “supply chains” rather quickly. It’s also increasingly common for companies to both compete in some segments and do business together in others, which would seem to put some constraint on the “competing as one” concept. Take a look at our column on Supply Chain 2006 – a Case Study for more support for this perspective.
The other small fly in the ointment is the fact that at the end of the day, each company by definition as a business entity must think primarily of maximizing its own profits and interests. In many cases, this is zero sum game. If an automotive OEM beats up its steering wheel supplier to keep its consumer MSRP low, in most cases that’s simply profit taken right out of the supplier’s pocket.
You could argue that the auto OEMs, to keep this example, have been roundly and rightly criticized for their unenlightened approach to supplier relationships, but the fact remains that in more cases than we may want to admit, shifting of costs and responsibilities has a strong element of “win-lose” to it.
So given all that, what’s the takeaway?
- With the growing complexity and virtualization, a company’s fundamental supply chain design is in fact the primary competitive weapon it has. This doesn’t imply everyone in the value chain has to be really “working as one.” It simply means that fundamental cost and service structures are largely determined by that design, and that for a given period of time in a specific product-market some are stronger than others.
- Design also strongly impacts the ability of the supply chain to respond quickly to market/strategy and drive/support innovation, which is perhaps the true weapon that delivers competitive advantage today. Innovations and new customer requirements are quickly homogenized. It’s the ability to respond and innovate more rapidly and continuously that keeps you ahead. As the old joke goes, you don’t have to run faster than the bear, you just have to run faster than the other guy.
- “Working as one” works best when you have a network of smaller suppliers (or customers, I suppose) for whom you represent a substantial or complete share of their business, and a level of trust and “win-win” characterizes the relationship. By most accounts, Toyota’s supplier network is oriented this way – companies for the most part content to have their fortunes tied to the success of Toyota, while Toyota structures pricing and other elements in a way that enables them to maintain acceptable profitability. I’ll note an exec at Kimberly-Clark once told me they liked working with decent sized regional 3PLs, because they were big enough to have the right capabilities, but small enough they could drive more true collaboration.
- At the value chain relationship level, it’s all about execution. So, yes, even though most participants are part of numerous competing supply chains, and similar or identical strategies at a high level, the ability to execute within that framework will vary significantly, and that in turn can lead to some advantage for both sides. Collaborative Planning, Forecasting and Replenishment (CPFR) is a prime example. Lots of folks doing it, but great differences in the execution between different partner sets.
In sum: Supply chain design is more critical than ever. Buyer-seller relationships haven’t really changed all that much.
Do you think it “supply chain versus supply chain?” How far does this concept reach? Can participants in multiple chains really think like one is any given one? Where does the line cross between “win-win” and “win-lose.”