Competitive and Supply Chain Strategies

A company’s competitive strategy defines, relative to its competitors, the set of customer needs that it seeks to satisfy through its products and services. For example, Walmart aims to provide high availability of a variety of products of reasonable quality at low prices. Most products sold at Walmart are commonplace (everything from home appliances to clothing) and can be pur­chased elsewhere. What Walmart provides is a low price and product availability. McMaster- Carr sells maintenance, repair, and operations (MRO) products. It offers more than 500,000 products through both a catalog and a website. Its competitive strategy is built around providing the customer with convenience, availability, and responsiveness. With this focus on responsive­ness, McMaster does not compete based on low price. Clearly, the competitive strategy at Walmart is different from that at McMaster.

We can also contrast Blue Nile, with its online retailing model for diamonds, with Zales, which sells diamond jewelry through retail outlets. Blue Nile has emphasized the variety of dia­monds available from its website and the fact that its margins are significantly lower than its bricks-and-mortar competition. Customers, however, have to wait to get their jewelry and do not have any opportunity to touch and see it before purchase (Blue Nile does provide a 30-day return period, though). At Zales, in contrast, a customer can walk into the retail store, be helped by a salesperson, and leave immediately with a diamond ring. The amount of variety available at a Zales store, however, is limited. Whereas Blue Nile offers more than 90,000 stones on its site, a typical Zales store carries fewer than a thousand.

In each case, the competitive strategy is defined based on how the customer prioritizes product cost, delivery time, variety, and quality. A McMaster-Carr customer places greater emphasis on product variety and response time than on cost. A Walmart customer, in contrast, places greater emphasis on cost. A Blue Nile customer, purchasing online, places great emphasis on product variety and cost. A customer purchasing jewelry at Zales is most concerned with fast response time and help in product selection. Thus, a firm’s competitive strategy will be defined based on its customers’ priorities. Competitive strategy targets one or more customer segments and aims to provide products and services that satisfy these customers’ needs.

To see the relationship between competitive and supply chain strategies, we start with the value chain for a typical organization, as shown in Figure 2-1.

The value chain begins with new product development, which creates specifications for the product. Marketing and sales generate demand by publicizing the customer priorities that the products and services will satisfy. Marketing also brings customer input back to new prod­uct development. Operations transforms inputs to outputs to create the product according to new product specifications. Distribution either takes the product to the customer or brings the customer to the product. Service responds to customer requests during or after the sale. These are core processes or functions that must be performed for a successful sale. Finance, account­ing, information technology, and human resources support and facilitate the functioning of the value chain.

To execute a company’s competitive strategy, all these functions play a role, and each must develop its own strategy. Here, strategy refers to what each process or function will try to do particularly well.

A product development strategy specifies the portfolio of new products that a company will try to develop. It also dictates whether the development effort will be made internally or outsourced. A marketing and sales strategy specifies how the market will be segmented and how the product will be positioned, priced, and promoted. A supply chain strategy determines the nature of procurement of raw materials, transportation of materials to and from the com­pany, manufacture of the product or operation to provide the service, and distribution of the product to the customer, along with any follow-up service and a specification of whether these processes will be performed in-house or outsourced. Supply chain strategy specifies what the operations, distribution, and service functions, whether performed in-house or outsourced, should do particularly well. Because our focus here is on supply chain strategy, we define it in more detail. Supply chain strategy includes a specification of the broad structure of the supply chain and what many traditionally call “supplier strategy,” “operations strategy,” and “logistics strategy.” For example, Dell’s initial decision to sell direct, its 2007 decision to start selling PCs through resellers, and Cisco’s decision to use contract manufacturers define the broad structure of their supply chains and are all part of their supply chain strategies. Supply chain strategy also includes design decisions regarding inventory, transportation, operating facilities, and informa­tion flows. For example, Amazon’s decisions to build warehouses to stock some products and to continue using distributors as a source of other products are part of its supply chain strategy. Similarly, Toyota’s decision to have production facilities in each of its major markets is part of its supply chain strategy.

For a firm to succeed, all functional strategies must support one another and the competi­tive strategy. For example, Seven-Eleven Japan’s success can be related to the excellent fit among its functional strategies. Marketing at Seven-Eleven has emphasized convenience in the form of easy access to stores and availability of a wide range of products and services. New product development at Seven-Eleven is constantly adding products and services, such as bill payment services that draw customers in and exploit the excellent information infrastructure and the fact that customers frequently visit Seven-Eleven. Operations and distribution at Seven-Eleven have focused on having a high density of stores, being very responsive, and providing an excellent information infrastructure. The result is a virtuous cycle in which supply chain infrastructure is exploited to offer new products and services that increase demand, and the increased demand in turn makes it easier for operations to improve the density of stores, responsiveness in replenish­ment, and the information infrastructure.

In the next section, we elaborate on this notion of fit and seek to answer this question: Given its competitive strategy, what should a company’s supply chain try to do particularly well?

Source: Chopra Sunil, Meindl Peter (2014), Supply Chain Management: Strategy, Planning, and Operation, Pearson; 6th edition.