Strategic Supply Chain Management - Supply Chain Online

CHAPTER 1 Core Discipline 1: View Your Supply Chain as a Strategic Asset 31
power determines what can be achieved realistically in terms of reconfiguring
the supply chain to meet your overall strategic objectives.
The reality is that many of the supply chain innovators you read
about are in an enviable position: They’re big, with enormous market
clout. But not every company is a Wal-Mart, able to strong-arm its suppliers
to eliminate inefficiencies. When it comes to making fundamental
changes in your extended supply chain, you need to understand how much
power and influence you really have.
Scale matters. Big companies can leverage their volume of output to
buy inputs more cheaply, boost asset utilization, and reduce the cost of
everything from information systems to transportation. Just as important,
they can impose their own processes and rules on suppliers and customers.
In the automobile industry, any supplier who shuts down the production
line by not delivering on time can be subject to a penalty up to the equivalent
of the revenue lost while the line is down. It’s written into the supply
contract. Of course, not every company can do this. It requires
power—the power of scale.
Companies with scale can exercise a high degree of control over the
supply chain and structure it in a way that supports their own strategic
objectives. When a company is bigger than its suppliers or its customers
and they need it more than it needs them, the company calls the shots. But
scale is relative. Companies often underestimate their own power because
they’re thinking in broad, global terms instead of narrowing their scope to
a country or market segment. Even relatively small companies can find
ways to work strategically with select suppliers or customers to gain a
competitive edge. The key is to segment, focus, and consolidate.
If you’re not a priority for your suppliers and aren’t getting adequate
collaboration and service, rethink your supplier relationships. Consider
shifting the power equation by focusing on a few, smaller suppliers and
giving them an opportunity to grow their business in exchange for working
with you more collaboratively over time to cut costs, boost efficiency,
and improve overall performance.
Brand also can be a major source of supply chain power, especially
in the consumer markets. If your products are highly desired by consumers,
you’ll have more clout with retailers and other channel partners.
Think of Louis Vuitton bags or Rolex watches. Lack of availability only
heightens the brand’s prestige. Customer service, fast delivery, or squeezing
out supply chain costs and inefficiency can seem irrelevant to companies
with the hottest brands or products. Buyers of highly desirable
products have learned to wait—and to pay a premium.