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A good supply chain strategy is grounded in an understanding of your power and influence relative to customers and suppliers. Why is this so important Your relative
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CHAPTER 1 Core Discipline 1: View Your Supply Chain as a Strategic Asset
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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.
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Make sure that you understand your relative position before trying to exercise your supply chain power. Even consumer packaged-goods brand leaders, those whose product dominates a product category, are modifying their physical logistics to satisfy the demands of key retail accounts. Manufacturers that occupy the less desirable second position on the retailer s shelf typically have to go even further to contribute to the logistics efficiency of their key accounts by, for example, modifying product packaging and providing very high supply flexibility. The hard reality is that second-tier branded-goods suppliers just don t have the supply chain power of category leaders. Changes to their supply chain must accommodate the retailer requirements, even to the detriment of manufacturer supply chain cost and inventory performance. When you re developing your supply chain strategy, take some time to assess the situation. Is your supply chain brand-led, channel-led, or supplier-led Do you need your channels more than they need you How about your suppliers Who has the power If you re a supplier in an industry that s fragmented on the sell side but concentrated on the buy side, like the automobile industry, your power may be limited. The same is true if you re one buyer among many in an industry with just a few suppliers such as an electronics buyer of specialty components. As we ve seen from these examples, supply chain control is a possibility. For most companies, though, collaboration is the best bet. Therefore, analyze your position in the supply chain. Explore how you can rethink your interactions to cut costs, eliminate inefficiencies, boost satisfaction, or add value. And since collaboration is tough to do well, pick your targets carefully. Focus on key customers or suppliers, and look for opportunities where collaboration will have a real strategic impact (see 4 on the Fourth Discipline).
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