BLUE OCEAN STRATEGY USING SUPPLY CHAIN MANAGEMENT
Contribution by Tom Craig – Supply Chain and Logistics Consultant and Professional at LTD Management
Too many manufacturers, wholesalers, and retailers do the same old thing when it comes to supply chain management. Their strategy is more of a tactical competition or market response. They lack competitive differentiation that the new supply chain management provides. As a result, these firms often have little choice but to compete on price. They have created a world of de facto commoditization.
[blockquote style=”2″]“We typically lose out when a market commoditizes and we no longer differentiate, further aggravated by us being too slow or expensive.” (Frans van Houten, CEO, Royal Philips Electronics) [/blockquote]
These firms treat their supply chains as cost centers instead of as part of a customer differentiator. They provide standard monolithic supply chains services. These companies lack supply chain value innovations for customers. They are far behind the new supply chain paradigm that gives rise to blue ocean strategy. Instead, these enterprises move closer to competitive black holes. There is a paradigm occurring in retail, starting with the new e-commerce and expanding into all of multichannel. And it is not limited to retailing. It will expand into manufacturing and wholesaling.
Companies can create a blue ocean strategy with the new supply chain management. Examples of strong opportunities are –
[list][item icon=”fa-star” ]New e-commerce[/item][/list]
[list][item icon=”fa-star” ]Global e-commerce[/item][/list]
[list][item icon=”fa-star” ]Multichannel / omnicommerce[/item][/list]
[list][item icon=”fa-star” ]Competitive differentiator[/item][/list]
A blue ocean strategy with the new supply chain is continuation of progress for some companies; for others, it involves transformation. And it raises questions.
Why are so few firms positioned to exploit these opportunities? Or the counterpoint, why are so many companies stuck in the ruts of what they are doing and cannot and do not move into these openings? Why are they more likely to change the color of a box as an attempt to grow business instead of changing how they use their supply chains to expand? Why do any strategies of theirs not recognize supply chain management?
These firms do not see e-commerce as a strategic, competitive disrupter to traditional selling; they basically think of e-commerce as sales done by a website and shipping orders via parcel carriers. They have much money tied up in inventory-and many are products which do not sell or are out-dated. They rationalize about the low cost of capital to explain inventory levels. But they had the same problem when interest rates were higher. Yet with all the inventory, they struggle to deliver orders, complete, accurate, and on-time.
Kevin Plank, CEO, of Under Armour, said about online shopping—”One of the big themes you hear right now is virtual reality. Imagine the day when you can put on a headset and actually walk through a mall. That’s how you have to think about selling online in three or four years.” How many firms doing e-commerce see that as reality? And what will they do about it?
Online buying has matured. Now there are demands that customers have for instant gratification. Waiting many days for delivery is not instant gratification. Reducing the gap between ordering and in-my-hands time is part of the important sales challenge that the new e-commerce addresses.
Divergence is occurring, both with e-commerce and with supply chain management. There is now a new e-commerce. The new e-commerce, unlike old e-commerce, has immediacy to it, as Amazon and a handful of others understand. Delivery expectation is moving to within 48 hours of ordering—or sooner. Prompt deliveries complement the convenience of online commerce–and not going to brick and mortar facilities. Days, even weeks, to deliver complete orders negates the benefit of e-commerce and puts the advantage back to stores for immediate product availability and order completion.
The requirement of immediacy challenges the concept of click-and-collect as a solution—and positions click-and-collect as a transient niche. Click-and-collect is a niche that does not recognize customers. They make it about the retailer, not the customer. Make him come into the store; they do not do it as service to customers. Immediacy also negates much of customer returns caused by buyer remorse from impulse buying.
Even businesses–and their supply chains–that originated with e-commerce are falling behind and are becoming commoditized as too many basically do the same thing. They were designed along customary ways to take, pull and ship orders. These use website design and shopping cart technology to mask inventory and other supply chain issues. The concerns were ignored before; now they are becoming obstacles to repeat order placement and customer retention as the new ecommerce grows.
Using old supply chain practices with a new business model is shortsighted. Trying to copy what another company is doing is not strategy. Imitation may be a form of flattery, but it is a poor substitute for the kind of supply chain management needed for blue ocean strategy. Copies are not as good as originals.
Having a supply chain organization does not, by itself, create blue ocean opportunity. Everyone has a supply chain group. Not everyone does supply chain management as a way to develop new business opportunities and to create important competitive differentiation. The blue ocean supply chain uses the new supply chain management and –
- Is designed from the customer back through the company and to suppliers. That provides a way to build service, agility, visibility, and time compression;
- Is segmented to tailor and provide best service to key channels and other sectors. That is contrary to the monolithic supply chain now used;
- Is built on integrated process throughout the entire supply chain. This is different from trying to cobble dysfunctional internal and external activities together;
- Includes high-level, integrated technology that provides visibility across the supply chain, uses RFID at the item level, and works on all devices. It is more than WMS and using carrier track-and-trace information;
- Uses logistics service providers that complement innovative supply chain service. It is about performance, not low price bids.
The new supply chain enables a firm to be more responsive to customers. It builds brand and creates competitive advantage and value to customers. Innovative supply chains support blue ocean strategies for global e-commerce and multichannel sales. All of this means increased revenue and profits.
[accordion][acc title=”Old Supply Chain Management for E-Commerce / Multichannel”]
• Are monolithic
• Are defined by functions
• Are measured by costs
• Focus on orders
• Focus on shipping
• Focus on inventory
• Struggle to ship orders complete, accurate and on-time
• Utilize technology primarily for functions, such as for warehouses and “track and trace” transport for orders[/acc][acc title=”New Supply Chain Management for New E-Commerce / Multichannel Blue Ocean Strategy”]
• Are segmented by channel
• Are defined by integrated process
• Are measured by performance and service
• Focus on customers
• Focus on delivery
• Focus on product positioning and availability
• Deliver orders complete, accurate and on-time
• Utilize integrated supply chain execution technology across the supply chain [/acc][/accordion]
Omnichannel necessitates distinct ways to service each channel’s customers. Supply chains often have a single focus and are an amalgamation of discrete actions by diverse parties that add time. Time is critical for the required customer service. Standard supply chains are not designed to effectively handle multiple, distinct channel needs, especially those that are speed sensitive. The monolith supply chain is becoming out-dated by omnicommerce service demands.
New supply chain dynamics are emerging. Omnichannel and its e-commerce have become competitive forces for supply chains that force changes with participants and stakeholders. What is happening is not limited to B2C for retailers. It is for manufacturers and wholesalers also. The immediacy need will move across the globe and will cross into other industries and markets. The new supply chain is innovation. Where are you on the adoption curve?
Where will you be on the blue ocean supply chain for your industry and market—innovator, early majority, or laggard?
What are you waiting for? What does it take to begin to transform your supply chain approach and take your company to new areas and to higher levels? Do not be indifferent. Do not become a non-factor or obsolete from competitive conditions or fresh markets.
The change for supply chain management has begun. The power of this new supply chain will not be limited to multichannel. It will transition across and transform supply chains for many channels, industries and markets who will want “immediate” service performance. There are no quick and easy fixes, no “you just” answers.
Drive strategy. Drive change.
About Tom Craig
Tom is a supply chain and logistics consultant with LTD Management. He has real-world logistics and supply chain experience. Tom's experience and capabilities are cutting-edge and bring authority to clients. Domestic and global. Blue ocean strategy using SCM. New supply chain that drives new e-commerce. Multichannel. Inventory velocity / reduction. Lean. Best practices. Risk assessment. Segmentation. Metrics. Process. Technology. Outsourcing. Suppliers. Supply chain complexity. Product portfolios. Brand and private labels. Short shelf life cycles. Customer portfolios. Transport. Inventory. And more. Also provides consulting for 3PLs and other logistics service providers. Develop and execute strategy, create value proposition/unique selling proposition, positioning, blue ocean strategy, and service / market segmentation that improve customer retentions, increase margins, and grow the business.
