What Is Strategic About Supply Chain Management?

SergioRetamalEditor's Brief
By Gwendolyn Whitfield, Ph.D.

One of my first jobs as the new editor of the Global Supply Chain Review was to look at the results of the Executive Survey sent to members of the Global Supply Chain Leaders Group earlier this year. One data point that caught my attention was the number of people who said that supply chain management was important for their company's strategy. In fact, over 87% of the respondents said that supply chain management is either very important or extremely important to their company's overall business strategy. I found this very interesting and asked myself two fundamental questions. How is supply chain management strategic and why is it capable of providing long-term competitive advantage for those companies that make investments in their supply chain? I believe these are important questions that every supply chain executive and every chief executive officer should be able to answer.

Traditionally, the supply function was carried out with deeply ingrained assumptions about how to interface with suppliers and get the job done. The focus of the company was not necessarily on supply management, but on product positioning, marketing or capital structure. Maximizing supply management was, at best, an afterthought. In fact, just a couple of decades ago, some CEO's may not have been fully aware of the benefits of managing the supply chain as a strategic asset. Fortunately, technological opportunities and proven results are putting an end to viewing the supply chain as anything but strategic.

Before I weigh in with answers to the questions posed, let me begin by describing how the nature of competition has drastically changed over the last two decades, moving supply management beyond a functional-level tactic to a strategic capability ample enough to provide a competitive advantage. Some would argue that strategy is about positioning and others, the skillful use of resources and capabilities. Yet, few would disagree that at the heart of strategy is the ability to respond to a changing business environment. Opportunities and threats exist everywhere and firms must continually face new challenges to remain competitive. Successful firms have had to align and re-align efforts to build a competitive advantage in response to those threats and opportunities.

Much of the realignment has been caused by changes in technology. How successfully firms respond to technological opportunities will, in a large part, determine their ability to leverage resources and harness new markets. Gone are the days of established firms being able to sustain a competitive advantage in uncontested market space. To the point, companies like Dell and Wal-mart have steamrolled the traditional rules of competition by masterfully infusing their supply chains with technology. These two companies, among others, have taken full advantage of the opportunity to gain a competitive foothold with the strategic use of technology in their supply chains.

Initially, companies were eager to infuse technology into select aspects of their business, including electronic transactions, teleconferencing and merely having a web presence. However, companies quickly realized that these activities, alone, could not provide a rare, valuable and non-substitutable competitive advantage. Infusing the entire supply chain with technological capabilities, on the other hand, provides a real opportunity for differentiation. As such, the supply chain has become a massive interplay of internal and external functions and activities, involving purchasing, logistics and operations and supplier management. When combined with technology, the interplay of activities and relationships has the potential to create a sophisticated supply chain system capable of carving out a competitive position far above rivals who chose not to invest in their supply chain competence.

Supply chain management is strategic because the use of technology in supply chains makes it possible to go where no firm has gone before. With technology, firms are making dramatic improvements in supplier communication and integration, replenishment and logistics management. With technology, companies are able to achieve higher levels of responsiveness, flexibility and efficiency than what was possible in traditional supply chains. With technology, businesses are able to integrate their operations, communicate with suppliers and provide up-to-date, real-time data for partners throughout the supply chain. This is possible whether the partner is in Hong Kong or Maine.

And if you're still not convinced, consider Porter's Five Forces Model. Heralded as a cornerstone in the field of strategic management, Porter clearly identifies the relative power of buyers as a crucial element for firm profitability. And we know, above average returns, the goal of strategic effort is the result of a sustainable competitive advantage. Supply chain management just might be the source of that advantage as technology enables it to manage relationships with suppliers. The increased use of strategic supplier partnerships is also ushering supply chain management center stage. But, Mr. Porter already knew that is where it belongs.
About the Editor:
Gwendolyn Whitfield, Ph.D.
Assistant Professor of Strategy

Ph.D., Western Michigan University
M.B.A., Wayne State University
B.A., Howard University

Dr. Whitfield specializes in business growth strategies, new-venture strategies and
supplier management and diversity for small and medium sized firms and governmental
entities. She is the author of numerous articles which has been featured in such
publications as the Journal of Supply Chain Management and Purchasing Today.

Her research on Public Policy and Entrepreneurship in High Technology won an award from the Consulate of Sweden and the Swedish Institute. She has been an invited presenter at the Strategic Management Society, the Institute for Supply Management and the International Council for Small Business. In addition to serving as sales executive for a high-growth entrepreneurial firm, Dr. Whitfield served as director of operations, project manager, service leader and business consultant in both for profit and not for profit environments. Her functional area expertise includes strategic planning and budgeting, operations and human resource management and information technology training and she has helped manage budgets ranging from $5 million to $190 million. Dr. Whitfield is an invited speaker, consultant, and facilitator for corporations and governmental organizations and has been on the faculty of Pepperdine University since 2003.
June 2008
See the recipients of the 2009 Top 25 Supply Chain Executives Award.