In a climate of tight credit, rising input costs and economic concerns, supply chain efficiency can be a source of competitive advantage. Trends and technology advancements mean product life cycles are shortening. While global supply chains have increased lead times and risk, customer expectations continue to rise.
GRA observe that effective and efficient supply chain management can boost performance ratios such as return on capital employed by reducing operating costs, increasing asset turnover and improving customer service levels. If supply chain costs are looked at as a percentage of sales, 'best in class' performers have roughly half the costs of 'average in class' performers.
In other words, an average performer’s supply chain costs are likely to be twice that of the best performers. It is crucial that retailers ensure their supply chain is aligned with their customer value proposition and is a fundamental part of the competitive strategy.
According to GRA, assembled furniture is expensive to transport and store because one ends up paying for a lot of air. By flat packing unassembled furniture and getting customers to pick their own products in store, Ikea reduced their transportation and warehousing costs and passed the savings to their customers.
Another example is Zara. When the industry at large was manufacturing in Asia to reduce costs, Zara used local production to respond rapidly to trends.
On the surface, European manufacturers were more expensive, but in fashion, it is hard to know what is going to sell and what is not. If Zara saw that a certain style was selling, they could quickly produce more and get the product to market.
Those using distant Asian manufacturers had to place their bets in advance, and when the selling season came, they were often left with too much of what was not selling and too little of what was.
Although their unit cost was lower, they missed sales opportunities, lost market share and had to discount to move the excess stock. Zara, on the other hand, capitalised on sales opportunities and matched stock to demand, which allowed them to pick up market share and maintain margins.
GRA opine that it is important to understand the pieces of the supply chain, how each piece contributes to cost and customer value and how the pieces are connected. Those that do this well can build a sustainable competitive advantage into their business.
Supply chain planning and execution includes disciplines such as demand planning, inventory optimisation, strategic sourcing, distribution requirements planning, dynamic warehouse management, labour scheduling and transportation route optimisation.
Planning and execution techniques enable retailers to reduce inventories and create free cash flow, improve service levels, minimise costs and maximise the utilisation of resources such as warehouse capacity, labour and transportation.
Supply chains are complex and data intensive, so smart tools for supply chain design, planning and execution are essential. Retailers are employing these tools to drive sustainable cost, capital and service advantages in their business.