A New Competitive Environment
The new millennium features increasing numbers of world-class competitors, domestically and internationally, that are forcing organizations to improve their internal processes to stay competitive. Sophisticated customers, both industrial and consumer, no longer talk about price increases they demand price reductions! Information that is available over the Internet will continue to alter the balance of power between buyers and sellers. An abundance of competitors and choices have conditioned customers to want higher quality, faster delivery, and products and services tailored to their individual needs at a lower total cost. The widespread use of “social media” through Twitter and blogs spread information about products and services at an accelerated rate. If a company is not meeting its requirements, consumers will quickly “spread the word” and they will find someone who is more accommodating.
While historically, the speed at which information moved was slower than current times, firms still valued customer loyalty. In the 1960s and 1970s, companies began to develop detailed market strategies that focused on creating and capturing this loyalty. Before long, organizations also realized that this required a strong engineering, design, and manufacturing function to support these market requirements. Design engineers had to translate customer requirements into product and service specifications, which then had to be produced at a high level of quality at a reasonable cost. As the demand for new products increased throughout the 1980s, organizations had to become flexible and responsive to modify existing products, services, and processes, or to develop new ones to meet ever-changing customer needs.
As organizational capabilities improved further in the 1990s, managers began to realize that material and service inputs from suppliers had a major impact on their ability to meet customer needs. This led to an increased focus on the supply base and the responsibilities of purchasing. Managers also realized that producing a quality product was not enough. Getting the right products and services to customers at the right time, cost, and place, and in the right condition, and quantity constituted an entirely new type of challenge. The twenty-first century, has spawned a whole set of time-reducing information technologies and logistics networks aimed at meeting these new challenges. The availability of low-cost alternatives has led to unprecedented shifts toward outsourcing and offshoring. The impact of China as a major world competitor poses tremendous challenges for U.S. firms in both the manufacturing and services sectors. Because the services sector now accounts for over 70 percent of the Gross Domestic Product, new strategies are required for effective supply management in this sector.
All these changes have made twenty-first century organizations realize how important it is to manage their supply base. They must be involved in the management of (or at least take a serious interest in) the suppliers that provide materials and services. They must also be concerned with the network of downstream firms responsible for delivery and aftermarket service of the product to the end customer. From this realization emerged the concept of the supply chain and supply chain management.
Several factors are driving an emphasis on supply chain management. First, the cost and availability of information resources among entities in the supply chain allow easy linkages that eliminate time delays in the network. Second, the level of competition in both domestic and international markets requires organizations to be fast, agile, and flexible. Third, customer expectations and requirements are becoming much more demanding. Fourth, the ability of an organization’s supply chain to react rapidly by managing risk minimizes disruptions in both supply and downstream product or services to mitigate the impact on lost sales. As customer demands increase, organizations and their suppliers must be responsive or face the prospect of losing market share. Competition today is no longer between firms; it is between the supply chains of those firms.
The companies that configure the best supply chains will be the market winners and gain competitive advantage.