In a recent article titled, "An Empirical Analysis of the Financial Impact of Supply Chain Management on Small Firms," published in the Journal of Entrepreneurial Finance and Business Ventures (Vol. 12, Issue 1, 2007, pp. 55-82), Stan Fawcett, Ladd Morgan and I test the value-added potential of supply-chain management in small firms.
Using a survey from a sample of 570 managers, we documented two important findings. First, we discovered that large firms use supply-chain management initiatives much more than small firms. Second, through a host of statistical tests, we documented that supply-chain initiatives lead to major improvements in asset utilization, revenue generation and competitive performance, regardless of firm size. Taken together, we concluded in the article that small firms that are not currently using supply-chain management initiatives may want to re-evaluate this decision as they may be losing an opportunity to create value.
My good friend and co-author Stan Fawcett once shared a quotation with me from Harold Sirkin, vice president of the Boston Consulting Group: "As the economy changes, as competition becomes more global, it's no longer company versus company but supply chain versus supply chain." This quote made me think of super successful companies such as Wal-Mart and Dell, whose major value-added business strategy is their effective use of the supply chain.
While working on a writing project, I asked Stan if he had any further supply-chain quotes that might be relevant to my chapter on the various business disciplines. He shared this quotation from Ohio State University professor Roger Blackman in his book, "From Mind to Market": "Great firms will fight the war for dominance in the marketplace not against individual competitors in their field, but fortified by alliances with wholesalers, manufacturers and suppliers all along the supply chain. In essence, competitive dominance will be achieved by an entire supply chain, with battles fought supply chain versus supply chain."
So what supply-chain initiatives should entrepreneurial firm managers focus on? Our study determined six supply-chain initiatives that added significant value. These factors are:
1. Integration Strategy: This includes cross-functional process integration within the firm, forward integration with valued first-tier customers, backward integration with important first-tier suppliers and complete forward and backward supply-chain integration.
2. Internal Integration Support: This includes support in logistics management, marketing management, manufacturing management, purchasing management, information systems and top management.
3. External Integration Support: This includes first- and second-tier supplier management support, first- and second-tier customer management support and service supplier management support.
4. Supply Chain Alignment: This requires a common set of operating policies that are shared by members of the supply chain, including highly integrated information systems, value-added resources and clear understanding of competitive imperatives, operating goals and strategic objectives.
5. Supplier Integration: In this initiative, adequate information systems linkages exist with suppliers, high levels of trust have been achieved with first-tier suppliers, supplier alliances operate under principles of shared rewards and risks, supplier performance is closely monitored as the basis for future business, and suppliers are carefully screened before they are selected.
6. Customer Integration: This initiative also requires adequate information-systems linkages with customers, as well as customer alliances that operate under principles of shared rewards and risks, customer relationships that are evaluated on the basis of their profitability, high levels of trust with important customers and regular requests for customer input.If you'd like to go into more depth on this important subject, please e-mail me at the address below, and I'll send you a link to a much more detailed paper on the subject.
James C. Brau is affiliated with the BYU Center for Entrepreneurship. He can be reached via e-mail at [email protected]