Distribution and supply chain relationships are among the most important strategic decisions for any firm. Walmart, Best Buy, Amazon, and even Starbucks depend on effective and highly efficient supply chains to provide competitive advantage. Unfortunately, customers rarely appreciate how companies connect to their supply lines because the processes occur behind the scenes. Customers take supply chain issues for granted and only notice when supply lines are interrupted. The picture is drastically different from the firm’s perspective. Today, most companies rank supply chain concerns at the top of the list for achieving a sustainable advantage and true differentiation in the marketplace. Prices can be copied easily, even if only for the short term. Products can become obsolete almost overnight. Good promotion and advertising in September can easily be passé when the prime selling season in November and December comes around. The lesson is clear: Supply chain strategy is vital to the success and survival of every firm. When we think of supply chain management, we tend to think of two interrelated components:
- Marketing channels an organized system of marketing institutions, through which products, resources, information, funds, and/or product ownership flow from the point of production to the final user. Some channel members or intermediaries physically take possession or title of products (e.g., wholesalers, distributors, retailers), while others simply facilitate the process (e.g., agents, brokers, financial institutions).
- Physical distribution coordinating the flow of information and products among members of the channel to ensure the availability of products in the right places, in the right quantities, at the right times, and in a cost-efficient manner. Physical distribution (or logistics) includes activities such as customer service/order entry, administration, transportation, storage, and materials handling, (warehousing) inventory carrying and the systems and equipment necessary for these activities.
The term supply chain expresses the connection and integration of all members of the marketing channel. Velocity or the need to speed inventory to and from channel members requires collaborating with technology, transportation, and other outside logistics experts. This supply chain process is designed to increase inventory turns, and get the right products to the right place at the right time maintaining the appropriate service and quality standards.9 The linchpin of effective supply chain management in today’s economy is integration. Through informational, technological, social, and structural linkages, the goal of supply chain integration is to create a seamless network of collaborating suppliers, vendors, buyers, and customers. When done correctly, this level of integration results in an extended enterprise that manages value by coordinating the flow of information, goods, and services toward end users, as well as reverse flows away from end users. Creating an extended enterprise requires investments in and commitment to three key factors:
- Connectivity the informational and technological linkages among firms in the supply chain network. Connectivity ensures that firms can access real-time information about the flow in the supply chain network.
- Community the sense of compatible goals and objectives among firms in the supply chain network. All firms must be willing to work together to achieve a common mission and vision.
- Collaboration the recognition of mutual interdependence among members of the supply chain network. Collaboration goes beyond contractual obligations to establish principles, processes, and structures that promote a level of shared understanding. Firms learn to put the needs of the supply chain ahead of their own because they understand that the success of each firm separately has a strong connection to the success of other firms, as well as the entire supply chain.
Supply chain integration and creating an extended enterprise are extremely challenging goals. In the most seamlessly integrated supply chains, the boundaries among channel members blur to the point where it is difficult to tell where one firm ends and another firm begins. As shown in Exhibit 6.6, this level of integration requires a tenuous balance of trust, cooperation, interdependence, and stability in order to create mutual benefits.
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