For a long time, C-level executives viewed supply chain management, especially the logistics function, as a cost center. As a result, cutting and controlling costs became the top priority for supply chain executives. Today, however, cost management is a given — it’s what every supply chain executive is expected to do. Therefore, how do you differentiate and make a larger impact on the organization? You have to think and act beyond cost management and find ways to leverage supply chain and logistics as a competitive weapon — that is, look for ways to leverage supply chain management to drive top-line growth, increase market share, and enhance customer loyalty.
Take Amazon, for example, and how it leverages its Prime membership program as a competitive weapon. According to its 2015 Annual Report, the company has grown its Prime two-day delivery selection “from 1 million items to over 30 million, added Sunday Delivery, and introduced Free Same-Day Delivery on hundreds of thousands of products for customers in more than 35 cities around the world…Prime Now offers members one-hour delivery on an important subset of selection [and serves] members in more than 30 cities around the world.”
What is the impact of Prime’s service offerings, including fast and free shipping, on Amazon’s top-line growth? According to Consumer Intelligence Research Partners, “[Our] analysis indicates that Amazon Prime now has 54 million US members, spending on average about $1,100 per year, compared to about $600 per year for non-members [emphasis mine].”
Of course, Amazon’s ever-growing shipping and logistics costs are a drag on profitability, which the company offsets in part with its highly-profitable cloud computing business. Therefore, simply copying Amazon’s strategy and approach would be a mistake; each company needs to define its own competitive weapon based on its unique supply chain strengths and capabilities, its strategy and objectives, and deploy it in a profitable manner.
Another example: A few years ago I met with a supply chain executive at a leading food manufacturer who was working closely with the sales team to educate them on how to position the company’s supply chain and logistics capabilities as a competitive differentiator with their clients. To paraphrase his message to the sales team: “Our ability to respond quickly and effectively to fluctuations in demand, adjust order sizes and delivery frequency as required, and provide timely and accurate visibility to orders, inventory, and other metrics are all competitive weapons — let’s use them to our advantage!”
Going from a “logistics as a cost center” perspective to a “logistics as a competitive weapon” one is not a quick and easy transformation. Who needs to be involved in the process? How do you get their buy-in? How do you get started and measure success?
I will address those questions and more in an upcoming webcast (click HERE to register), so I won’t steal my thunder here. But I’ll conclude with this: The process begins by breaking down your functional silos — not only internally between logistics, sales, customer service, manufacturing, and other areas — but across external trading partners too. Simply put, turning supply chain and logistics into a competitive weapon is a collaborative effort that requires a fresh perspective and approach from many stakeholders. Are you ready and willing to do it?