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What Is the Connection Between Supply Chain Management and Competitive Advantage?

An illustration of a supply chain.
Lower transportation costs can provide a competitive advantage.
Article Details
  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 28 August 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Supply chain management and competitive advantage are connected because the effective management of an organization’s supply chain can be leveraged for competitive advantage. The supply chain refers to the whole process involved in the production of a product or service, starting from the procurement of the raw material to the shipping of the final product to the consumers. Competitive advantage describes the process whereby a company can achieve a lower sale price for its products than that of other similar companies through an advantage in the pre-production, production or post-production stage.

The integration of effective supply chain management and competitive advantage is becoming increasingly important due to the effects of globalization. More companies now have subsidiaries and branches in more cities and countries than before. With the increase in the supply chain, effective management practices must be applied if the company wants to gain any competitive advantage over other companies in the same industry. Apart from gaining competitive advantage, it is necessary to streamline the supply chain so as to send the products to the consumers within the mandated shelf life.

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One way in which a company can gain competitive advantage through supply chain management is by focusing on the areas of competence and then outsourcing the other areas. For instance, a company that produces athletic sneakers may decide to outsource the sourcing for raw materials and the production of the sneakers to another area where the cost of production would cost less. Such a company might decide to focus on its area of competence, which might be designing new sneaker models, handling logistics, and marketing the finished products.

This type of strategy can lead to competitive advantage through reduced costs that will be transferred to consumers, giving the company a competitive edge over other companies. Other similar companies that produce athletic sneakers may not be able to offer the same reduction in prices due to the fact that it costs them more to produce the same sneakers, which the other company had produced at a fraction of their total cost. Such a price reduction may be due to a number of effective measures along the supply chain including paying workers at lower wages. Also, if the company is able to produce the sneakers in a country where the raw materials are readily available it will cut down on transportation costs, further saving money. The company with the cheaper production costs may be able to sell its sneakers at a reduced price, luring more consumers to buy more of its products.

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