In business management, vertical integration is an arrangement in which the supply chain of a company is owned by that company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. Vertical integration has also described management styles that bring large portions of the supply chain not only under a common ownership, but also into one corporation.

Vertical integration and expansion is preferred because it secures the supplies needed by the firm to produce its product and the market needed to sell the product. Vertical integration and expansion can become unattractive when its actions become anti-competitive and hinder free competition in an open marketplace. Vertical integration is one method of avoiding the delay problem. A monopoly produced through vertical integration is called a vertical monopoly. For example, Google purchased “Motorola Mobility” in 2012 as a dedicated Android partner which enabled Google to supercharge the Android ecosystem for enhancing competition in mobile computing. The deal didn’t end here. In 2014m Chinese firm Lenovo acquired the Motorola Mobility smartphone business from Google for $2.91 billion in a cash-and-stock deal. The acquisition would strengthen Lenovo’s position in the smartphone market and grow its presence in the USA.

A company that undergoes vertical integration acquires a company that operates in the production process of the same industry. Some of the reasons why companies choose to integrate vertically include strengthening their supply chain, reducing production costs, capturing upstream or downstream profits, or accessing new distribution channels. To do this, one company acquires another that is either ahead or behind it in the supply chain process.

Vertical Integration strategy is important for many companies for several more reasons. Not only does it increase profits from the newly acquired operations by selling its products directly to consumers, it also guarantees efficiencies in the production process, and cuts down on delays in delivery and transportation.

For example, Ikea furniture to gain control over its raw materials for its flat pack furniture, purchased woodland in Romania and the Baltics to coordinate its own forestry management and wood production. The Swedish company’s investment will allow the retailer to stabilize its timber costs, at a time when prices are on the rise.

Companies can integrate vertically in two ways: backward or forward. Backward Integration occurs when a company decides to buy another company that makes an input product for the acquiring company’s product. For example, Apple retails most of its apps online through Apple Store.

Forward Integration occurs when a company decides to take control of the post-production process. For example Amazon.com Inc’s acquisition of grocery store chain ‘Whole Foods Market’ for $13.7 billion will help them dominate grocery sales both offline and online. However, so far the deal markedly expanded Amazon’s reach offline.

Advantages of Vertical Integration: 

Helps in avoiding supply disruption: The first benefit is that the company can avoid supply disruption. By controlling its own supply, it can avoid the problems of sluggish suppliers. It also in neglecting the frequent strikes and labor disputes from companies those are in socialist countries such as China, Vietnam.

Avoid monopoly suppliers: Second, a company benefits by avoiding suppliers with a lot of market power and their dictations. It gets all the more critical if the supplier has monopoly in market. If the company can go around these providers, it reaps many benefits. It can lower internal costs and have better delivery of needed items. It’s less likely to be short of critical elements.

Economies of scale: Third, vertical integration gives a company better economies of scale. That’s when the size of the business allows it to cut costs. For example, it can lower the per-unit cost by buying in bulk. Another way is to make the manufacturing process itself more efficient. Vertically integrated companies eliminate overhead by consolidating management.

Imitation becomes easier: A retailer with vertical integration knows what is selling well. It can easily “knock off” the most popular brand-name products; because it copies the ingredients or manufacturing process. It creates similar, store-branded products with similar marketing messages and packaging. Only powerful retailers can do this. The manufacturers of those brands cannot afford to sue for copyright violation. They are unwilling to risk losing distribution through a major retailer.

Lower the cost: The fifth advantage is the one that is most obvious to consumers. That’s low prices. A company that is vertically integrated can lower costs. It can transfer those savings to the consumer as lower prices. The best example is of Wal-Mart.  The store keeps costs low by using a sophisticated and largely automated supply-chain management system, Wal-Mart has huge bargaining power when it comes to its suppliers. Many brands depend on Wal-Mart sales to stay in business, while even larger, established companies can little afford to be removed from Wal-Mart’s passageway or WebPages.

Disadvantages: The biggest disadvantage of vertical integration is the expense. Companies must invest a great deal of capital to set up or buy factories. They must then keep the plant running to maintain efficiency and profit margins.

Secondly, it reduces flexibility. Vertically integrated companies get entangled in the profitability of its operations. Retailers can’t follow consumer trends that take them away from their factories. They also can’t change factories to countries with lower exchange rates. Also, vertically integrated suppliers must manage inventory by keeping sufficient stock products in their stores. A third problem is a loss of focus. Running a successful vertically integrated business requires a different set of skills; it’s difficult to find capable staff.

The man behind the four Ps of marketing suggested that they be changed. Philip Kotler in an exclusive interview with Brand Equity of Economic Times talked about shift from the four Ps to four Cs.  He expressed the customer imperative, the value challenge, and the increasing value of mega distribution. The skills and talents of the marketing manager recline in making the offer to customers in the most attractive manner.  The Marketing Manager is no less than an artist; he has to proportionately add, subtract, replace, and centralize the elements of the mix – The Product, The Price, The Place and The Promotion. The marketing mix is a value-delivering tool of the marketing function.

One of the glaring challenges that most brands across the world face today face is of lowering brand loyalty from the consumers.  The brands are ‘commoditized’ no sooner they enter markets.  At the consumer level, on one hand we are seeing an increasingly more global entity – one who is tuned in almost real time to trends and aspirations across various countries and societies. Increased access to electronic and traditional media, the Internet, and more frequently (and more adventurous) travel outside the home frontiers are some of the factors that have led to the globalization of the average consumer. At the business level the most challenging development is consolidation across all kinds of industries – be it travel, education, health, transportation, telecommunication, banking, consumer durables, or retail. The consolidation is not limited within the traditional geographical boundaries but is increasingly becoming cross-national and cross-continent; as a result, local and national brands are struggling literally to retain their identities in the consumer’s mind share. Many brands are living a very short shelf life.

The market is determined by supply and demand.Creating and maintaining relationship with customers is become an inseparable part of business. The concept of CRM is viewed differently in different sectors of business. Customer relationship or customer care is not just being polite to them – it is looking at the entire customer experience – or walking in the shoes of the customers. This journey starts before you even meet your customer, the trick is to forget all that you know or think you know about the market. Start thinking why your customers would want to buy your product? How it would solve their problems? How the substitute product would satisfy their needs? How you product reaches them in time? With companies offering technology-based solutions for everything, customer care has become more important than ever before. Sales literature and indeed entire campaigns are based on describing the technology, usage, power of the product, marketing channel details, price points etc.

The most crucial challenge for businesses is to create new customers and maintain the old customers therefore, is to create the differentiation plank. And the differentiation should be uniquely different. Traditionally, successful branding has always served the purpose of creating and maintaining such differentiation to the benefit. However complexities in the market make the task formidable. A product needs the ability to dish up the local, regional, national and then the global market. It needs to act in response to each niche segment. Therefore, according to Kotler, the very important to be redefine the concept of marketing mix.

The four Ps remain as useful for organizing framework for marketing planning.  He feels there is nothing wrong by adding some more Ps for emphasizing the crux of marketing such as Packaging, People, Personnel, Politics, Public opinion and passion etc. He further talks about a transition from the four Ps to four Cs, which are more customer–based.  The four Ps are seller-based and 4 Cs are consumer-based. Kotler defines Product as Customer Value, Price as Customer Cost, Place as Customer Convenience and Promotion as Customer Communication. These C’s reflect a more customer-oriented marketing philosophy. They provide useful reminders to the marketer that without the customer the exercise is futile. The entire business processing should revolve around the customer’s convenience. The 4 Cs are customer centric. Whereas, the 4 Ps are more or less product-centric. The product concept rotates around marketer’s obsession for his product. Philip Kotler’s suggestion to shift from 4 Ps to 4 Cs is to show concern to the consumers, generating value satisfaction, creative selling and integrated action for serving the customer.

Peter Drucker had expressed once that that the aim of marketing should be to make selling superfluous; marketing means understanding of the customer’s mind and brand building should be tuned to the viewpoint of customer satisfaction. The basis of marketing is a value-creating and value-delivering process.

The brand building should be intrinsically linked to the very fundamental structure of the market. Many factors go into making a purchase decision, and some carry more weight than others. Consumers are frequently thought to buy products based primarily on emotional cue. However, the Internet gives more information than required by the consumer. Thanks to the spread of Internet. A good example I would like to give here is of P&G’s Crest toothpaste which hasnine variations suiting different segments of markets in the world. People don’t easily change their brand of toothpaste; the flavor, color, freshness in mouth, the fizz, the sensation on gums the whole thing matters. For P&G one of the primary driving forces behind the development of so many blends of Crest toothpaste is to cater to the oral health needs of the increase of the baby boomer generation, who are quite health conscious and obsessed with their oral hygiene.

Retailers like Tesco, Wal-Mart, Auchan and Carrefour are all itching up to venture out in India for the 1.27 billion population of this country. Now can you imagine what would be the scenario in the next five years? Assembling, packaging, pricing and logistics in short   juggling with marketing mix are going to be hell of a task. These huge retail sharks have changed the style of doing business. And now it is unstoppable….

There is lot of benefit in it. As Warren J.Keegan – an international strategic marketing advisor puts it “a company that fails to go global is in danger of losing its domestic business to competitors with lower costs, greater experience, and better products and in nutshell, more value for the customer.” Driven by the omnipresent economic liberalizations, national economies are becoming more and more interdependent and integrated and the world economy is becoming more and more globalised.

In India, domestic players like Nirma had to fight competition from MNCs like Uniliver, P&G, and Henkel etc to retain its market share. Similarly, Ghadi detergent or Wagh Bakri Chai also had to fight the power of MNCs to retain their market shares in the domestic market. Firms in their own country have to face technological, financial, managerial, organizational, and marketing competition. No matter whether market is domestic or foreign in globalization marketers have to sustain competition, which is the unparalleled feature of business. Hence the shift in marketing mix will be from 4Ps – 4 Cs to 4 Ts.

Product becomes Trade:  Globalization offers extensive opportunities for truly worldwide development. One of the major initiatives towards world trade and economic cooperation is the recent signing of the Uruguay Round (UR) of the General Agreement on Tariffs and Trade (GATT) is seen as the most comprehensive and ambitious of all rounds of talks among GATT-member countries. Economic “globalization” is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization. Global markets offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. Why firms go international – there are two factors, which lead them to do so.  One is pull factor, which is proactive. In this situation the companies opt for international markets for their attractiveness, widening the scope, relative profitability and growth prospects.  The other factor is push factor, which refers to compulsion of domestic market, like saturation of the market, thrust of competition etc.  Most of the push factors are for reactive reasons.  Multinationals like Whirlpool, Samsung, LG and Electrolux are making their prominent presence in India and China. Two key points, which are driving them to these two Asian Countries, is the cost-effective manufacturing and R&D facilities. The Indian manufacturers besides Tatas, Ambanis, Godrej, L&T or Birlas a host of small and medium sized companies had to bring about highly commendable improvements in their business operations, living up to the dictum ‘survival of the fittest.’ These are the positive effects of globalization.

The Indian economy has grown rapidly over the past decade, with real GDP growth averaging some 5.5% annually, despite external shocks. Recognizing the important linkages between trade and economic growth, the Government has simplified the tariff, eliminated quantitative restrictions on imports, and reduced export restrictions. It plans to further simplify and reduce the tariff. To help counteract the anti-export bias, inherent in import and other constraints, export promotion measures have gained in importance. The Government has recently announced a further increase in these measures and pledged to reduce export restrictions. The policy has also suggested the creation and strengthening of enclaves such as export processing and special economic zones, which would “immunize” exporters from the constraints affecting the rest of the economy, such as infrastructure and administrative problems. The Government estimates that annual export growth of almost 12%. Hope the policy makers are listening. International trade has become the key word of the present era. It has grown phenomenally. So Product becomes Trade.

Price becomes Tariff:In today’s business the exchange of goods and services across international boundaries or territories is become normal. In most countries, it represents a significant share of GDP. Tariff refers to the duties or taxes imposed on internationally traded goods when they cross the national borders. Virtually all of today’s developed countries built up their economies using tariffs and subsidies (and many other measures of government intervention) throughout the 19th century and most of the 20th century (in particular, until the early 1970s). United States maintained average industrial tariffs at around 40 per cent, and never below 25 per cent except for brief periods, far higher than many other developed countries. During 1950-1973 the so-called ‘Golden Age’ the six fastest growing countries including America were high tariff countries Japan, Italy, Austria, Finland and France.

One of the most important features of the international trading environment is the proliferation of trade barriers. A country can have several reasons for imposing a tariff. For example, a revenue tariff may be applied to an imported product that is also produced domestically. The primary reason for this type of tariff is to generate revenue that can be used later by the government for a variety of purposes. This tariff is normally set at a low level and is usually not considered a threat to international trade. When domestic manufacturers in a particular industry are at a disadvantage, vis-à-vis imports, the government can impose what is called a protective tariff. This type of tariff is designed to make foreign products more expensive than domestic products and, as a result, protect domestic companies. A protective tariff is normally very popular with the affected domestic companies and their workers because they benefit most directly from it.  India has had one of the highest tariff walls in the world.  The Chellaiah Committee steadily reduced the peak level of tariffs from over 300 per cent in 1995 to 25 percent in 2003, excluding agriculture and dairy products. The organizations like WTO prefer tariffs to non-tariff-barriers (NTB) because tariffs are transparent and less regressive than NTBs.  Thanks to WTO, there has been a significant replacement of NTBs by tariffs. Hence, Price becomes Tariff.

Place becomes transportation: Brilliant marketing logistics covers physical distribution plus managing marketing channels. The importance of transportation to economic growth and productivity is undisputed. Transportation confers place-utility and time-utility to products and services.  At the macro level, progressive transportation modes contribute handsomely to the national economy. At the micro level, techniques have been developed and refined for determining the economic impact of transportation programs and projects. It has been observed that there is a shift in hiring services of contracted and third party transporters by many organizations.  An increasing reliance on the use of externally contracted services eases out maintenance and logistics tensions. In transport terms, this is witnessed by the growth of the logistics and total distribution providers including express freight and logistics services companies. Economies of scale achieved within the transport sector by logistics providers act to reduce the costs of provision of the transport element of a business, together with increased complexity and benefit of using Intelligent Transport Systems (ITS) in the delivery of the logistics ‘product’. UK High street retailers including Marks and Spencer and Sainsbury regularly contract a majority of their distribution functions to third party suppliers, although Sainsbury maintains a small number of own account transport distribution facilities. Close home; the big retail organizations like Shopper’s Stop, Viveks, and Big Bazar also work on intelligent transportation logistics to achieve economies of scale. Key to the increasing globalization of industry is the provision of quality air transportation. Air services have a vital role in reducing travel times, increasing accessibility and therefore improving economic efficiency and productivity. Critical factors in companies’ decisions to locate near an airport include the need for rapid delivery of products (air freight) and for international business travel. Airports serve an important role in attracting inward investment, particularly from overseas, help to stimulate and sustain the growth of local businesses by opening up new markets and supply chains. Of course of particular importance for air transport is the level of services provided (e.g. direct flights to relevant locations at suitable times or good inter-connections) and surface access as well as the actual physical infrastructure.

A research shows that businesses in computing, software, research and development, biotechnology and some food manufactures as well as the banking, finance and insurance are heavily dependent on air freight and air services prefer to be located near the airports. Airports can promote the ‘clustering’ of businesses, whereby a number of interlinked manufacturing and service activities are concentrated in one place. Airports are frequently the focus of ‘clusters’ of businesses and services. It is important, to examine transport factors such as timing, reliability and perception of cost in the value chain. Sometimes, it can be as important as cost itself. Movement of goods both upstream and downstream of elements of the manufacturing process has become typified by inclusion within the wider production process. The transport elements of the production become internalized to the costs and pressures of the wider supply structure. Tighter control of delivery and use of stock, Just In Time (JIT) practices, and a demand for added value in components (part finished and partial component assembly) increases demands on the logistics elements of the supply chain. Demands placed on businesses and supply is also changing, in line with increased accuracy and flow of information, and in terms of consumer expectations. Multi-national and large firms have maintained and increased the complexity of their operations while reducing own account transport requirements, while many smaller sized companies have developed around geographical and technical clusters resulting in changed demand and reducing costs of transport provision. The changing pattern of logistics especially (but not solely) in manufacturing has potentially profound implications for the role and impact of transport upon employment location (consumer service companies are also greatly affected by logistics changes but front line premises are more dependent upon the best customer location, although warehousing may be affected by logistical changes).  Transportation plays a pivotal role in making the goods and services available to customers – progressive transportation models help the   businesses to become successful. So Pace becomes Transportation.

Promotion becomes transformation: The dictionary meaning of the world transformation means to put into simpler terms, to change from one form, function, or state to another; convert or transform. Promotion keeps the product in the minds of the customer and helps stimulate demand for the product. Promotion involves ongoing advertising and publicity (mention in the press). Activities like advertising, translating message to the consumers and transforming the business with profitable sales are often considered aspects of promotions.

The advertising industry is passing through one of the most frantic periods in history due to diversity in media channels. The stalwarts are unable to handle more curious and aware customer. Diversity is the central issue of the global village. The multicultural and multilingual effects of society reflect on media diversity. Television networks, which once upon a time were the best option of reaching the mass audience, are no more a favorite of advertisers. It does not attract the same amount of viewing anymore.  Digitalization is taken over. Could computing is adding to the diverse media habits of both marketers and consumers. Change in TV-viewing habits is however; only part of a much wider shift in the way media is consumed.  People are spending less time reading anything, they prefer reading and writing on their mobile handsets. But, they are going more to cinemas listening more to the FM radios, people are turning in ever increasing numbers to the Internet. This shift is due to escalating need of the consumers to access information easily.  The technology bust is changing the media habits of the people like never before.

Getting trendsetters to buy new product or service is no great idea. The scene is changing. Everett Roger’s innovators and early adopters are no more the favorites of the markets, instead now they look forward to pursue the prosumers.   Prosumers can be defined as professional consumers. A large chunk of marketers are of opinion that this group is much powerful.  They are not impulse driven like the innovators and early adaptors; they go slow and steady but once they accept a product they support it.  They are serious buyers in sense they do a lot of research before their buying decision. From a high-tech product like a camera, a VCD, a computer to not high-tech product like clothing or a professional course the prosumers venture to buy these only when they are satisfied with their self-study.   This group of consumers is proactive in nature. Euro RCGC, a world renowned market research agency recently completed their prosumers survey spanning over nine countries in the world. The study concludes that prosumers represent 20% or more for any category of products. They can be found everywhere in the world, they are vanguard of consumerism movement. The prosumers often reject traditional ads and invariably use the Internet to research for what they are going to buy and how much they are going to buy for what price etc.  They don’t trust companies and brands, which are not advertised on Internet. Companies have to be extremely open about providing information on net to attract these prosumers.

Prosumers are by definition early adopters but they are also much, much more: They are proactive in seeking out information and opinions; active in sharing their views and experiences with others; ahead-of-the-curve in their attitudes and behaviors. Early adopters tend to be more “one dimensional”, i.e., they tend to be defined by the particular behavior of adopting early. The prosumers demand transparency and authenticity from the marketers.  Transforming them into consumers requires a different ball game altogether.

Traditional marketing is changing; customers are getting more sophisticated and price sensitive. They expect products and services to be delivered faster and more conveniently and they have no qualms about switching to competitors. Competition is making firms edgy, with customers responding swiftly to any new development, irrational rivalry among products, harsh price wars, and industry is changing at a rate that is hard to predict. Innovation is the key for sustenance. Promotion therefore becomes Transformation.

The market was and will always remain indefinable.  Customer is the KING. Give him what he wants. Companies survive on the strength of their brands; marketers must be ready with strategies if brands fail. Some time companies suffer due to unclear objectives, myopic view of markets can spoil the entire strategy. When products reflect corporate desire rather than customer needs it portrays ‘Marketing Myopia’ of the company; respond fast by shifting from 4 Ps to 4 Ts.

Core competence and competitive advantage

Core competency: Organizations with core competencies enjoy global leadership. It represents the organization’s will to harmonize their multiple resources and skills. It distinguishes the firm in a market place because of its products and service’s uniqueness and because they become difficult to imitate by others. In such an organization, all business strategies revolve around the core competency. Core competencies give a company one or more competitive advantages, in creating and delivering value to its customers in its chosen field. Organizations which believe in spending generously on research and development can and the ones which experiment and investigate the processes can develop core competency. Core competencies lead to the development of core products. Core products are not directly sold to end users; rather, they are used to build a larger number of end-user products. For example, let’s take the example of Honda’a expertise in engines. Honda was able to exploit its core competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles. Honda can boast of its sharp and competitive engineer’s team who can be credited for its core competency. In another example, Microsoft has expertise in many IT based innovations where, for a variety of reasons, it is difficult for competitors to replicate or compete with Microsoft’s core competences in building software.

The term was popularized by Hamal and Prahalad, back in 1990 in the Harvard Business Review. Peter Drucker was one of the first to mention it in 1964 when he focused on ‘strength analysis’. A core competency comprises of reliable processes, synergy with customers & suppliers, a patent, an industrial design, know-how, unique product development, a brand/s, marketing strategy, business strategy, supply chain etc.

Core competencies are a pack of skills and technologies that are very difficult or impossible to copy or match; skilled employees, tacit knowledge, organizational endowment, collective values, supreme technology, and organizational ethics culture – these are some features which add to the core competency of an organization. The primary reason for 3M’s success is its people. 3M has always motivated its employees to innovate, think different and progress in their relative careers. This company has been blessed with generations of imaginative, industrious employees in all parts of its enterprise, all around the world.

Globally leading organizations are realizing that one of the components of core competency is people. A study was conducted on three hundred and fifty-eight Managers across the Johnson & Johnson Consumer & Personal Care Group (JJC&PC Group) globally to assess if there are specific leadership traits and competencies that distinguish high performers from average performers. The company did not stop only at conducting a study, it designed and organized educational and developmental programs for its employees across different ranks globally, to familiarize employees with the concepts of emotional, social and relational competency, and to share strategic leadership process. These sessions also served as the launch for the newly enhanced leadership models. As usual many other organizations have already replicated them.

Companies with core competencies identify their key business processes, manage them centrally, and invest in them heavily, looking for a long-term payback.

Sony’s  innovations have become part of mainstream culture, including: the first magnetic tape and tape recorder in 1950; the transistor radio in 1955; the world’s first all-transistor TV set in 1960; the world’s first color video cassette recorder in 1971; the Walkman personal stereo in 1979; the Compact Disc (CD) in 1982; the first 8mm camcorder in 1985; the Minidisc (MD) player in 1992; the PlayStation game system in 1995; Digital Mavica camera in 1997; Digital Versatile Disc (DVD) player in 1998; and the Network Walkman digital music player in 1999.
Today, Sony continues to fuel industry growth with the sales of innovative Sony products, as well as with the company’s convergence strategy. The company has never compromised on persistence in R&D.

Back home, a cigarette manufacturing company ITC has got into a wide range of diversifications such hotels, processed foods, biscuits and greeting cards. How does ITC manage this unrelated diversification? Unrelated diversification will succeed only if it is based on the core competency of the firm. ITC has leveraged beautifully on its core competency of distribution, brand building capability and its strength of quality outsourcing.

Core competencies take a long time to build and practice. Organizations which continue the practice with perseverance by adding accuracy and particular sets of skills succeed in building core competency. New sets of skills and newly acquired knowledge should be steadily spread in the organization to facilitate the processes.

Competitive advantage is a business strategy where companies find ways to differentiate themselves from their competitors to attract more business. Service-based industries, such as hospitality, banks, health care use competitive advantage strategies to gain an elevated position in the field. Usually competitive advantage is sought out of one or more functional advantages. Competitive advantages give a company an edge over its rivals and a capability to produce greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more complex it is for competitors to offset the advantage.

There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm’s ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competitors or to generate a larger margin on sales. A differential advantage is created when a firm’s products or services differ from its competitors and are seen as better than a competitor’s products by customers. Today India can boast of comparatively younger, English speaking low cost labour as one of her competitive advantage. This factor has given boost to outsourcing business in India.

The sources of competitive advantage have their limited life. Therefore, businesses are engaged in a never ending search to find new angles of competitive advantages. It’s all about finding some way of differentiating products and services from the competitor’s offerings. The whole purpose of business strategy is to find new sources of competitive advantage. Wal-Mart’s success lies in their cost cutting. Wal-Mart’s most operational processes are carried out in China because of their labor costs are which are much lower than many countries in world.

Toyota is Japan’s biggest car company and the second largest in the world after General Motors.   The fundamental reason for Toyota’s success in the global marketplace is its competitive advantage which lies in its corporate philosophy, the set of rules and attitudes that govern the use of its resources. The Toyota philosophy is often called as the Toyota Production System. The system depends partly on human resources management policy that stimulates employee creativity and loyalty besides Toyota has also built a highly efficient network of suppliers and components manufacturers. Much of Toyota’s success in the world markets can be attributed directly to its competitive advantage of its policies in human resources management and supply-chain networks.

One of the competitive advantages Hindustan Unilever enjoys is its edge over competitors in procuring raw material at low cost.  The company in past faced slow volume sales in categories such as soaps, laundry and tea, where rivals managed to gain market share through aggressive price cuts. But, HUL managed the price correction soon after sourcing more suppliers who offered the raw material at more competitive prices.

Warren Buffet the most successful investor of all times has always given importance to businesses with durable competitive advantage. He always relies on an extensive research-and-analysis. Buffet says that the global economy is complex and volatile, the economy and the stock market do not move in sync with it. The market discount mechanism moves instantly to incorporate news into the share price and last but not the least the returns of long-term equities cannot be matched anywhere else.

By “competitive advantage” Buffet meant a unique product or service that a business either makes or provides. Even if the employees can walk away from the business but they cannot take the business’s “competitive advantage” with them. Some examples of businesses with competitive advantage Buffet considers – are business’s brand names, for instance, Bell, Pizza Hut, Kentucky Fried Chicken or Wal-Mart. He gives importance to a business’s regional monopoly. We have plenty of brand names in India which enjoy regional monopoly such as Ghadi Detergent, Sasa washing powder, Wagh Bakari Chai, Sapat Chai, and Wai Wai noodles. The regional brands can afford to lose their micro focus from their markets. They have such a grip on their markets that national or international products need to spend tremendous resources to fight their regional counterparts. Buffet believes that durable competitive advantage companies can pass on their saving to their shareholders, and their investors.

When we think of best deal we think of Wall mart. Owing to its size it has enormous bargaining power with suppliers and sells at heavily discounted prices. They are low cost buyer and seller- Here the margins are traded for volumes; the advantage is buying at the cheapest price and selling at lowest prices to induce customers to its stores all over the world.

According to Hamel and Pralhad, the process of developing core competencies starts with the strategic intent of being a leader in the market by leveraging the resources. This thought of being a leader in the market is called strategic intentand it points at identifying various opportunity gaps.

In today’s over competitive business world managing the firm’s supply chain brilliantly is one of the strategic responsibilities. A well designed supple supply chain can be firm’s competitive advantage and it can support firm’s value chain. Today companies are under increasing pressure to reach out to their far-flung markets. Buyers want the products and services available to them as swiftly as possible; therefore companies are pressed to deliver when customers are ready to buy. Organizations are taking inputs directly from their customers. Customers are also in constant touch with firms; they are directing the firm’s supply chain right from what goes in the product, timing of the launch, packaging, price and delivery. And therefore, in this emerging world of demand-driven markets the supply chain plays a crucial role. It must not only be flexible and cost-effective, it must be able to respond directly to customer’s call.

Necessity is the mother of inventions. When people are hard pressed for finding solutions to their problems, they will figure out a ways to find them. This means people think laterally when they have to struggle, when they need to fight odds, when they are pushed to the corners. Since the beginning of human life, enormous changes around us have taken us to a path of scientific progress, which in turn has benefited mankind in a number of ways. In every era, men invented many things in order to cater to their rising needs. I would like to showcase in article how some great companies have brought in innovations and strengthened their supply chains.

This article is based upon pure desk research. The desk research technique is mainly acquired by sitting at a desk, using secondary data from various sources such as internet, newspapers, journals and magazines. My 20 years industry experience in the field of sales and marketing and later as my research in Marketing, has taught me that if a products however good it is, if not available when customers wants it can lose out its preference forever. 

In a news item published in Economic Times dtd 8^th June 2011, the former Finance minister Pranab Mukherjee asked chief ministers of all states in India to ‘urgently’ look into the supply chain of items and remove the bottlenecks that are driving food inflation in the country. In a letter to all the chief ministers, Mukherjee said particular attention should be paid to the local factors that are widening the gap between the wholesale and retail prices. The Food Corporation of India recently reworked its supply-chain management. It took help of some leading consultants to reduce the bottlenecks. The nodal agency that procures and distributes food grains across the country annually buys 250 lakh tones of wheat and 300 lakh tones of rice. In 2010-11, it lost a whooping sum Rs 482 crore due to lack of storage facility and constant transiting of food grains.

Food Corporation of India(FCI) uses linear programming technique to manage movement of stocks, this technique has a limited use as all loading railheads and recipient railheads cannot handle full rakes. At times, demands of nearby railheads are combined so that a full rake is used to reduce operational cost and time. Food grains are transported from surplus regions, such as Punjab, Haryana, Andhra Pradesh, Madhya Pradesh and Chhattisgarh, to deficit regions. A detailed monthly movement plan is charted out to help the Railways in allotting rakes and ensuring smooth movement of food grains. In September 2010, the Supreme Court asked the state-owned Food Corp. of India (FCI) to expand and modernize its distribution infrastructure, and noted that 50,000 tons of wheat had already worsened. The case brought renewed focus on the interlinked challenges of feeding India’s population and overhauling its food grain procurement, storage and distribution infrastructure.

According to West Bengal Governor, Mr. M. K.Narayanan, better supply chain management will help reduce inflations in the price of agro-products. Due to lack of proper governance of supply chain there is a huge wastage of food grains in India.

While on one hand when we see the Government failing to take the right measures to improve the supply chains, the private sector is using innovative techniques to combat bottlenecks in supply chain. Companies like Hindustan Unilever, ITC, and Godrej support their marketing channels such as wholesalers, retailers, stockiest for effective sales to nook and corners of the nation. In rural India mandis are emerging as the target centers for direct sales. BPCL (Bharat Petroleum) has introduced specially designed Rural Marketing Vehicle, which moved from villages to villages to fill gas cylinders on spot.

Another innovative distribution model that merits mention is the HLL’s Shakti project, which connects Self-Help Groups (SHGs) with business opportunities. Hindustan Lever promotes and uses the SHGs network present in the villages for increasing its sales in the rural areas. The SHGs are offered chance to become company’s local small scale distributor in the rural areas. The groups, typically of 15 to 20 people, buy a small stock of items such as soap, detergent or shampoos and then sell directly to consumers in their homes. The model is a win-win for the company and the village SHGs.

A supply chain that responds directly to customer needs may look quite different from the supply chains of the past. For one reason that today firms rank distribution function at the top of the value chain. Supply chains need some of the following characteristics

Visibility

Here visibility means an array of record and movement of goods with the right processes. The recording of the movement, events, and patterns that enable the automation allow accurate expectedness, this also enhances dynamic responses of all stakeholders in the business. Today supply chain professionals are insisting on the need for more visibility. After re-inventing the category of express parcel shipments, FedEx went a step further in the mid-1980s with its development of a new computerized tracking system that provided near real-time information about package delivery. Outfitting drivers with small handheld computers for scanning pick-ups and deliveries, a shipment’s status was available end to end. The Fedex system really drove the idea that information of the package movement was as important as the package itself. I must say that Fedex laid foundation of our current supply chain visibility concepts.

Adaptability

The supply chain professionals are realizing that the emerging markets in the globe are driven by middle class buyers who are cost conscious, always eager and demanding. Hence, supply chains need to adapt to the costing factor of firms. In 1982, 3M, like every other company, had to leave transportation decisions to each plant and distribution center. Roy Mayeske, at that time the Executive Director of 3M Transportation, got the idea to centralize transportation planning to look for network synergies. 3M took mainframe software being used by Schneider National – one of its major carriers and modified it to be workable from a shipper perspective. This enabled 3M to plan shipments, logical routing, curtail time gaps and intervals. Roy Mayeske thus brough a huge change to the company’s supply chain. Costs were cut, time was saved and most important damages and wastes saved.

Improved communication

A dynamic supply chain needs to respond to rapid reactions in crisis by keeping the response time short. Progressive companies in the world recognize importance of efficient communication and they take help of social media. Social media tools, like blogs, can be more effective in encouraging and idea sharing. TEVA Pharmaceuticals – a Canadian Pharma company has recognized that the speed of supply chain is about people talking to people. TEVA has beautifully harnessed the power of social media to reduce barriers in communication between internal functional groups and external functional group. Their VP –Supply Chain rests his decision by communicating with channels, suppliers, customers etc on social media sites. He says that social media has resulted in a “spontaneous association” between him and their customers.

Collaborating supply chain with value chain of the firm

Firms recognize these days that they need to team up with the right supply chain partner to enhance their value chain. Partnering with a good logistic firm for the movement of supply chain improves sales forecasting of the firm by getting closer to the points of demand and methodical supply. It strengthens strategic relationships with suppliers and marketing channels, enhances sales and operations planning to achieve corporate goals. An automated monitoring makes the supply chain hassle free.

Square D, a division of Schneider Electric, which is based in Palatine, Illinois, provides a good example of a nonlinear development flow in the electrical controls and automation management industry. Demand-driven innovation is an important part of Square D’s business, and the company actively engages its customers in developing new products. But instead of simply submitting specs for a desired product and waiting for Square D to produce it, customers collaborate online or on the phone with order engineers. Customers are allowed to talk to designers to suggest their own ideas or push back and forth on features. This however does not   create hurdles in the manufacturing process. The nonlinear program in their production process has made back-and-forth process easier, richer, and faster than it would be otherwise. The organization is always ready for innovating new designs of switches and circuit breakers. The supply chain managers are ready to plan ahead at the early stages of product development. Square D never compromises on the standard of components. Everything on the shop floor goes from step to step crisply. The overall result of Square D’s nonlinear flow helps the company a 30 percent reduction in order-taking cycle times.

Wal-Mart’s innovation in supply chain

In its persistent quest for low consumer prices, Wal-Mart embraced technology to become an innovator in the way stores track inventory and restock their shelves, cutting costs and passing the savings along to customers. In the process the company became synonymous with the concept of successful supply chain management. Through a combination of distribution practices, truck fleet management and technological innovations Wal-Mart became the model of supply chain efficiency. Wal-Mart’s core competency lies in its supply chain management. Wal-Mart showed the world that Supply chain management is moving the right items to the right customer at the right time by the most efficient means. In the 1980s Wal-Mart began working directly with manufacturers to cut costs; it went cutting costs because of eliminating the intermediaries.   From 1993 to 2001, Wal-Mart grew from doing $1 billion in business a week to $1 billion every 36 hours.

Under a Wal-Mart’s supply chain initiative called VMI (vendor managed inventory) manufacturers becomes responsible for sending the supplies directly to Wal-Mart’s warehouses. As a result, Wal-Mart is assured of 100 percent order fulfillment on merchandise.

Wal-Mart developed the concept of “cross docking,” or direct transfers from inbound or outbound truck trailers without extra storage. The company’s truck fleet and corps of non-unionized drivers continuously deliver goods to distribution centers (located an average 130 miles from the store), where they are stored, repackaged and distributed without sitting in inventory. Goods will cross from one loading dock to another, usually in 24 hours or less, and company trucks that would otherwise return empty “back haul” unsold merchandise. Collaboration Companies within the supply chain synchronize their demand projections under a collaborative planning, forecasting and replenishment scheme, and every link in the chain is connected through technology that includes a central database, store-level point-of-sale systems and a satellite network.

Wal-Mart is the first company in the world to implement ‘Universal Product Code bar codes’.  Through the bar codes store level information can be immediately collected and analyzed. Through a global satellite system the retail link is connected to analysts who forecast supplier demands effectively. In recent years, Wal-Mart has used radio frequency identification tags (RFID), which use numerical codes that can be scanned from a distance to track pallets of merchandise moving along the supply chain. Even more recently the company has begun using smart tags, read by a handheld scanner, that allow employees to quickly learn which items need to be restored so that shelves are consistently stocked and inventory can be closely watched. Wal-Mart reaps the benefits of its supply chain management by saving time, faster inventory turnover, increased warehouse space and accurate forecasting of inventory levels.

In another case from close home – in remote districts like Gadag chemists had to ensure that medicines are stocked well and can be offered during emergencies. Unfortunately, chemists such as Maranabasari had to wait for an emergency before reaching out to a distributor for life saving drugs, losing precious many hours for medicines to arrive.

Maranabasari found answers to his dilemma in the US army’s Global Combat Support System (GCSS); this is an Enterprise Resource Planning (ERP) commercial off-the-shelf application capable of managing a large volume of business transactions within a single database. It was was originally developed by Anup Akkihal, an Indian born in West Virginia. Maranabasari used it with several other chemists in the district, by paying Rs 100 every month for a software solution that tracks demand, sales and movement of drugs – all on a simple to use handset that does not need any fancy technology. Of course, the chemists had a tough time learning the usage of this technology.  

Akkihal, a post graduate in logistics from the Massachusetts Institute of Technology, found his inspiration to develop the software while working on a US Army project with defense contractor Northrop Grumman during July 2006. While working for the US defense, Akkihal realized that back home this technique could be used for the chemists’ solution of stocking life saving drugs. He along with his team, worked with local chemists like Maranabasari to develop a solution that could solve their problems in a simple, effective way. The solution developed by Akkihal, who sells the software through his firm Logistimo, is now gaining grip and holds potential for solving supply chain management problems faced by many village entrepreneurs in the country, experts say. Logistimo’s solution is finding takers in remote villages and districts of Africa.

Today, the World Health Organization (WHO) uses Logistimo’s technology to track the vaccines for the immunization drive in Tunisia since most regions there are not well connected to internet. It seems in past pipelines were used to send vaccines to remote villages; it was difficult to understand where the vaccines were. Kudos to Logistimo! It works on simple technology and not expensive.

3 PL & 4 PL: Indian firms have started using Third Party Logistics (3PL). Third party logistics providers typically specialized in integrated operation, warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials. These companies offer services that can allow businesses to outsource part or the entire supply chain management function.  Many 3PL companies offer a wide range of services including; inbound freight, freight consolidation, warehousing, distribution, order fulfillment and outbound freight. Firms opt for 3PL so that they can operate without much baggage; they become leaner by reducing assets and allowing focus on core business processes.

Globally the growth of 3PL companies began back in the 1980’s when businesses began to look for new ways in which they could outsource logistics functions and concentrate on their core business. The increased awareness and usage of information technology due to revolution in IT services gave way to 3PL firms. One such firm which took the lead in 3PL revolution is Fedex.  Its overnight delivery services changed the logistics format for plentiful firms all over the world. It offered business operations the technique of just-in-time techniques which in turn allowed firms to save investments on warehouses, usage of space and reduce overall business cost. 

3PL industries originated in India after 1990.  The industry was pioneered by global logistics majors as a part of expanding these services to the Indian subsidiaries of multinational companies in automobile, electronics and FMCG sectors. Indian subsidiaries of multinational companies in these sectors took cue from their parent companies and began to outsource a share of their logistics functions to these specialist service providers. Though insignificant in the first few years, Indian 3PL industry is experiencing a rapid growth after year 2000. The number of participants in this industry had grown to be more than 400 by year 2005. The Indian 3PL industry can be divided into three distinct tiers – National Major 3PL companies with nationwide presence, Regional 3PL companies with strong presence in one or two regions, and Small Remote 3PL companies

4PL business is still at budding stage in India; they provide a wide range of value-added services that can range from business process analysis to hand work such as assembly, packaging and configuration besides the core activities of logistics.  4PL companies are hired by firms which engage services of 3PL.  The term “4PL” was actually coined by the consulting group Accenture. In fact, they also hold the trademark to the name 4PL. Accenture defines a 4PL in the following manner: “A 4PL is an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design build and run comprehensive supply chain solutions.”

In 4PL, logistics is controlled by a service provider that does not own the assets to carry out logistics activities but outsources to subcontractors, the 3PL. Some large Indian firms in various sectors have invested heavily on logistics whereas sectors such as cement, FMCG, electronics, consumer durables, automobiles, pharma, food processing and the colour & paint sectors are among the chosen sectors which rely heavily on 3PL & 4PL logistics. While multinational logistics firms such as SembCorp, Exel and BAX, have made way into Indian lands couple of Indian firms such as GATI and TVS Logistics are also slowly changing the way products and materials are distributed.

Globally most of the Fortune 500 companies have opted out hiring services of 4PL.  In India, IBM, Dell, Nike and Philips have handed over their logistics operations to 4PLs. Much of the 4PL service includes execution of activities directly or through 3PL service providers. The logistics activities and solutions have started covering compilations of orders, planning the dispatch, physical transportation, in-transit monitoring, confirmation of deliveries, payment to be made to the transporters plus providing MIS to the client and the entire gamut of physical distribution function.

Geographic multiplicity of India needs varied logistics expertise as each region has its own troubles. Logistics posses a main challenge in the growing Indian trade. Along with diverse geographic scenario h a diverse cultural and regional buyer behavior has made logistics operations complicated in India. The buyer behavior in each state varies from the other, coupled with the geographical diversity of each state. Each state requires a tailor-made logistics model. Today, we require multiple solutions logistics companies to suit the nationwide logistics needs. Hope the administration is hearing.

India faces infrastructure limitations which in turn challenges the logistic company’s work also. The congested roadways and heaving ports are resulting in significant delay in movement of goods, affect the performance of 3PL service providers; similarly, lack of sufficient warehousing and specialized storage facilities beyond major cities of the country result in 3PL service providers to restrain from offering warehousing services across the country, hence resulting in their failure to become the complete logistics service providers for clients. Perhaps, allowing these firms to construct their own warehousing facilities in strategic geographic locations and specific regions, could address this problem. If this strategy is adopted by the government then such geographic locations could be designated has warehousing hubs. Over and above, complex tax structures and corruption coupled with erratic bureaucratic control are some other hassles faced by logistics service providers in providing the best of logistics solutions for their clients.

Increased Use of Supply Chain Consulting

Inventory is usually an extremely important aspect of operational costs for many companies and must be managed with the most cost-efficient method possible in order to see profits. Firms today face rough challenges such as whether the firm has supply chain visibility; this structural issue includes the complexity of the product, the nature of the technology the firm uses and at what degree the brand loses its uniqueness and faces challenge of commoditization at each point in the supply network. The second challenge being how much visibility is good visibility; firms are cautious about their supply chain details as these details are of strategic importance. The information can be misused to sabotage a firm’s business plans, and its existence itself. The third challenge being how does a firm behave when it confronts risk?  Firms need to juggle with market changes, new product launches and specific distribution for them, handling marketing channels with a difference for new products and existing channels for older products with a different treatment, sourcing, new acquisitions, credit availability, protecting intellectual property, R&D and its results, shipment security, maintaining cordial relations with suppliers and distributors etc. Supply chains must periodically be assessed and redesigned in response to market changes. In addition, supply chain risks must be identified and quantified.

Firms depend heavily on supply chain consultants these days. The greatest skill of a supply chain consultant is normally the ability to immediately assess inventory costs and put plans in motion to reduce their impact. Supply chain experts typically try to match an inventory management approach that meets the company’s market, industry, customers and its business philosophy. They provide companies with the tools needed to lower their month-to-month carrying charges of inventory. A supply chain consultant may have a degree in logistics or supply chain management or may simply have enough years of experience within logistics and management to be considered an expert in the field. I see a great future for careers in supply chain as managing supply chain professionally is need of the hour!