How Can Logistics Help to Achieve a Competitive Advantage?

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Competitive Advantage > Best Practices > How Can Logistics Help to Achieve a Competitive Advantage?

How Can Logistics Help to Achieve a Competitive Advantage?
David Matwa Nyabwari
How can logistics (transport, warehousing, customer service, inventory control) contribute to a Competitive Advantage (CA) of an company? Thanks for your ideas...

Competitive Advantage and Time Competition
Piero Mella, Teacher, Italy, Premium Member
This article might help you to find some answer. “Time Competition. The New Strategic Frontier”
Chiara Demartini, Piero Mella, iBusiness, 2011, pp. 136-146.

The Added Value of Logistics
Hessel Visser, Partner, Netherlands, Member
Logistics can contribute to a competitive advantage by supporting the improvement of the flow of goods and information in the organisation so that the turnaround of money is increased while also offering a good customer service.
Return on Investment = profit margin * inventory turn over.
Logistics can support both the profit margin by lowering costs and inventory turns by reducing lead times.

Question for Hessel Viser, Partner, Netherlands
Utkarsh, Student (MBA), Member
@Hessel Visser, please explain how Return On Investment in your view depends on inventory turnover
Because I think Return On Investment is dependent on:
- The gains from the investment, and
- The cost of the investment.

Value / Price Index to Approximate Competitive Advantage Built on Better Logistics
Javier Elenes, Business Consultant, Mexico, Member
If our VALUE / PRICE INDEX (VPI) delivered to the customer is higher than the strongest competitor we have a "competitive advantage".
In this formula VALUE = (QUALITY x SERVICE).
If your Quality x Service and your Price are the same as your competitor's, you don't have a CA.
For example, suppose:
- Your quality as perceived by the customer is 80 and the quality of the Competitor is the same 80. The Q index = 100.
- Your service (for example as measured by % of deliveries on time promised is 70% and the competitor has the same 70%. The S index is also 100.
- If you and your competitor also both have the same price of 100 dollar, your VPI will be 1.00, calculated as VPI = (80/80 x 70/70) / (100 / 100) = 1.
- Your sales people are going to ask you to reduce your price "to be more competitive".
- Should you decide and be able to improve your perceived service from 70 to 90, and you and your strongest competitor will still offer the same price, your VPI is 1.28. That means that you offer 28% more value for the same price and THIS IS YOUR CA built on better logistics, warehousing, inventory control.
Last Note: I´m realize that of course this is a pseudo-scientific competitive formula, but I have seen it working. Let me know your results...

Sustainable Competitive Advantage of Logistics
Bahman Norouzpour
First, make sure you appreciate the difference between a CA and a Sustained CA.
Logistics can be considered to offer a CA for a company if that 'edge' is not simultaneously implemented by any current competitor.
But to make that CA into a SUSTAINABLE one, it is additionally required that these other firms are unable to duplicate it.

Inventory Turnover and ROI
Andrew Blaine, Business Consultant, South Africa, Member
@Utkarsh: In business, working capital is tied up in stock. This stock is, hopefully, sold profitably, which increases the cash flowing into the business.
This cash coming into the business is, eventually, distributed to investors as dividends, generating a return from the original investment. The greater this dividend, the greater the return on investment.
I hope that clarifies the position, in simplistic terms.
Editor: indeed, see also Days Inventory Outstanding and Cash Conversion Cycle, which are efficiency measures based on this same idea.

What is Logistics --> Competitive Advantage of Logistics
J. W. Mphande, Manager, Malawi, Member
First of all, define what LOGISTICS is. Wikipedia defines logistics as "the management of the flow of resources between the point of origin and the point of destination in order to meet some requirements, for example, of customers or corporations. The resources managed in logistics can include physical items, such as food, materials, equipment, liquids, and staff, as well as abstract items, such as information, particles, and energy. The logistics of physical items usually involves the integration of information flow, material handling, production, packaging, inventory, transportation, warehousing, and often security". Or see this discussion on the definition of logistics.
From understanding this definition you can then move on to find the links between logistics and CA of an organization.

Sustainable CA can Only be Achieved at Supply Chain Level
Dr Mohammed Farid Abdulghany Ahmed, Consultant, Saudi Arabia, Member
CA can simply be defined as the unique offered added value that other parties (rivals, competitors) cannot provide. Competitive strategies are adopted by organizations to maintain and sustain their competitiveness.
The only way to achieve a CA is that you and all your partners in the supply chain adopt the same competitve strategy as you have (starting from the customer order cycle and ending with the manaufacturing cycle).
Moreover, the rapid changes in the corporate environment (whether internal or external) have made the (sustainable) CA process more dynamic and raised the importance of efficient and flexible decision making techniques, supported by appropriate decision making dashboards / MIS.

Logistic as Competitive Advantage
Bernhard Keim, Business Consultant, Germany, Premium Member
Good logistics make it easier for suppliers and customers to reach, access your company. Delivery quality and delivery time are hurdles for your company, your suppliers and your customers. Less hurdles = better access. Logistics is an integral part of a company's value proposition. If it matters to your customers it should matter to you. If you don't take care of it, someone else will.
To establish good logistics always causes costs. But one has to take the opportunity cost of revenues lost by mediocre logistics into account as well. Ask your customers and suppliers whether they are willing to pay for better logistic services. Try to find the possible customers that don't make business with you because delivery times are too long or unreliable.
Also never forget companies aren't selling products, they are selling solutions. Especially in B2B, your company is an integral part of the supply and value chain of your customer. If it does not fit into that seamlessly, you are causing problems for your customer.

How Logistics can Offer a CA
Sifiso Ndhlukula, Manager, Democratic Republic of the Congo, Member
Properly managed logistics definitely can offer a competitive advantage.
Picture this scenario whereby you are in the retail industry and you rely on your supplier's delivery vehicles. If the supplier has a number of customers, you will have to follow their distribution channels and sometimes your supplier might not meet your expectations. You will end up with stock outs.
If you invest in your own logistics, you can have a competitive advantage because now you can control your own distribution channels.
Investing in logistics often costs a lot, but there could be a good return on that investment in the form of less selling 'no' to your customers.

CA via Logistics
vascogorjao, Student (University), Portugal, Member
A key competitive advantage can be to negotiate long-term partnerships of trust with suppliers. The mutual adoption of integrated Information systems will allow that the information of the point of sales flows in real time from the stores to the manufacturers, replacing stocks for real time demand information.
In doing so inventory cost is reduced and a competitive advantage can be obtained for the entire supply chain.

Competitive Advantage is Only True When in the Mind of your Customers
Barry Martin, Business Consultant, United Kingdom, Member
Logistics, i.e. getting goods on the shelf does NOT give a competitive advantage, but not having it right is a competitive disadvantage.
Manage the top 20% of sellers and the link and associate products will give a performance advantage.
Service when defined on the customers terms definitely is a sustainable competitive advantage, even in commodities, because you help customers make better decisions.

No CA without Considering Cost
Francilio Dourado Filho, Business Consultant, Brazil, Member
There can be no CA without considering the costs. Having real CA requires that, in comparison with the competition, the competitor can operate with a lower relative cost and / or charge a higher relative price.
It is exactly this basic economic relationship between relative price and relative cost that creates CA.

2 Ways in Which Logistics can be a Competitive Advantage
Gary Bernier, Consultant, United States, Member
There are two primary ways that logistics can be a CA:
1. Lowering the overall cost of delivery to a customer. Better logistics can also mean lower inventory requirements, faster delivery, lower freight costs all of which are financial benefits to a customer. Where returnable packaging is used, better logistics can reduce the overall program costs.
2. Creating a close relationship with the customer. Typically, this means being geographically closer to your customer than your competitors. The Japanese have a concept of customer intimacy. It literally means being close to the customer - you can response faster than your competitor - you understand the customer better than your competitors.
So logistics, used strategically, can be a significant CA.

How Can Logistics Help to Achieve a CA
Yuriy, Analyst, Russian Federation, Member
Good coordination and planning of logistics operations can make good savings on internal costs.
These funds can be sent to marketing, adding efficiency to the process of promoting and selling.
Controlling processes in the supply chain can improve the quality and speed of customer service that will add a competitive advantage.

Consider also (International) Comparative Advantages
jaime cortabarria, Consultant, Colombia, Member
My intention is to globalize the context. It is also necessary to take into account the comparative advantages of his company, which can make the logistics of your business efficient and competitive.
Example of comparative advantages: 1: geographical position, 2: proximity to river network, rail, road, zone, and more.

Measuring Service in the Value / Price Index Formula Above
Simon Lum, Consultant, Australia, Member
@Javier Elenes: In your above formula, just delivering on time may not be a good enough measure of service. It is delivering on time and in full that measures a good service.

On Time, % First Field, Time to Solve a Claim, Etc
Javier Elenes, Business Consultant, Mexico, Member
@Simon Lum: You are right, it should be delivery on time as promised and % perfect first time. And maybe the time (hrs?) to solve a claim or suggestion received from Customers.

Competitive Advantage with Logistics
sudheer Kothamasu, HR Consultant, India, Member
Logistics adds 'time' and 'place' utility for a product. It provides complete information about customers requirements. Logistics adds 'value' to your product.
To gain a CA, maintain good logistics. It will save time and money for your entire supply chain.

Competitive Logistics through Supply Chain Planning
avinash, Manager, India, Member
A strategic supply chain planning solution provides clients with a process that enables organizations to effectively synchronize their supply chain strategies with their company’s strategic plan by:
- Integrating supply chain stakeholders in the strategic decision-making process, and
- Synchronizing the strategic supply chain strategy to the operational, tactical, and execution strategies of the organization.
This process blends supply chain design, inventory optimization and value-based management, which enables you with the ability to evaluate key strategic initiatives and their impact on key financial metrics.

CA of Logictics
Juergen Kanz
You will get a CA when you are capable to solve the two major problems of each supply chain:
- Avoid abundant shortages and surpluses
- Don't carry high inventory on several places.

Logistics Contributes Directly to CA
Purna Chandra, Business Consultant, India, Member
According to Porter, an organisation's competitive advantage stems from:
1. Cost Leadership (same value at less cost)
2. Differentiation of Product or Service (more value at same cost)
Possibly combined with:
3. Focus (in a niche)
Logistics is an integral part of the Supply Chain of an organisation and its partners, trying to achieve customer satisfaction with "faster, cheaper, better" products/services.
Managing a Supply Chain to achieve "On Time and In Full" (OTIF) results, involves superior strategies in Logistics, spanning components such as transportation,warehousing (network planning), inventory optimisation, information & funds flow etc.
The logistics cost forms a significant part of the total cost of the product and also it contributes directly to customer satisfaction by ensuring product availability and smooth reverse logistics in case of product returns.

Logistics CA
jacinta wamwaki, Kenya, Member
@Bahman Norouzpour: I agree only a sustainable CA is lasting. A competitive advantage is there for a time till your competitors catch up with you.
A CA through Logistics is very real and can be achieved by having a tight relationship with your suppliers by ensuring that there is real time supply that will also assist in avoiding stock holding of materials which tend to consume your profit through stock holding costs.
By having reliable suppliers you are assuring that quality will be available to your customers when they need your products at any time and place.

How Logictics can Contribute to a CA
Peter Andrea, Student (University), Member
Logistics is a major part of of supply chain. Proper logistics can contribute in a reduction of the total transaction cost, which will pave the way for a CA of the products in supply chain.

SCA with Logistics through Supplier-Customer Cooperation
Simon Lum, Consultant, Australia, Member
@Jacinta wamwaki: Sustainability of the CA can be achieved through supplier-customer cooperation and collaboration as @Dr Mohammed Farid Abdulghany Ahm already said. The customers can help the supplier to supply at a certain quantity/quality/cost/time by sharing their forward plans. This enables Just-in-time practices and help to reduce inventory carrying costs.

Why Logistics is a Factor in SUSTAINABLE Competitive Advantage
Istvan Szeman, Consultant, Hungary, Member
I have no doubt that logistics can contribute to SCA and when it does contribute, because improving logistics efficiency takes a lot of time and effort, given the difficulty that it has to deal with two contradicting factors, namely cost and service level.
This is far more complicated than solving the economic order quantity equation or calculating safety stock. A lot of the SCA challenge is on the HUMAN side, especially when it comes to flexibility of the supply chain or the customer-facing processes and practices. What is also very tough to improve, I believe, is the flexibility and quality of supplier logistics, even though that is managed from a buyer position, which is a powerful position, however, the challenge is the CULTURAL differences between supplier and buyer organisation.

An Example of Logistics Offering Competitive Advantage
Helen Strong, Business Consultant, South Africa, Member
Innovation in logistics can add substantially to the competitive advantage.
For example in RSA, one company that specialised in fast food deliveries has extended their services to deliver credit cards... magic. They are security cleared and because deliveries are carried out until late in the evening, the consumer has the convenience of fast home delivery. The fast food delivery company also has an additional revenue stream. Way to go!

How Logistics Contributes to Competitive Advantage for All Supply Chain Parties
Scott McKay, Consultant, Australia, Member
As a customer I consider that for my suppliers Delivery In Full On Time In Specification (DIFOTIS) is the greatest source of CA. This enables me to sell more effectively, deliver with greater reliability and achieve a greater return on investment (profit margin * working capital turnover). So DIFOTIS along the chain secures the greatest CA for all in the chain.

Achieve Competive Advantage in Logistics by Outsourcing it
Kyrian Agbodike
The competitive advange is that all of these logistic activities can be outsourced using best practices. Proper management of these logistics will bring down the total cost of ownership and improves the return on investment.

How Logistics Can Enhance CA
Uduakobong Sunday, Management Consultant, Nigeria, Member
No seriously-minded business operator who has options would want to maintain a continuous relationship with a supplier who does not provide timely delivery of goods/services. Where all the chains of supply are effective towards timely delivery of goods/services, logistics can enhance CA.

Competitive Advantage - Intangible Assets
Dr. Uwe Schindler, MBA, Manager, Germany, Member
Please let me highlight 3 stages which might help you to answer the question:
1. According to Barney (1991) 4 empirical indicators of the potential of a firm's resources to generate SCA are: Valuable, Rareness, Inability to imitate, and Non-substitutability.
2. Peteraf (1993) describes 4 cornerstones of CA: Superior resources, Ex post limits to competition, Ex ante limits to competition, and Imperfect resource mobility, which are conditions to earn economic rents.
3. Srivatava, Shervani, Fahey (1998) argue that intangible assets can add unique value to customers (i.e. knowledge, reputation, competence, trust).
And if you compare firms in an industry where achievements, products, services become homogeneous, at least from the perspective of the customer, the firm has only the possibility to achieve CA by intangible assets (i.e. relational assets). If such a firm would try to differentiate by price (i.e. by dropping prices underneath the competitor to be always better), the firm sooner or later meets break even and cannot earn economic rents anymore (meaning no CA is possible anymore).

Intangible Assets as a Competitive Advantage
Andrew Blaine, Business Consultant, South Africa, Member
@Uwe Schindler: The most obvious example of an intangible asset offering sustainable competitive advantage is the formula for Coca Cola. Knowing this formula and producing a competitive soft drink from it would really harm Coca Cola, but it is not easy to do. Generally, the intangible part of any business (or Intellectual Property) provides a really significant competitive advantage.

Strong Logistics only is not enough for a Competitive Advantage
Ahmad Sultan Abdulla, Consultant, Malaysia, Member
In simplistic terms, if you have strong logistic arrangements - i.e. B2B systems (order, invoicing etc), transportation, warehousing, JIT delivery that is better and faster than your competitors and it would take some time to replicate all of that by the competitors, then you may have a CA.
However, as @Barry Martin said most clearly, for the CA to be real, additionally it must be valued by the clients and stand apart when they determine their choice between competitors.
Less cost leading to a higher margin may not be the only factor to achieve CA. Ease of doing business, understanding the clients' needs and promoting their brand will make the difference.
And these are part and parcel of logistical expectations.

Logistics and Competitive Advantage
Simon Lum, Consultant, Australia, Member
No statements of mission, goals or strategies will sustain CA until they are understood, accepted, implemented and practised by everyone in the organisation. The challenge lies in the firm's ability to train its people, change behaviors and consistently carry out those actions that will lead to achieving the goals.
A newly gained CA will soon dissipate when results or performance is not measured to indicate the level of customer acceptance.

How Efficient Utilization of Warehouse and Inventory Management Lead to Competitive Advantage
John Ebinum, Manager, Nigeria, Member
Just-in-time delivery means cost savings on warehousing space and inventory holding cost. Sustained application of this situation means lower operations cost and improved net margins.
Efficient utilization of an effective inventory management system means a lower number of SCM head count and optimization of human resources and financial resources. Sustained advantage by an organization over its competition will mean a CA for that organization.

JIT Provide BETTER Service WITH LESS Cost, Create Market Value and Economical Value
Javier Elenes, Business Consultant, Mexico, Member
@John Ebinum: Delivering JIT have a double positive effect on CA, Deliverering MORE VALUE (Higher Service to the Customer) and - as you stated - REDUCING COST Warehousing and inventory Cost).
A perfect example of the Japanese concept of "Make it Simple", doing better with less.

Competitive Advantage through Logistics
Festus Kurgat, Student (University), Kenya, Member
Hoe can logistics management be used as a tool for competitive advantage in a manufucturing industry?

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