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KEY SUCCESS FACTORS FOR STRATEGIC LOGISTICS AND SUPPLY CHAIN

MANAGEMENT TO ENHANCE COMPETITIVINESS

Conference Paper · November 2005

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 KEY SUCCESS FACTORS FOR STRATEGIC LOGISTICS AND SUPPLY
CHAIN MANAGEMENT TO ENHANCE COMPETITIVINESS
İbrahim S. KARAKADILAR1

Abstract  This paper considers logistics and supply chain management as a means to achieve and sustain
competitive advantage under rapidly changing business conditions. Supply chain management plays a
significant role in enabling companies to adapt themselves to the current concepts of global economics and
total quality management. The global economic structure is a changing as a result of the shifting economies of
developed countries. This involves a change from manufacturing and industrial products to knowledge
creation and in particular the generation and export of design knowledge. In today’s global market place it is
rare that goods are produced and consumed in the same location. Furthermore, the raw and partly processed
materials are also supplied from many different sites. The finished products are collected at distribution
centres and then transported to destination points where they are consumed. Therefore, logistics management
plays a key role in the functioning of current global economics. In customer oriented competitive markets, it is
essential to achieve high quality during the manufacturing and distribution phase in order to satisfy customer
needs. To successfully achieve total quality management, it is not enough just for the internal functioning of
the company to adopt the concept, but the philosophy should be extended to all intermediates in the marketing
and related channels. Therefore, the effectiveness of a company’s supply chain management is the
determining factor in the successful implementation of the total quality management concept.

Keywords  Logistics management, strategic management, supply chain management, total quality
management.

INTRODUCTION
The purpose of this paper is to make a detailed examination of supply chain and logistics management
terms as defined in the academic literature. The main concern here is to provide a framework for further
research on importance of supply chain management in the competitive market place. A wide perspective
literature survey has been carried out within the scope of the paper, which looks at the strategic importance of
supply chain management from two different view points. The first is to create operational efficiency via
providing customer satisfaction with low cost, and the second is the evaluation of customer satisfaction levels.
In the first part of this paper, meanings of logistics and supply chain management terms will be discussed
and differences will be stated. Real business success stories will also be used to demonstrate how the supply
chain competence brings companies a competitive advantage. The second part of the paper will explain main
points to be considered while measuring and evaluating the supply chain performance and the main failures of
companies on measuring and evaluating their supply chain performance.
This paper considers logistics and supply chain management as a means to achieve and sustain
competitive advantage under rapidly changing business conditions. Supply chain management plays a
significant role in enabling companies to adapt themselves to the current concept of global economics and
total quality management. Interestingly, the development of supply chain and logistics management has
emerged from the same roots as quality management. Their theoretical underpinnings share much in common,
so they should be strengthened to support each other [1]. Total quality management can be described as a
philosophy of providing customer satisfaction through producing goods by efficient use of resources without
waste and fulfilling the user needs and expectations in terms of the cost, quality and ease of use. Total quality
management can only be implemented by the participation of all sections of an organisation, and with the
involvement of the entire workforce. Principles of total quality management are utilised in designing the
process and implementation to provide the security of supply chain management. It is important to understand
all stages of customer expectations, and to make genuine efforts to meet these expectations in achieving total
quality on the supply chain process. Definition, control and observation of inputs at each stage, immediate

1
Ibrahim S. Karakadılar, Yeditepe University, Faculty of Commercial Sciences, International Logistics and Transportation
Department, Kayışdağı, Istanbul, Turkiye, ikarakadilar@yeditepe.edu.tr
correction of errors as soon as they are detected, and redesign of the system to prevent the same mistakes
happening again are essential elements of delivering high level of customer satisfaction. To create this kind of
supply chain system brings satisfactory outputs for customers on each phase on the chain. The main elements
of quality in supply chain management are the effective use of (1) human resources, and (2) information and
equipment technologies. These are definitely necessary to achieve quality in the supply chain process,
therefore, should be considered carefully by managers while creating the supply chain system.
The global economic structure is changing as a result of the shifting economies of developed countries.
This involves a change from manufacturing and industrial products to knowledge creation and in particular the
generation and export of design knowledge. In the global market places companies in developed countries are
not into producing commodities any more, but they are just focusing on the managing networks. The
components are produced in different countries and assembled in another. Baldwin and Clark describe
managing supply chain in this manner as “modularity”. Separating manufacturing processes this way lets the
big companies gain flexibility and cost cuttings by shifting lower value-added tasks to small companies [2]. In
today’s global market place it is rare that goods are produced and consumed in the same location.
Furthermore, the raw and partly processed materials are also supplied from many different sites. As Magretta
noticed on his interview with Fung that “higher-value-added tasks such as design and quality control is
performed in major country, and out sources the lower-value-added tasks to the best possible location around
the world”. Fung calls that dispersed manufacturing. The finished products are collected at distribution centres
and then transported to destination points where they are consumed. A typical example of this global sourcing
at Fungs’ company happens like this: get an order from a European retailer to produce 10.000 garments ...
yarn is supplied from a Korean producer ... and shipped to Taiwan to be woven and dyed ... Japanese company
YKK has the best zippers and buttons but they manufacture them mostly in China .. and right zippers are
ordered from their Chinese plants ... and finally the best place to make the garments is determined as
Thailand, because of quotas and labour conditions ... five weeks after they have received the order, 10.000
garments arrive on the shelves in Europe ... [3]. Therefore, logistics management plays a key role in the
functioning of current global economics as shown in the above examples.

LOGISTICS AND SUPPLY CHAIN MANAGEMENT

A small number of leading-edge firms use logistics as a competitive weapon to secure and maintain
customer loyalty. These firms are more responsive and flexible, are more committed to their customers, are
more aware of their results, work more closely with their suppliers, are more likely to embrace technology,
and are more involved with their firm’s strategic direction. The leading-edge firms do many things different
than other companies, especially the about logistics competences. Excellent companies seek to add value to
the products and services they market, supporting this goal by operating a cost-effective logistics system [4].
Today, in an era of shrinking product life cycles, proliferating product lines, shifting distribution chains, and
changing technology, mastery of logistics management has become an essential ingredient of competitive
success. The following logistics related topics are important to increase customer satisfaction for
competitiveness of companies: on-time delivery, short lead times, product delivered in good condition, and
effective handling of problems [5]. Markets have been changed by such factors as power shifts from corporate
buyers to end users, the requirement for mass customisation, globalisation, time, and quality based
competition, advances in technology, increasing knowledge intensity, and changing government policies [6].
To gain competitive advantage over its rivals, a firm must deliver value to its customers through performing
these activities more efficiently than its competitors or by performing the activities in a unique way that
creates greater differentiation [7]. A firm can create a competitive advantage by adopting a strategic
perspective with respect to computers, information and communication technology [5]. Effective use of
information technology and successful supply chain management process are regarded as critical factors for
organizational competitiveness and survival [8]. An important example of creating value-chain by information
technology between manufacturer and retailer sides is the relationship of Procter & Gamble with Wal-Mart.
These two giants have developed a partnership that has become the benchmark for manufacturer-retailer
relationships. The top managers of both companies succeeded in converting that vision into an action plan,
which involves examining how the companies could use information technology to increase sales and lower
cost for both parties. An electronic-data-interchange link enables P&G to take responsibility for managing
Wal-Mart’s inventory. P&G receives continuous data by satellite on sales, inventory, and prices for different
commodities at individual Wal-Mart stores. This information allows P&G to anticipate the sale of its
commodities at Wal-Mart, determine the number of shelf racks and quantity required, and automatically ship
the orders-often directly from the factory to individual stores. Electronic invoicing and electronic transfer of
funds complete the transaction cycle. This system enables Wal-Mart to pay P&G very shortly after the
commodity is sold to the end consumer. Information technology in supply chain management creates the
win-win proposition of reduced costs and greater revenues for both parties [9]. Another success story of using
supply chain management as a competitive weapon is the Swedish home furniture retailer IKEA, who runs the
world’s largest catalogue based home furnishing ordering system. The company’s insistence on low costs
from its suppliers has two important implications. First, the sourcing of components is widely dispersed.
Second, the company orders path in high volumes. Both factors make it imperative for IKEA to have an
efficient system for ordering parts, integrating them into products, and delivering them to stores while keeping
the cost of inventory to minimum [10].
After stating the importance of logistics and supply chain management, it is now necessary to consider the
definition of these terms. Some recent definition these terms from well-known logistics and supply chain
management authorities are given here. The logistics is the process of strategically managing the
“procurement, movement and storage of materials, parts and finished inventory and the related information
flows through the organization and its marketing channels in such a way that current and future profitability
are maximized through the cost-effective fulfilment of orders”. The same author defines the supply chain
management as “the management of upstream and downstream relationships with suppliers and customers to
deliver superior customer value at less cost to the supply chain as a whole” [7]. The Supply Chain Research
Group at the University of Tennessee has defined the supply chain management as: “the systematic, strategic
coordination of the traditional business functions within a particular company and across business within the
supply chain, for the purposes of improving the long-term performance of the individual companies and the
supply chain as a whole” [6].
One of the well-known logistics authors, Hugos, states that “supply chain management is the coordination
of production, inventory, location, and transportation among the participants in a supply chain to achieve the
best mix of responsiveness and efficiency for the market being served” [11]. He also observes that there are
differences between the concept of supply chain management and the traditional concept of logistics.
According to Hugos, logistics typically refers to activities that occur within the boundaries of a single
organization, but supply chains refer to networks of companies that work together and coordinate their actions
to deliver a product to market [11]. Another definition about differences between supply chain management
and logistics is given by Long. Logistics is getting things to where they need to be, but supply chain
management takes this process further by organizing the overall business operations and the way it interfaces
with other companies and organizes ongoing logistical functions. In other words, when you want to get
something to a customer once, you are doing logistics. When you are organizing the company for ongoing
logistical functions, you are more in the realm of supply chain management [12].
Published literature on the supply chain management revolve around the following ideas: (1) effective
purchasing and distribution, (2) focus on long-term relationships between trading partners, and (3) operational
integration of trading organisations [13]. Companies in any supply chain must make decisions individually
and collectively regarding their actions in five areas: production, inventory, location, transportation, and
information [11]. Finally Hugos determines the three steps to use in aligning your supply chain with your
business strategy. The first step is to understand the markets that your company serves. The second step is to
define the strengths or core competencies of your company and the role that the company can or could play in
serving its markets. The last step is to develop the required supply chain capabilities to support the roles your
company has chosen [11]. As it is stated on the above definitions, the supply chain management concept does
not only consider one company’s cost and profit goals, but the system as a whole. Therefore, when making
performance measurements and evaluations, it is important to measure end customers’ satisfaction level as a
result of the value provided by the whole system rather than measuring effectiveness of a single company.

MEASURING AND EVALUATION OF SUPPLY CHAIN AND LOGISTICS OPERATIONS

PERFORMANCE
Single rapid changes are occurring in nearly all markets, suppliers must be flexible enough to restructure
their logistics network within a short time. Therefore, business process re-engineering has an important role to
play when dealing with restricting or improving supply chain related issues. The main driver behind the
business process re-engineering philosophy has been the search for more time-effective ways of managing the
supply chain. The universal purpose of business process re-engineering is to cut costs as quickly as possible
and to develop innovative ways of doing things that result in higher customer satisfaction. Korpela,
Lehmusvara and Tuominen [13] have emphasized application of the “Analytic Hierarchy Process” to supply
chain development. This approach involves seven steps, which can be summarised as follows.
1. Defining and describing the core process: the two important considerations under this heading are
that (1) the core processes should be defined based on the strategic objectives of the organisation by taking
into account the customers’ and suppliers’ view points, and also (2) the impact of all activities should be taken
into account on the value provided to the customers.
2. Defining the performance measures and objectives: this step is directly related to the scope of this
paper, and hence more detailed examination needed. Published literature emphasise that the measure should
reflect the aims and objectives of the main interest groups such as customers, share holders and work force.
The measures should be capable of combining operational and financial follow-up data, and should link
operational objectives to the corporate level critical success factors and goals. Three main performance
measure groups are suggested: customer satisfaction, flexibility, and efficiency. Within all these main measure
groups, attention should be paid to at least three main indicators: quality, time, and cost. In defining the
performance measure and objectives for the logistics process, the hierarchy could include the following levels:
(1) the goal is to “define the performance objectives for logistics”, (2) strategic objectives of all interest
groups (such as the company, customers, logistics service providers, etc.) should be taken into account in the
development processes, (3) the third level includes analysing the impact of strategic objectives of the interest
groups on logistics, (4) the fourth level includes key performance areas of logistics, such as reliability,
flexibility, quality, and added-value tasks for customers, and finally (5) in the fifth level, the key performance
areas are divided further into sub-elements.
3. Analysis of customer requirements, competitive position, and the operating environment: this stage
involves a systematic analysis of the customer requirements, the competitive position of the company and the
development of the operating environment.
4. Analysis of existing process: a process, to be set up to identify the relevant problems in the analysis of
a logistics process, may include for example (1) the goal, (2) the interest groups affected by the logistics
process (such as customers, logistics service providers, etc.), (3) the strategy, i.e. logistics related objectives of
the interest groups, (4) the key performance areas of the logistics process, (5) the sub-process of the logistics
process, (6) the relationship between the sub-processes and the problems in hand, and (7) the identification of
the necessary actions to eliminate problems.
5. High impact analysis: the objective of the high impact analysis is to define those core processes of
which the re-design has the highest impact on the strategic objectives of the company. The first step in the
high impact analysis is to analyse the impact of the core processes on the critical success factors (such as
customer value and profitability). In the second step, the improvement potential of the processes with respect
to the key performance areas (customer satisfaction, flexibility, and efficiency) is assessed. The third step
involves synthesising the results of the first two steps and prioritising the core processes.
6. Benchmarking: the purpose of the benchmarking analysis is to define the “best practices” in the core
processes. To support the benchmarking for the logistics process re-design, the following levels can be
structured: (1) the goal, (2) the logistics key performance areas, and (3) the different performance levels
(rating scales) with respect to each key performance area.
7. Identification of the possibilities provided by new technologies: the potential of new technologies is
firstly analysed with respect to the critical success factors of the company, and then the potential impact of the
new technologies on the key performance areas is analysed. In the third step, the results of the two previous
steps are combined in order to be able to prioritise the analysed new technologies.
Basic foundation of measurement and evaluation of the supply chain processes should be the co-
ordination focusing on the end customer buying behaviour instead of the internal logistical efficiency. In
practice, there are three themes regarding customer responsiveness: customer focus, visibility, and co-
operation [14]. The definitions of these customer responsiveness themes are given below.
Customer focus comprises of: (1) meeting customer requirements, (2) anticipating customer needs and
deliver above their expectations, (3) being customer centric, and (4) meeting the needs of the customer.
Visibility comprises of: (1) enabling customers to look inside, transact and have visibility of products in
real time until receipt, thus resulting in reduced workload, increased service levels and customer confidence
and loyalty, (2) understanding the demand variability in each section, and being able to put a structure in place
that makes the company ready and prepared to meet demand variability.
 Co-operation comprises of building communication channels to do business together and to take full
advantage of the opportunities that this presents.
Harrison and Godsell [14] have identified in their research definite misunderstandings in four companies
that are leaders in their sectors regarding their performance measure and evaluation. These companies were
using traditional easy to measure simple performance indicators such as “fill rate of order books, percentage
orders available for delivery, fill rate for each part, percentage of order lines available for delivery, on time
shipments, percentage of shipments collected by the hauler on time, customer complaints and percentage
complaints against number of orders processed”. Harrison and Godsell concluded that none of the companies
studied had developed “Key Performance Indicator’s” that were clearly related to end customer satisfaction.
The closest measure of customer satisfaction is based on the logging of customer complaints. But this is not
sufficient as it is only a reactive measure that is post event. Although all four cases studied were large
international organisations, they all relied on traditional, easy-to-measure “Key Performance Indicator’s”.
Perhaps organisations may be claiming to measure the end customer satisfaction, in reality all they are doing
is to measure the operational performance related to dealing with their supply chain customers [14].
Lastly on this chapter the “balanced scorecard” will be mentioned, which links performance directly to
strategy, making it especially valuable for supply chain management. The “balanced scorecard” is a new
approach of measuring organizational performance by using both financial and non-financial data. This
method is only used in measuring the factors that create competitive advantage. Schary and Skjott-Larsen [15]
provided a literature survey on the usage of the “balanced scorecard” measurement techniques in the supply
chain. Performance measurement indicators of the “balanced scorecard” regarding financial perspectives of
the strategic supply chain management are: (1) profit margin of supply chain partners, (2) cash-to-cash cycle,
(3) revenue growth, and (4) return on investment on assets. The indicators for the customer perspective are:
(1) product/service – number of contact points with customers, (2) timeliness – order response time, (3)
flexibility – flex response, and (4) customer value (performance/cost) ratio. The indicators for the business
process perspective across the entire supply chain: (1) waste reduction – cost of running the supply chain, (2)
time cycle efficiency, (3) flex response choices and average response time, and (4) cost of the achieved target.
Lastly, innovation and learning indicators are: (1) innovation – product finalization or postponement, (2)
partnership management – product category commitment ratio, (3) information flows – shared data sets to
total data sets – cooperation, and (4) threats – performance trajectories of competing technologies [15].
As it can be seen on the above literature search, the important aspect of the measurement and evaluation
of the supply chain management performance is that it should be customer centred. Secondly, the success of
the supply chain management operations depends on the coordination of the activities of all participants along
the value chain in order to achieve the first aim.

CONCLUDING REMARKS
This article considers the key success factors to increase their competitive level with their logistics and
supply chain management competences to be successful in intensive competition conditions. This topic has
been discussed with two different aspects. The first one is to achieve competitive position on customers’ eyes
by efficiency of logistics operations and way of reducing costs. The second aspect is to specify correctly the
key success factors in relation to necessary logistics and supply chain management to shift customer
preferences towards the company. The results of the literature search in the first part of the paper are
summarized in Table 1.
The key success factors, which are determined in the second part of the paper, are that financial and non-
financial measures should be used while measuring the supply chain performance and these measures should
cover the strategic objectives of the firm as a whole. Measures can be categorised in to two groups in respect
of where they are made and their coverage. The first one is the internal and easy to apply measurement
methods, which are used to measure the efficiency of logistics operations implemented to achieve individual
firms’ strategic objectives. The second is the external methods, which are difficult to apply, but very effective
in measuring whether the firm has achieved its strategic objectives. External methods measure the consumer
response. For the measurement of customer response, it is important to establish an analysis system based on
the measurement of customer focus level, visibility level and the cooperation level. The purpose of evaluation
of measures should be to increase the customer value and profitability.
 TABLE 1
The Conceptual Differences Between Logistics and Supply Chain Management (SCM)
From Logistics Perspective From SCM Perspective

Logistics is the activities such as manufacturing,
location, inventory, storage and transportation,
which occur within the firm’s boundary.
SCM is to achieve operational efficiency and
customer response during the product marketing
phase through the organisation of logistics
functions by the companies on the chain affecting
each other.

The target of logistics management is to meet
customer orders with minimal cost through internal
logistics activities and the two-directional flow of
information during the movement of products from
supply sources to the end user.
The target of the SCM is to provide efficient
customer response with the lowest possible cost
via establishing coordination between the firms.
As mentioned in the paper, there are two methods
used for this purpose: dispersed manufacturing and
modularity.

Human resources and equipment technologies are
essential elements to operate logistics activities
effectively. In other words, the logistics
management is a strategic administration of
activities in accordance with the logistics needs of
the company.
It is necessarily to establish cooperation between
firms on the value chain via information
technologies, which allows the firms to implement
win-win policies i.e. SCM is the strategic
coordination that needs to be established between
firms.

To gain competitive advantage through supply chain management, the following three points should be
considered: (1) Properly identify target customers and customers’ needs, and to carry out activities to satisfy
these needs. (2) Ensure quality during the manufacturing and distribution phases to meet customers’ needs. (3)
In order to succeed in the total quality management approach, it is not enough to secure the participation of all
sections of the organization, but also the participation of all members along the marketing channel.
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