Lock down the point of supply

chain250To drive growth in any business you need to find some point of difference which can give you a head start on the competition. You need a competitive advantage which is sufficiently important to your target market that you get the business rather than your competitors.

Even better if you can establish some unique characteristic in your product or service which is directly related to solving the problem your customers have. The conventional answer is usually strong intellectual property position but not every business can create this advantage. However, a little more creative thinking might suggest that you try to gain control over an item of supply which is essential to the end-user solution. You then own the entire supply chain.

We tend to forget that there is an entire conversion process from ingredient, component or knowledge all the way through to a finished product or service. Every element in that supply chain is a potential point of control – if that element is essential to the final product or service. What you should look for is a situation where there is a unique, single sourced item which you can gain control over. If that element of input must be used to provide the end-user solution, then whoever controls that input controls the customer solution.

Most products and services are made up of numerous inputs where all the inputs are in sufficient supply and from multiple suppliers and therefore you cannot achieve control over the input situation. But this does not apply to every product and every service. The objective of this strategy is to look for situations where you can gain control. You may need to develop new solutions, or acquire them, in order to achieve this objective. You might start with the end-user product or service and work backwards or start with a unique supply source and work forwards.

In gaining control, you are seeking a situation where you can lock down the supply input either by buying the supplier or by signing an agreement whereby you are the only business that has access to it, perhaps for the specific application you sell. You might sign an agreement for a specific market or geography. There are many businesses which have gained considerable traction by being the only distributor within a geography, especially for small population countries such as Australia, especially if the source is on the other side of the world where they have lots of markets to keep them busy.

There are a wide range of inputs where this model can be applied. Ingredients, components, software products, sub-assemblies or even finished products can all offer unique sales advantages. But don’t forget information, knowledge, capacity, location or a rare skill as inputs. All of these can be used to create unique input situations in specific applications.

When you are seeking a sustainable competitive advantage, it pays to think outside the square and look across the entire supply chain to see where you can find a unique advantage. Supply inputs are often overlooked but should be given careful attention.

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