Strategic logistics capabilities for competitive advantage and firm success

Journal of Business Logistics, 1996 by Morash, Edward A, Droge, Cornelia L M, Vickery, Shawnee K

In a heavily competitive environment, a major concern of business management in general, and logistics management in particular, is the strategic use of firm capabilities and distinctive competencies for competitive advantage. Firm capabilities are those things that a company does especially well that allow it to compete successfully and prosper in the marketplace.1 Logistics examples include customer service, product availability, time advantages, and low cost distribution.2 Part of the logistics message to corporate management over the last several years has been that logistics capabilities can make major contributions to overall corporate strategy and performance, and even sometimes provide the core competitive competence by creating differentiated customer value.

Capabilities or distinctive competencies have been defined in the literature as those attributes, abilities, organizational processes, knowledge, and skills that allow a firm to achieve superior performance and sustained competitive advantage over competitors.3 These two terms of "capabilities" and "distinctive competencies" are often used interchangeably in the literature. However, it has also recently been asserted that the older concept of distinctive competencies has referred primarily to production technology and physical abilities of the firm.4 The more contemporary idea of capabilities is a broader term that also embraces business behavior and processes such as customer service, responsiveness to customers, and order cycle time.5 Hence, the present research will emphasize the more modern term of logistics capabilities.

LOGISTICS CAPABILITIES AND VALUE DISCIPLINES

An emerging concept for logistics capabilities research and management practice is that different capabilities can support different "value disciplines" or strategic emphases.6 Two major value disciplines have recently been identified as customer closeness or intimacy and operational excellence.7 The first value discipline stresses the external customer, external customer interfaces, and external goals and objectives.8 It often embraces product or service differentiation and service enhancements from logistics capabilities such as time advantages or customer services. For simplicity, the present study will refer to this first value discipline as a "demand-oriented" or customer-oriented approach. Table 1 provides a listing of major demand-oriented logistics capabilities and their definitions. The list is based on a comprehensive review of relevant literature as discussed in the study's methodology section. These demand-oriented logistics capabilities relate to customer service, time-advantages, and responsiveness to target markets. Because of this study's emphasis on overall company strategies and the logistics discipline as a whole, only major strategic logistics capabilities are considered. Table 1 is not meant to be an exhaustive list of all possible logistics capabilities. The managerial SWOT analysis (strengths, weaknesses, opportunities, and threats) and value chain analysis (activity evaluation at each step or stage) can help identify firm-specific and industry-specific capabilities.

The second value discipline is related to an organization's operational capabilities. This "supply-oriented" value discipline stresses the internal customers of a company such as the marketing and production departments or retail outlets.9 It emphasizes distribution networks for market value and for competitive advantage.10 As shown in the bottom portion of Table 1, supply-oriented logistics capabilities that can potentially result in favorable business performance relate to product availability, convenience, and low total distribution cost. Again, for simplicity, the present research will refer to this second strategic emphasis as a supply-oriented to operations-oriented value discipline.

Both value disciplines of demand-oriented and supply-oriented capabilities have been described previously, but it is not clear whether both can be equally successful at creating sustained competitive advantage. Do they represent substitute strategies in a particular industry, or are they complements, and are they equally beneficial for firm performance? Existing literature tends to equivocate, with some articles saying that there is mutual exclusivity and that superior firms in the future will exhibit combined value disciplines.ll Some capabilities literature has suggested that physical capabilities related to new technology (e.g., robots and EDI) and machines (e.g., computers) are inherently more imitable and cannot be sources of long-term sustainable competitive advantages.12 In contrast, demand-oriented capabilities that result from behavioral relationships and interactions with customers, between channel firms, and from company culture are much less imitable and more likely to result in sustainable competitive advantages and superior firm performance.13

It is also not clear from the capabilities literature whether particular logistics capabilities as shown in Table I are equally important for firm success and for competitive advantage in an industry. Product availability and cost may be minimum hurdles to participate in a market as an "order qualifier" or approved supplier.l4 Other capabilities may reflect sustainable competitive advantages that make a firm an "order winner" or preferred supplier. If such is true, then these latter demandoriented capabilities might reflect true competitive advantages that deserve special managerial attention.