Supply Chain Management and Concentrated Clusters Distribution

Supply Chain Management and Concentrated Clusters

Distribution Systems

Author's Notes

Concentrated Clusters and Improvement in Supply Chain Management and firm's overall performance

Clusters are geographic concentrations which comprise of interconnected organizations or associations that manufacture products or deliver a service to a particular industry or field. Clusters are mainly a mix of companies belonging to the same industry or located in the same technological facility sharing resources like infrastructure, suppliers and distribution networks. It mainly consists of three or more companies with downstream extension to channels and customers and lateral extension complementary goods' manufacturers including companies with industries related skills, technologies and inputs (Cognizant 20-20, 2011).

Concentrated clusters have immensely wide benefits to each firm's performance, particularly performance pertaining to supply chain management efficiency. There are certain common characteristics which clusters hold and thus benefit the firms in improving their overall performance and supply chain management are; physical proximity, complementary core competencies, activity base, collective growth potential, competitive position and industrial organization and coordinating mechanisms (Cognizant 20-20, 2011).

Due to the close relationship built between the suppliers and customers, the customers and suppliers are more likely to be familiar with their particular needs, giving customers a more personalized feel about the product/service provided to them. Forming clusters, in terms of logistics, is all about various entities creating a bond benefiting all involved and as a result produce and provide a consistent product. Furthermore, increased acceptance of a cluster as a tool helping improve customer service and reduce costs is the biggest benefit clusters provide in supply chain management. Another major benefit that companies which are part of clusters enjoy are the benefits of better access to resources like employees and suppliers, specialized information, complementarities that businesses share, institutions and public goods and better motivations and measurements helping them achieve operational and productive efficiency. The concentrated clusters help firms by facilitating them with greater capacity and flexibility in responding to customers' requests (DeWitt, Giunipero & Melton, 2006).

Given the proximity of suppliers and other sources, the companies in clusters could make use of these resources to quickly implement innovations and personally be a part of the innovation process. Also, the proximity of companies geographically and in terms of relationship helps them experiment ideas/innovations at lower costs and evaluate more cost effectively whether to invest in an innovation considering its profitability, thus helping firms become more profitable and enhance its overall performance with efficient supply chain management. In short, the advantages of physical proximity, core competencies and relationships development help firms in clusters to integrate their behaviors and processes thus identifying goals, share information and risks thus benefiting from cooperation and maintain long-term relations to keep an aligned focus (Cognizant 20-20, 2011).

Variations of the concept between International and Domestic firms

Although the Concentrated clusters concept is the same, yet there are certain differences in the management concept between international firms and domestic firms. The benefits remain the same for both domestic firms and international firms. However, considering the upstream, downstream and lateral extension of firms at an international level expands the opportunities for firms to grow greater than the clusters consisting of domestic firms. Although the distances increase when including international or oversees firms in the clusters, yet the opportunity of expanding in international markets and availing the supply chain benefits in terms of international suppliers, infrastructure availability and other resources at lower costs help firms diversify at lower cost, thus improving their profitability and overall performance.

The concept's application may differ according to the international standards put forth and according to the domestic standards set forth for clustering. For instance, China is known for its low cost labor, thus the forming of clusters in China is done with the purpose of achieving low cost and faithful partners in similar businesses. At domestic level China produces same merchandise under clusters of various domestic factories, thus achieving competitiveness in domestic and international market. While considering China makes an international cluster with international firms, the international firms entering would comply with China's main focus along with other countries' focuses integrating and thus producing a wider focus area (DeWitt, Giunipero & Melton, 2006).