Concentrated clusters and supply chain management efficiency improvements

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).

Negatives of Concentrated Cluster Theory

The theory is highly beneficial and many industries and firms have reaped fruitful rewards from implementing the theory, there are certain disadvantages that it brings along with it. Although the firms are working within clusters in mutual cooperation, there are still chances of disagreements among the firms within a cluster, especially in case of internationally concentrated clusters. As clusters geographically combine firms, these geographic boundaries vary according to countries, businesses and individuals. This geographically circumscribes the clusters according to the perceptions of participants (businesses and workers) and might sometimes prove to be ineffective in case the participants wrongly calculate the geographically concentrated scale for forming clusters. Thus these are a few drawbacks of the theory (Brown, 2000).