Document response and contact information

Clusters and Supply Chain Management

Managing and Improving Business

Clusters, or geographic concentrations of businesses that are linked together and create competitive success in their industry, exhibit three broad characteristics: Physical proximity, core competencies, and relationships. Clusters are beneficial to each of the businesses involved, and play a significant role in how a company is able to create a niche in their competitive advantage strategy. The communication and involvement between linked companies creates a significant growth in competition, productivity, innovation, and coordination improvement, and trust building (DeWitt, Giunipero, & Melton, 2006).

Supply chain management (SCM) is the management of intertwined businesses and stakeholders that are involved with a product or service (Harland, 1996). The process of supply chain management involves all firms in the integration process and process of building long-term relationships. In the development of involving the members with the integration, as well as strengthening long-term relationships, all those involved with the supply chain may benefit from lower costs, improved customer satisfaction and value, and a strong competitive advantage (DeWitt et al., 2006).

Clusters allow for a way to organize a value chain system in which both a formal hierarchy and an informal relationship are created and benefited from, and therefore the organizations can avoid vertical integration and formal linkages. One of the benefits of clusters is its ability create a more steady customer base in which repeated transactions are made. This is because the companies in which one links with are present within the local market. Other benefits improve the local economy and the clusters, such as reductions in inventory, minimized labor requirements, reduced costs of market entry, and lower risk of overpriced supplier promises. In being involved in a cluster, a company is also able to more easily locate specialized and experienced employees, which will reduce their costs of recruiting and hiring outside applicants (DeWitt et al., 2006).

As one can see, clusters are able to affect their competition in three main ways. First, it can create an increase in the productivity of companies. Next, it can set the standard and direction in which innovation moves. Thirdly, it stimulates the formation of new business, which overall expands and benefits the cluster. This is because clusters have quite low barriers to entry due to easily accessible assets, skills, inputs, and staff. Whether or not the strong clusters exist or are managed, they are a part of the supply chain process. However, companies should work towards building a strong cluster, as it improves firms and their supply chain process and relationships far more than if it is not managed (DeWitt et al., 2006).

As the market expands globally, an assumption that a company will become a global competitor is present. With the demands a company faces to globally compete, it seems paradox that it should also focus on its economic geography as a form of competitive strategy. However, as cluster theory states, proximity is primary to competition (Porter, 1998). When managers decide to relocate their company buildings or attempt to find new ways to build competitive advantage, they will find that there is risk in moving from their current location. By moving locations, a company will notice that the cluster in which they interact is potentially sacrificed, as proximity is significant in clusters theory. Many believe that searching for source input on a global scale will ensure that the best price is found, however, there may be the risk of losing out on linking with firms in the local area that provide benefits that lower the costs of running the business overall (DeWitt et al., 2006).

Local business provides many opportunities for informal business linkages that can improve performance and competitiveness. The productivity can be improved through access to employees and suppliers, specialized information, and supply chain network support in the local area. It can also increase local productivity through access to institutions and public goods, as well as have easier motivation and measurement of supply chain partners. Clusters that are within the proximity are also more focused on direction and faster innovation cycles, which allows for innovation visibility, enhanced flexibility, and lower risk of business failures, which the global market cannot compare with. Finally, a nationally set up cluster may benefit by stimulating the formation of new businesses within their location. This provides knowledge of business opportunities, quicker identification of gaps in products and services, enhanced local market opportunities, and shorter feedback loops (DeWitt et al., 2006).