Red Ocean Businesses And Their Red Ocean Supply Chains - Are You Swimming or Sinking?

“We typically lose out when a market commoditizes, and we no longer differentiate, further aggravated by us being too slow or expensive” Frans van Houten, CEO, Royal Philips Electronics


Red Ocean is where many firms compete, where they chase the same customers.  These businesses struggle at operating and market differentiation from others.  As a result, they can be viewed as commodity businesses where price is the key differentiation.  They have margin issues, problems with customer retention, growth problems, and are basically stuck in a rut.  Basically, these companies cannot tell customers why they should do business with them.

Sales promotions or similar efforts do little to generate volumes.  Building brand identity is difficult.  Finding new opportunities is a struggle.  Improvements, if there are any, are more incremental to present business offerings.  

There are increasing business challenges, even disruptions, that they grapple with and usually do not stand out with their efforts:

  • Globalization
  • Outsourcing
  • Multichannel   
  • Internet of things
  • Social media
  • Sustainability
  • And more

These companies often lack a strategy or do not have successful strategy and execution.  Strategic competitive differentiation is weak.  Their strategies resemble an operating or capital plan more than a strategy.  Focusing, even obsessing, on competition drives change attempts, even attempts at a strategy.  In too many cases, these firms are afraid to change.  They validate Einstein’s definition of insanity of doing the same thing over and over and expecting a different result.

These enterprises are moving closer to competitive black holes. Whatever the reason, standing still, doing nothing—which too many essentially do—is not strategically sound. Nor is trying to copy what another company is doing. Imitation may be a form of flattery, but it is a poor substitute for supply chain management that drives change. 

These manufacturers, wholesalers, and retailers operate their supply chains with a similar lack of competitive differentiation.   The supply chains are basically same-old, same-old.  They pull orders and ship to customers—just like everyone else. 

You can identify these firms. They have much money tied up in inventory—and some of them are products which do not sell or are out-dated. They rationalize about the low cost of capital to explain inventory levels. But they had the same problem when interest rates were higher. Yet with all the inventory, they struggle to deliver orders, complete, and on-time.

There are opportunities, such as e-commerce and multichannel.  However, Red Ocean businesses do not seem to understand what these mean and how what to do.  E-commerce is a global at a current estimate of 1.5 USD trillion.  And it is not just a B2C market.  B2B online sales are forecast to be 6.7USD trillion in 2020.  Consumers in the UK are expected to do 78USD billion by 2024.

According to A.T. Kearney, the top 15 countries for 2015 for e-commerce are:

  1. United States
  2. China
  3. United Kingdom
  4. Japan
  5. Germany
  6. France
  7. South Korea
  8. Russia
  9. Belgium
  10. Australia
  11. Canada
  12. Hong Kong
  13. Netherlands
  14. Singapore
  15. Denmark

Red Ocean companies, if they do e-commerce, think of online as having a website and shipping orders.  They do not understand that e-commerce has evolved into its immediacy.  Customers want delivery of their orders within 48 hours of order placement.  Red Ocean firms with Red Ocean Supply Chains cannot seize the opportunity.  They pretend immediacy does not exist and seem content with their piece of this large pie.  More missed opportunities and failed strategies.

They also do not understand how to serve multichannel.  The firms drag out their Red Ocean Supply Chains—and the company view that a supply chain is a supply chain.  The end result is they do not manage and service the diverse channels.  More of the same-old, same-old with the same-old results and same-old missed opportunities.

Having a supply chain organization does not, by itself, create opportunity. Everyone has a supply chain group.  Too many do not perform supply chain management as a way to develop new business opportunities and to create important competitive differentiation.

Red Ocean supply chains: 

  • Are monolithic. They provide a uniform, rigid, uniform, and undifferentiated service for different markets, customers, or other sales segments.
  • Are defined by functions.  It is really not about supply chains.  It is about shipping or distribution.
  • Are measured by costs.  Monthly the costs for freight and warehousing are tallied.  Customer service performance is not important—unless there is a problem with a customer’s shipment.
  • Focus on orders. The purpose is to ship and invoice them.  The emphasis is not about customers.
  • Are viewed as inbound and outbound. It is not about a supply chain that flows from suppliers to customers.   
  • Have a singularity.  There is no recognition of the two supply chains—product and information.
  • Act as a series of steps.  There is not an integrated process.
  • Carry more inventory than is required.  They invest more working capital and have less liquidity that can be used for developing growth and opportunities.
  • Struggle to deliver orders complete, accurate and on-time.
  • Perform no supply chain best practices.
  • Utilize technology primarily for functions, such as WMS for warehouses or “track and trace” for shipments.  There is no interest in supply chain visibility.

Why are they more likely to change the color of a box an as an attempt to grow business instead of changing how they use their supply chains to expand? Why do any strategies not recognize supply chain management as a competitive weapon?

The brick-and-mortar firms try dealing with the evolving role of e-commerce and omnicommerce.  The results are similar to their regular-world actions as to differentiation, growth, and margins.  They do not understand that one of the main issues is their continuing to use the same-old, red ocean supply chain. Even firms that are just e-commerce businesses do not understand the new ecommerce driven by the new supply chain that answers the immediacy requirement of customers.

There is hope.  Opportunities can be developed with the e-commerce and its immediacy, multichannel, global, and competitive differentiation.  These are created with Blue Ocean Strategy Using New Supply Chain Management.  Blue Ocean is where there is uncontested market space.  It is where customers want to do business with you.  The impact will sweep across markets, across industries (both B2C and B2B), and the world.

Do you want to swim in the Red Ocean with everyone?  Or do you want to be in the Blue Ocean?  Do you have what it takes for Blue Ocean Strategy Using Supply Chain Management? 


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