How Does a Concentrated Cluster Enhance the Supply Chain Management and Therefore Improve the Firm Performance? Any Drawbacks?

How does a concentrated cluster enhance the supply chain management and therefore improve the firm performance? Any drawbacks?

Supply chain management is improved through the use of concentrated clusters because of the relationships developed between the supplier and customer. Utilizing a concentrated cluster adds benefits to a company since the clusters are linked to several companies and other entities within the same industry. Being involved with clusters allows the company and customers to be more familiar with their particular needs. When the relationship between the business and the customer is long standing, it adds a personal touch to the support of the customer. Many benefits can be derived from having clusters such as providing a consistent product. In the logistical sense it is companies coming together forming a bond that will benefit all involved. It is another way of forging a relationship of trust and reliance upon the entities involved. The creation of a supply cluster brings together the production, transporter, supplier together allowing them to voice concerns that will assist all in support of their business venture.

Clusters enhance the supply chain by gaining increased acceptance as a tool used by firms to both improve customer service and reduce total costs. Geographic distance adds to supply chain complexity and increases logistical costs in the supply chain. An argument can also be made for the benefits associated with the increased interdependence and mutual commitment that accompanies a cluster and a tightly woven supply chain. Being part of a cluster allows companies to operate more productively by offering better access to employees and suppliers, access to specialized information, complementarities between businesses, access to institutions and public goods, and better motivation and measurement (Dewitt 2006).

Clusters are also viewed as providing the capacity and flexibility to react rapidly to a customer request. A company within a cluster can often source what it needs to implement innovations more quickly, given that local suppliers get closely involved in the innovation process. Given the closeness of companies within a cluster, both in terms of geographic proximity and relationships, companies are seen as being able to experiment at a lower cost and delay large commitments until they are more assured that a particular