EVALUATING SUPPLY CHAIN STRATEGY, CASE IN POINT: DELL
Supply chain strategy is different from supply chain management. Supply chain strategy is a detailed term when compared to the supply chain management. If supply chain operations are controlled to reduce the costs then it is called as the supply chain management. The way how supply chain should operate to compete with other companies is called as the supply chain strategy. To shorten the cost and time of a manufacturing unit of a company may be called as a supply management and to make decisions about the supplier selection is called as the supply chain strategy. Supply chain strategy may be involved anywhere from the procurement of raw materials to the delivery of end product to the final consumer. Many organisations don't have a clear picture of the differences between supply chain management and supply chain strategy. The supply chain strategy if implemented properly in a company then it helps in the value creation of the company.
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A business strategy can be defined as the direction in which the organisation wishes to go. Business strategy is finding and using the core competencies of an organisation to achieve a defined high level goal or objective. It involves the decision making process and the analytic process. It deals with what to offer, where to offer and when to offer. The organisations may be having a proper business strategy like to become a low cost provider or a quality conscious but not a proper supply chain strategy. The fact is that supply chain strategy acts as a complement to the business strategy. The supply chain strategy always helps to operationalize and support an organisations business strategy. The reason and need for a supply chain strategy is that it helps you to establish how you work with your supply chain partners, industry suppliers, distributors, customers. The operational cost which is a critical factor for an organisation can be reduced by implementing a supply chain strategy and also the efficiency is maximised by implementing the supply chain strategy. After knowing the importance of the supply chain strategy in an organisations business strategy organisations started giving importance to the supply chain strategy and started implementing it in complement to the business strategy. There are some steps involved in developing a supply chain strategy and executing a supply chain strategy. They can be explained as follows.
2.Developing a supply chain strategy: The organisations after knowing about the importance of the supply chain strategy and its effects on its business strategy tend to develop a proper supply chain strategy.An organisation follows the following procedure to develop a supply chain strategy.
2.1.Understanding the business strategy: The executives who wanted to implement supply chain strategy have to clearly understand how the enterprise chooses to compete. The supply chain strategy doesn't act merely as an operational department but also forces the supply chain operation to see itself as a customer facing entity serving the competitive goals of the enterprise. If the business strategy is to be low cost provider then the supply chain strategy has to support that. As we try to notify some things while making a business strategy similarly we have to look at the core competencies, focus, and means of differentiation while developing a supply chain strategy.If the organisation is able to provide a unique type of service or lower costs to customers then supply chain strategy can be the lead reason for that.
2.2.Assessing the Extended Supply Chain: A detailed, realistic assessment of the capabilities that exist within the organization has to be done after understanding the business strategy. Evaluate properly the organizations assets and liabilities. Try to analyze how this asset will support the implementation of the supply chain strategy. To evaluate the operational strengths and opportunities a formal supply chain assessment has to be done by a non biased outside party. An organisation than can provide a benchmark in its operations or in that respect of any department has to be chosen. The organisation might be of the same industry or any other industry. After the assessment by the outside party a team has to be assembled to review and prioritize the recommendations validate the opportunities, define the risks, and the requirements for implementation. If the organisation lacks the operational assets for success of the supply chain strategy then it may have to go for capital investments.
2.3.Developing an implementation plan: A proper implementation plan has to be developed for developing a supply chain strategy. The plan has to be structured properly and precisely. The development of an implementation plan should include activities and tasks, roles, responsibilities, a corresponding timeline, and performance metrics. A sub team has to be established to watch the execution and it should be provided with the project management responsibility. Resolving issues and tracking the status will also be the responsibility of the sub team that has been established.
2.4.Development considerations: The supply chain partners has to be included through out the development process. There is no need to completely convey the whole ideas to the partners but can safely communicate the idea or thought of the organisation.The common goals of the organisation and the partners has to be noted properly and work together to attain that common goal.
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2.5.Outsource where appropriate: An organization has to go for outsourcing where it feels appropriate. If outsourcing helps reduce the operational costs of an organization then it can surely go for outsourcing.
3.Executing Supply chain strategy: After successfully developing the supply chain strategy it has to be executed properly. The execution of the supply chain strategy has the following procedure.
3.1.Performance management: Properly following the implementation plan and applying good project governance is called as execution of the supply chain strategy.If the performance is managed throughout the implementation then it increases the chance of success of supply chain strategy.If the performance is tracked periodically it helps the organization to evaluate how successfully it is functioning.
3.2.Iterate the Cost - Benefit Evaluation Process:The supply chain strategy has to be formally visited periodically.Has the goals of the supply chain strategy been met has to be evolved.It has to be analyzed wether the needs of the supply chin partners has been met.Changes like new competitors, business practices, products, technology has to be analysed properly.On the whole analyse wether the appropriate benefits has been achieved for the cost that has been invested for the supply chain strategy.
3.3.Keep Communicating with Your Partners:While implementing the supply chain strategy it has to deal with lot of options and lot of patners also.The speed of the operations that the organisation intends to achieve can become a reality only if the suppliers are providing the materials at proper time if not it will create a problem in the supply chain strategy of the organisation.
3.4.Avoiding Potential Pitfalls: Research says that many of the organizational failures are not because of vision and strategy failure but because of failure in execution and also CEO strategy failure. Pitfalls like not getting things done, being indecisive, not delivering on commitments has to be avoided anyhow.
3.5.Align the Supply Chain Strategy with the Business Strategy: A supply chain strategy should always be developed such that it complements the business strategy. There is confusion whether business strategy has to be developed first or supply chain strategy.
The risks associated by developing these strategies together are:
Developing a supply chain strategy without a true understanding of the business case and value propositions.
Utilizing different or new resources in the operational model development that weren't exposed to the original business strategy thinking, thereby diluting and weakening the supply chain strategy.
Confusing or conflicting communications to the organization where objectives may be contradictory
Lack of ownership: Most of the supply chain processes have no defined owner
"Tower of Babel" problem: Most of the organisations do not speak the supply chain language
Organizational focus: Some of the managers are functional oriented and do not care some new concepts like supply chain strategy.
Extending the Supply Chain: As many supply chain initiatives include external parties coordinating with them is a hectic job.
4.Case in Point: Dell
Dell is one of the few most companies that developed a business strategy and a supply strategy and made them work together simultaneously. Dell's business strategy in 1990's was differentiation through low cost, speed of delivery, and customer service. Later the supply chain strategy focused at driving costs out of the supply chain - being the low cost provider - while at the same time supporting a business strategy emphasizing customer service.
Dell on its way to success: Each operational area in dell has agreement with other operational area. There were business performance contracts between each area. These operational contracts were directly linked to the individual performance. Collaboration, value engineering, outsourcing, and the Out-of-Box Experience (OBE) are the four areas of execution. These processes effectively kept the organization's focus on strategy through performance management. Dell wanted to improve the customer service and control costs so it worked well with the suppliers. It gave the customers an option that order for a laptop can be given directly by the consumer and specifications can be given by the customer itself. To support this model, Dell asked suppliers to keep inventories within 15 minutes of the manufacturing locations. Every two hours, the factory planning system sends out a computerized message to suppliers detailing what parts the plant needs. That means there is almost no inventory of parts or products in the factory. By this way consumers can assume that dell laptop is 2 months newer than other laptops that available in the market. In an industry where component prices fall about 20% per year, this means significant cost-of-goods-sold advantages for Dell.
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5.Conclusion: Supply chain strategy focuses on identifying and quantifying supply chain improvements and assisting clients in transforming their operations, from suppliers to the ultimate customer, to enable real strategic change and competitive advantage.A great supply chain strategy, linked with operational excellence, can provide success for not only the company in question but also its partners and customers.
I would like to thank Susan Happek the principal at UPS supply chain solutions who provided a detailed knowledge of the supply chain strategy online.I would also like to thank the ups supply chain strategy owners to making their knowledge about supply chain strategy available to the interested.
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