Supply chain strategy is often confused with supply chain management. Supply chain management's objective is to reduce all the costs involved by controlling all the supply chain operations. The supply chain strategy also does the same but in a broader sense; it defines as to how the supply chain of an enterprise should operate in order to remain competitive. Supply chain strategy is an iterative process that evaluates the cost benefit trade-offs of the various components in the supply chain.
Business strategy and supply chain strategy
Business strategy revolves around the core competencies of the enterprise to achieve a predefined goal and objective. It also includes the analytic and decision-making process surrounding the 4P's like what to offer (e.g., products and services), when to offer (timing, business cycles, etc), and where to offer (e.g., markets and segments) as a competitive plan.
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While the business strategy provides the overall direction to the enterprise objective, the supply chain drives it to that direction to achieve the goals. It includes the extended supply chain to meet the objective.
Why supply chain strategy is important?
Most companies have a business strategy, but are very unlikely to have designed clearly a supply chain strategy.
One good reason is to support and help in executing the business strategy. At some point of time, a business strategy has to be implemented. This is done through the various departments of the company. Supply chain strategy focuses on minimizing operational costs and maximizing efficiencies. For example, to remain competitive in its field of operation an organization may take up a strategy directed at supplier management. The organization should keep track of the strategy and then it will be able to achieve the goals it sought for. It can happen only if it clearly provides its purpose.
Another reason for having a supply chain strategy is to know as to how to work with the supply chain partners from suppliers to the customers. As the marketplace is becoming competitive day by day, the existing relationships should b reinforce and aimed at working together.
For the aforesaid reasons, a well executed supply chain strategy results in value creation for the organization.
Developing a Supply Chain Strategy
Understand the Business Strategy
The first step in developing the supply chain strategy is to clearly understand the business strategy of the enterprise. This is important because it forces the supply chain operation to see itself as a customer facing entity serving the competitive goals of the enterprise-not merely as an operational department. Supply chain strategy is not simply a linear derivative of the business strategy.
At best, supply chain strategy can be the enabler of the business strategy. If the business strategy is to be the low cost provider, the supply chain strategy should support this. And just like when developing a business strategy, we have to look at the core competencies; we should focus and find out means of differentiation when developing a supply chain strategy. If we are able to strategically source parts at an attractive price it will support both the supply chain strategy and business strategy. It will happen only if we have the capabilities to execute it effectively. So, we have to look at our supply chain competencies and leverage what we do well. The enterprise may want to focus on a particular market or segment in which to gain supply chain efficiencies or it may want to differentiate itself operationally by providing lower costs to customers or providing services that other industry players are unable to do.
Assess the Extended Supply Chain
The second step is to conduct a detailed, realistic assessment of the capabilities that exist within the organization and even the extended supply chain. To begin with, it should closely scrutinize its assets and evaluate how well they support the strategy. Old machinery and disparate systems may mean high operational overhead and costly process inefficiencies and redundancies - clearly does not support a low cost provider strategy. A formal supply chain assessment by a non-biased third party may assist in better understanding the organization's operational strengths and opportunities for improvement. So we should look for a firm that can provide the enterprise with operational benchmarks both inside and outside of the industry in order to determine core competencies.
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Once the assessment is complete, a team should be assembled to review and prioritize recommendations, validate the opportunities, define the risks, and the requirements for implementation. Ultimately, if there is a disparity between the supply chain strategy and the operational assets, we may have to make capital investments. Of course, the other alternative is to change our assumptions and alter our strategy all together!
Develop an Implementation Plan
This is a critical step, as from this step emerges the "go forward" supply chain strategy - directly tied to the business strategy, highly specific as to enablers and with a defined set of implementation requirements and contingencies. The development of an implementation plan should include activities and tasks, roles, responsibilities, a corresponding timeline, and performance metrics. To do so, a sub-team should be established to shepherd the execution and provide project management responsibility to resolve issues and track status.
Cooperate and Collaborate with Your Partners - Throughout the development Process, we have to include all the supply chain partners to get a better result. It is not necessary to divulge the full details of the strategy; but it should be properly communicate to them as to how we would like to do business. Ideally, it is better to seek out mutual goals that both organizations can execute on. Not only will it help in getting one step closer to realizing the supply chain strategy, but also we will learn more about the companies that we do business with. For example, collaboration in product design may meet our need to stem R&D costs and also alert you to new product concepts that we wouldn't have discovered without working with the customer.
Outsource Where Appropriate - while developing the strategy it should also evaluate the opportunities to outsource areas that are not its core competency. If someone else can do it cheaper and better, it may be worth outsourcing the job. It will not only bring down the costs, but also it will help the enterprise to focus more resources on the core competencies that it does well.
Executing Supply Chain Strategy
Execution does not mean just doing the assigned job but it also involves closely following the implementation plan and applying good project governance. Chances for success can be improved by managing performance throughout implementation and beyond. Tracking performance allows an organization to measure how successful it is in realizing the goals of a strategy. It also makes people understand their contribution and responsibilities, creating a more cohesive, in tune, organization. Performance management works best when people are rewarded for their performance and reporting is conducted on a regular basis. Moreover, performance goals should be used to communicate business expectations to outside entities as well. The more the extended supply chain is involved, the more the supply chain strategy is supported and reinforced.
Iterate the Cost - Benefit Evaluation Process
On a periodic basis (e.g., annually) the concerned persons should formally revisit the supply chain strategy. Did it meet the goals of the business strategy? Have the needs of the supply chain partners changed? How has the industry changed i.e., new competitors, business practices, products, technology? At this time, it may even require to reassess the, if the changes are significant enough. Also, these efforts should be used to look for new opportunities to further the position of the organization.
Keep Communicating with the Partners
Executing a supply chain strategy means dealing with many different entities, both internally and externally. Just as it is crucial to align the supply chain strategy with the business strategy, it is equally important to execute in a manner consistent with these different groups or stakeholders. The goals of the supply chain components and those that organization deals with must be similar and conducted at the same speed. The organization may be able to move at speeds other supply chain entities are unable to maintain, resulting in misalignment and poor efficiencies. And some of the supply chain partners may not have the resources to commit to realizing these goals. Good communication can keep the extended supply chain in sync.
Avoiding Potential Pitfalls
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Even before the well-publicized dot com collapes, business failures due to poorly implemented strategy were very frequent. Fortune Magazine reported in a study that CEO strategy failures occurred primarily (est. 70%) because of failure in execution, not with the vision and strategy development. "The real problem isn't the high-concept boners the boffins love to talk about. It's bad execution. As simple as that: not getting things done, being indecisive, not delivering on commitments." And supply chain strategy is no different! During the build & implement phases, there are additional challenges including:
Align the Supply Chain Strategy with the Business Strategy
Most companies develop a supply chain strategy after the business strategy has been defined. While this approach can deliver some value, it does not support the infusion into the business strategy development of very powerful supply chain model options, which could significantly improve the business strategy.
A supply chain strategy should always support the intent of the business strategy and it is precisely because of these different "levels" of the enterprise at which strategies necessarily must be developed, that companies so often have major gaps between their highest level business strategy and their supply chain strategy. There are some additional risks associated with developing these separately, which include:
Developing a supply chain strategy without a true understanding of the business case and value propositions - the costs and benefits are not known
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
The company and its organizational culture play a key role in developing and executing a supply chain strategy. The following are some common organizational challenges found in many companies:
Lack of ownership - many supply chain processes and value levers do not have an owner in the traditional sense
"Tower of Babel" problem - most organizations across the enterprise do not speak a common supply chain language
Organizational focus - some managers are functional or process oriented and do not understand the value levers' multiple drivers model
Extending the Supply Chain - most supply chain initiatives involve external parties (trading partners) which makes strong collaboration a requirement
The present scenario of business has change drastically to a strategic focus. The supply chain too has shifted from cost focus to customer focus and in the present environment to a strategic focus. So, the need to think strategically about the supply chain has never been more important. The success of a strategy is only as good as the company's ability to fully and properly execute it. 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.