No matter the type of industry we talk about, whether we talk about the constructions industry or the fashion one, supply chains are always a big deal given the fact that they involve the end-to-end flow of information, products, and money in any organization. Thanks to this, the way a company handles its supply chain deeply affects its competitiveness in areas such as working capital requirements, speed to market, product cost and service perception, among other important areas. Due to this, supply chains must be strategically organized according to the business strategy in order to ensure its best performance.
Since 1997, starting with Marshall Fisher, different authors have talked about the revolutionary concept of supply chain segmentation, based on the idea that every product must have a different supply chain strategy behind it. At the same time, each strategy is composed of different elements that allow addressing the business value proposal needs based on customer’s choice in a marketplace.
In this article, David Kiger will describe the four key elements of supply chain strategies, which define the connection and combination of actions and functions during the value chain. Though every single one of these elements includes numerous factors, only a few of those factors have an impact on the formulation of a supply chain strategy.
1. Industry Context and Characteristics
This element involves the collaboration between suppliers, customers and technological developments related to economic conditions that directly affect competition in any given industry. Any type of supply chain is designed depending on the industry context, characteristics, and the following drivers:
- Demand variation: this driver is the one responsible for production efficiency and product cost. It influences the permanency of the manufacturing assets’ workload.
- Market mediation costs: This term refers to the costs associated with the difference between demand and supply. Some example of this concept includes lost sales when demand beats supply and product price reductions to compensate for excess supply. The balance between lost sales and product obsolescence, reflect the difficulty of predicting what the market actually demands.
- Product lifecycle: This concept is crucial for any Company since the speed of change in technology, fashion, and consumer product trends is exponentially increasing with each passing year, affecting the response time companies have to develop new products and constantly renew their portfolios.
2. Unique value proposal
This element requires the full understanding of the company’s position in terms of competitiveness based on its supply chain. This concept is the one responsible for being a relevant option to consumers as it determinates what makes an organization different and special compared to others. In other words, a strong and well-defined value proposal helps an organization win customer orders.
Product features and service are key aspects when it comes to deciding the type of company you want to relate with as a consumer. Most “order winners” base their value proposal on a coherent and powerful combination of the key drivers described above that enhances the fulfillment of their value promise to clients.
3. Managing Focus
This concept involves the decision-making process that affects the supply chain inside an organization, therefore its competitive positioning and processes. The managing focus ensures coherence between a supply chain execution and a company’s unique value proposal. Nevertheless, many organizations are more prone to fail in the proper execution of this element, due to the fact that they are more oriented to emphasize in efficiency indicators regardless of the competitive goals set by the business.
Companies that have a managing focus oriented to becoming more competitive in their fields are more likely to be efficient since their value proposal is never going to clash with their managing focus, and customers are going to perceive that there is no misalignment between the supply chain and business strategy.
4. Internal processes
This element provides the proper orientation that enhances the right connection and combination of every factor related to the supply chain activities. The internal processes are directly related to the managing focus, therefore they affect the final product that is going to be introduced to customers. It is also related to asset utilization and the location of the decoupling point (step in the value chain where the product is transformed to address customer’s specific needs).
Once companies have defined the key factors that affect and drive their business, they can determine if they want to work on a supply chain model oriented to efficiency or responsiveness. Efficiency models are fast, efficient, and work with a continuous flow that allows them to maximize asset utilization at the minimum cost. On the other hand, supply chain strategies based on responsiveness work under more flexible business models oriented to quickly responding to changes in immediate demand. Both models work to group pretty much any type of business. Being able to identify what your needs are, will allow you to build some supply chain strategies that will enhance your capacity, effectiveness and success in any given market.