Editor’s Note: Vishnu Rayapeddi is a recognized pioneer of Lean Management and founder of Productivity Solutions. You can view all of his Supply Chain training materials on Flevy here.
* * * *
Supply chain strategy. What is it?
Many might think that there is no distinction in perception between supply chain management and supply chain strategy in their organizations.
Supply chain management is defined by the APICS Dictionary, 13th Edition, as:
The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.
According to the APICS Operations Management Body of Knowledge (OMBOK) Framework:
Supply chain strategy considers all the elements of operations strategy, in addition to building strategic partnerships, in-sourcing and outsourcing, drivers of supply chain performance, synchronization, integration of suppliers, internal supply chains, and customer systems, breadth of activities (designing, planning, and controlling), reverse logistics, product sustainability, regulatory compliance, and global considerations.
In simple terms, a supply chain strategy is a forward-looking document, which anticipates changing customer needs and defines how the supply chain is going to evolve to meet those new requirements.
The 4 Elements of Supply Chain Strategy:
- The industry framework (the marketplace)
- The organization’s unique value proposition (its competitive positioning)
- The organization’s internal processes (supply chain processes) and
- The organization’s managerial focus (the linkage among supply chain processes and business strategy).
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
Developing a Supply Chain Strategy
In his book, Supply Chain Transformation: Building and Executing an Integrated Supply Chain Ctrategy, J Paul Dittmann lays out a nine-step plan for building a supply chain strategy as below:
- Start with customers’ current and future needs
- Assess current supply chain capabilities relative to best in class
- Evaluate supply chain “game changers” (what megatrends will impact customers and the supply chain?)
- Analyze the competition
- Survey technology – what is new in the market and would it help if deployed?
- Deal with supply chain risk – risk management needs to be part of the strategy document
- Develop new supply chain capability requirements and create a plan to get there
- Evaluate current supply chain organizational structure, people, and metrics
- Develop a business case and get buy-in
Executing Supply Chain Strategy
Fortune Magazine reported in a study that CEO strategy failures (estimated 70%) occurred primarily 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.”
Execution involves closely following your implementation plan and applying good project governance. You can improve your chances of success 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 (annually) you should formally revisit your supply chain strategy. Did you meet the goals of the business strategy? Have the needs of your supply chain partners changed? How has the industry changed i.e., new competitors, business practices, products, technology? At this time, you may even want to reassess your supply chain organization, if the changes are significant enough to warrant it. Also, use this effort to look for new opportunities to further position your organization for success.
Keep Communicating with Your 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 your supply chain components and those that you deal with must be similar and conducted at the same speed. Your 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 your supply chain partners may not have the resources to commit to realizing these goals. Good communication can keep the extended supply chain in sync.