Supply Chain Strategy

Relevance Of Supply Chain Strategy

Supply chain strategy is derived out of the business strategy pursued by the firm. A firm may emphasise on low cost or differentiation or focus strategy to remain competitive. The supply chain strategy needs to be aligned with the business strategy. The firm has to decide whether the supply chain strategy will be “supply-to-stock” or “supply-to-order”. In the first case the firm aims at low cost through bulk procurement and bulk movement (logistics); while in latter cases the firm aims at adapting the changing needs of the customer, i.e., pursue build-to-order and not build-to-stock strategy. It tries to be responsive rather being cost efficient. In a highly competitive market, firms selling similar products, compete on the strength of their supply chains. It is so because supply chain strategy impacts the revenue position, working capital and fixed capital efficiency; and the operating cost.

Bowersox et, al. (2000) identified 10 significant dimensions of change relevant to supply chain logistics value creation for firms The authors suggested that firms need to understand the value proposition sought by the customer instead of just addressing the fill-rates or on-time delivery. It needs to ensure the right way to address customers’ need (that is, 5Rs- right form (dimensions, packaging, labelling and other delivery specifications), right time, and right place, following right practices at the right price). The firm need to build customer relationship by continually addressing varying needs (i.e., customizing 5 Rs for a particular customer). That is, they suggested a shift from customer service to relationship management. Firms need to treat their suppliers as partners and not vendors, meaning, they need to carry out collaborative planning, forecasting and replenishment (CPFR) including sharing of risk and benefits. The sharing should be made formal by the way awards and penalties are apportioned between the firm and its supplier; including these aspects in contract agreements. In short, the authors suggested shift from adversarial to collaborative supply chain management.

CPFR leads to shift from forecast to endcast. This means that planning should be based on end-to-end requirement instead of individual entities predicting their requirements in silos. This happens when firms hoard information instead of sharing it through collaboration. Forecasting gets biased with past data or information, it may fail to recognize the change in trends in initial stages (i.e. in transition stage) and detect the same at a stage when the firms lose their competitiveness. Hence collaboration will help to look into the future through eyes of different stakeholders. This situation require managers to understand the concept of the new beginning and may significantly vary from past. Hence a shift from experience to transition is required to remain competitive.

Firms tend to increase their gross sales, say in US Dollars, to reflect their market share, but may fail to recognize the reduction in marginal profit due to increase in cost of operations. Hence there is a need to shift from gross or absolute to relative value. Firms need not target only to increase sale but also reduce cost by adopting efficient processes. Processes can be efficient if they are integrated end-to-end. Firms stress integration of their functional units but have limited integration with the entire supply chain processes that affect the inward, internal and outward legs of the supply chain. Hence there is a need for process integration that cuts across different external nodes, internal units and functions, logistics and other links that makes a supply chain of a firm. Traditionally many firms, such as Ford, prescribed vertical integration to ensure integration of the processes and exercise control over the same. However, in todays’ world things are getting more specialized and even knowledge processes are outsourced, such as design and information processing. In these conditions firms need to shift from vertical to virtual integration, where in a firm creates a web of stakeholders having compatible vision and goals to remain focussed on core competencies. Hence knowledge of process is important.

Conventionally, companies focussed on development of skills and functions of an individual, while the need is for understanding the process as a whole; the risk, benefits and the winning formula. That is, training approach should focus on processes to enhance knowledge that integrate across different functional areas and multiple technologies. Thus there is a shift from training to knowledge based learning.