Developing supply chain strategy
Strategy formulation can be quite a complex process and takes many forms within organisations. Usually referred to as the "Business Planning Process", theoretical and practical concepts are discussed within a workshop setting where the executive leadership team devote a period of 3 - 5 days to refine or develop a 3 year strategic plan for their organisation. Weeks of preliminary work has been completed in readiness for the strategic workshop, with each individual focussed on presenting their pack, which is invariably function or department centric. Within this business planning process, historical performance metrics are presented, dissected and new departmental operating and capital budgets are formulated and aggregated to represent the final company budget for the new fiscal year.
Attention is now placed on years 2 and 3 for the executive team to construct a strategic plan that will move the organisation in the right direction. The key question is: What factors, evidence or assumptions form the basis of their decision making in formulating the corporate strategy and how is the supply chain strategy developed to achieve the corporate goals and objectives? Symptoms are a reflection of the quality of information.
Does your organisation have these symptoms?
- Customer service levels are below 60% and we are unable to improve.
- New products released to market have not met forecast expectations.
- Supply chain costs have been reduced, no improvement in performance.
- High investment level in technology has not delivered productivity gains.
- High levels of product returns, no clear evidence to understand why.
Differences between strategy, goals and objectives
A strategy is a pathway that you take to achieve business objectives targeting short or long term goals. The strength of your supply chain strategy is a function of how well you harness current state information about your business, along with external market intelligence and then use this content to create or modify a new supply chain strategy or approach. In some cases, you may even decide on incorporating multiple strategies to achieve your business plans. This continuous improvement cycle, once understood and implemented will become a standardised process for your scm strategic planning phase within your business. Remember, the real impact of a supply chain strategy is the strength of your corporate culture as the right culture will suplement and deliver the right supply chain strategy.
Reasons for changing a supply chain management strategy
Depending upon where your businesses sits in the business cycle i.e. Start up; Growth, Maturity or Decline, your supply chain strategy will need to change in order to improve current state or facilitate a transition to the next business cycle. The following are common reasons for a change in supply chain strategy:
- New direction for your business to explore export opportunities.
- New entrant in your market is eroding your market share
- Changes in the culture of your business
- Sourcing arrangements may change (On shore versus off shore)
- Consolidating your supply chain footprint warehousing capability
- Changes in customer buying behaviour trigger investment into technology
- Changes in product development marketing strategies
As a member of the executive management team, your role as supply chain manager is pivital in contributing to the formation and execution of your organisations corporate strategy. Developing a supply chain operating budget, capital budget and inventory policy settings are functional and department centric. Each functional head will have their own framework as part of this budget planning cycle, the challenge remains: "How to align functional goals to a common corporate strategic objective?"
- Can the resource plan support seasonal and non seasonal demand on the business?
- Is capital being injected to drive productivity and efficiency?
- Are current facilities scaleable to support growth initiatives?
- Does the inventory policy incorporate the right investment mix to support marketing initiatives?
Strategic supply chain management decisions
Effective supply chain management requires a responsive framework that can support strategic, tactical and functional changes in an organisations supply chain model. Progressive organisations have understood that effective corporate strategy is realised only when this tiered supply chain framework is in place and is supported throughout the organisation. Strategic supply chain management initiatives must be integrated and reflect a holistic ownership approach, customer service is an example where the entire organisation establishes ownership and responsiblity for its level of attainment. Looking at a typical organisation, we discuss this tiered framework and some of the core factors that will influence strategic direction:
A new acquisition by the business has broadened its product portfolio to provide products into a mass market channel. As the existing premium range portfolio is servicing a separate distribution channel, the supply chain model will need to change and broaden its coverage to support regional locations with a higher cost to serve. What is the depth and scale of the product range? How many SKU's are active and how many are due for transition or disposal? What is the current margin on these products? What marketing programs are in play and is there an on boarding program for key customers or distributors?
The additional product range will need to be sourced from a new supplier base. Existing supply contracts will need to be reviewed to understand commercial implications, inventory commitments within the current supply chain and the indent cost based on a range of incoterms. Increasing the supplier base may impact on resource levels, does the existing team migrate or is there a transition period to full ownership and control centrally? The physical location and capacity of vendors will require review and may present centralisation options to standard distribution supply points. Your supply strategy will need to be refined to incorporate these challenges.
Supply chain footprint
Our existing supply chain footprint consists of a 3PL that is based in Sydney and services all existing premium accounts as a direct to distribution centre model. Existing deliveries follow a direct to store model, which is managed by the clients 3PL. The addition of the new range will require a direct to store model to be supported from a multi warehouse environment based in each capital city. Is this the most efficient model to support? Are there opportunities to consolidate storage and delivery points to minimise the supply chain foot print without impacting on service? Can our existing 3PL support a hybrid supply chain model? Is the new supply chain footprint infrastructure leased, owned or outsourced?
The existing transport cost structure to support the direct to DC supply chain model is operated as a cost centre, the new direct to store model is operated as a profit centre. Additional management and coordination for line haul transportation may be required prior and post vendor consolidation. Local couriers will be an additional service to support the direct to store model. The management and coordination of the inbound logistics component i.e. freight forwarding, customs clearance and transportation will certainly require a review to identify consolidation opportunities, service contract changes or closer vendor management during a transition cycle.
Supply chain technology
The existing ERP system supports financials and inventory at an aggregate balance sheet level. The warehouse management system, which is operated by the 3PL, is integrated to the ERP by way of file interfaces that capture order management and inventory balancing. The additional business has a number of smaller scale systems that have full ERP capability, but lack real time updated information. Can these systems be integrated or migrated? How will financials be consolidated to provide a regional profit and loss statement and balance sheet? What support agreements exist and how can support me centralised, outsourced or managed internally? How is customer service to be managed?
Developing the right supply chain strategy requires a responsive framework that can support strategic, tactical and functional changes in an organisations supply chain model. The challenge for organisations remains, as evident from the above functional areas, selecting the right model is critical. Which supply chain strategies align with your corporate strategy?
"EFFICIENT supply chain model";"SPEED TO MARKET supply chain model";"CONTINUOUS FLOW supply chain model"; "AGILE supply chain model" or "FLEXIBLE supply chain model"
Corporate strategy: "Developing the right supply chain strategy"
Supply Chain Strategy Health Check
Our supply chain strategy health check is a structured approach to evaluating your end to end supply chain strategy, its strengths, weaknesses, opportunities and threats. Our model provides a balanced qualitative and quantitative approach where we spend time with business leaders to understand your current situation, your business planning methodology and then undertake data mine supply chain metrics to establish a fact based outcome. This information is then used as the basis for selecting the right supply chain strategy for your organisation.
- Spend time with your business leaders and topic experts who contributed to the formulation and delivery of existing strategic and business plans.
- Review all of these existing plans, along with other pertinent information, to establish a strong awareness of the methodology used and your current state position.
- Understand current state methodology, strategic plans and business plans.
- Determine the core drivers for success for your supply chain strategy.
- Review all assumptions that underpin your supply chain strategy.
- The extent of market intelligence within your supply chain strategy.
- Understand the scale of the existing supply chain footprint.
- Review of supply chain service metrics and their level of achievement.
- To formulate a road map to fully align corporate strategy and supply chain strategy, incorporating a level of agility to support changing conditions.
- Depending upon the scale of the organisation, a road map may incorporate a range of components to support the new supply chain strategy:
- Changing the supply chain footprint through divestment, acquisition or movement to an outsourced 3PL solution.
- Create or modify your inventory policy to support changes to the supply chain footprint
- Modify inventory flow to support a centralised, decentralised or hybrid solution through vendor consolidation
- Supply chain technology enhancements to support information management and integration within you business.