Understanding Supply Chain Strategy for Supply Chain Management
- The key to developing a successful supply chain strategy is aligning it to the organization’s business goals.
- Strategic supply chain management ensures efficiency, optimizes logistics, improves quality, and delivers value to the customer.
- The critical steps to developing and implementing a supply chain strategy include creating a set of KPIs, setting measurable goals, and getting buy-in from the key people.
August 26, 2022 | Supply Chain Strategy 5 minutes read
Supply chain management can be said to operate at three distinct levels: the strategic, tactical, and operational.
At the strategic level, the business's leadership team takes high-level supply chain decisions that affect the entire organization. Such decisions around the supply chain typically mirror the business's overall corporate strategy.
A prerequisite for strategic supply chain management is to define corporate strategy. This strategy then flows into functional areas. Strategic supply chain management is the means to differentiate the business by creating the highest possible value for customers and investors.
Top Performance Disciplines in Strategic Supply Chain Management
The performance disciplines of strategic supply chain management determine how the organization plans to compete in the market. The five disciplines for top performance include:
- Supply chain as a strategic asset
- Developing an end-to-end process architecture
- Designing the organization for performance
- Building a collaborative model
- Using metrics to drive business success
Also read: The Cost-Plus World of Supply Chains
Business and Organizational Strategy
The business strategy specifies how the business will be grown, competitive differentiation achieved, market performance improved, financial goals met, and how competitive edge will be created and maintained.
The organizational strategy deals with the end goals of the business. Whatever business goals the organization adopts to satisfy customers, grow the business, compete, etc., the supply chain strategy has to align itself to further this strategy. The strategies could include customer focus, forecast-driven business, demand-driven business, and the number of supply chains.
Supply Chain Strategies
Supply chains deal with the end-to-end movement of information, products, and money. Hence, managing supply chains effectively impacts the organization’s competitiveness in cost, speed to market, etc. The supply chain strategy must be aligned to the business and organizational strategy to achieve targeted business goals.
Supply chain strategies are formulated based on:
Business environment
This refers to the interplay of suppliers, customers, technology developments, and economic conditions that affect the business environment.
Unique value proposition
The unique value proposition defines the organization’s competitive positioning. Identifying the value proposition enables the organization to incorporate key drivers into its supply chain to fulfill its customers' unique value proposition.
Managerial focus
Managerial focus is essential to ensure alignment between supply chain execution and the business's unique value proposition.
Internal processes
Internal processes define the interrelation between supply chain activities that determine how the product are sourced, manufactured, and delivered.
Also read: Supply Chain Digital Transformation Guide 2022
How Do You Develop and Implement A Supply Chain Strategy?
The key to developing a successful supply chain strategy is aligning it to the organization’s business goals. The strategy is designed to leverage the organization’s core competencies to attain high-level objectives. A supply chain not guided by any strategy is sure to fail. If the goal is to be the lowest-cost provider, then the supply chain should be designed to reduce costs. The critical steps to developing and implementing a supply chain strategy include:
Two-way communication between teams
The supply chain strategy should be developed with customer needs at the center. The fulfilment team, for example, should be able to deliver a superior fulfilment experience to the customers. An open communication channel should exist across the supply chain extending from sourcing to production, to fulfilment, and to the customers such that feedback can flow freely to improve supply chain performance.
People, processes & systems
In addition to aligning supply chain and business strategy, it is also vital to anticipate coming changes. Periodically review operational data to evaluate alignment with future goals. The supply chain processes and systems should be designed to respond to changes in the business environment. The supply chain should allow the induction of technological developments to remain competitive. Align your strategic and operational staff with the systems and processes. The person in the warehouse should be as aware of business goals as the leadership team.
Building a business case and set performance KPI
The supply chain should not be treated as just another department. It should be integral to the customer-focused approach of the organization and should work to strengthen your brand. To evaluate the supply chain's performance, develop a set of KPIs, set measurable goals, implement a tracking mechanism, and get your key people to buy into the strategy.
Enhancing Business Performance Using Supply Chain Management
Effective supply chain management enables businesses to optimize the product, information, and financial flow. Strategic supply chain management helps improve business performance by incorporating:
Responsiveness
A responsive supply chain allows for short production lead times, reduced set-up costs, and small batch sizes that enable the business to respond quickly to market demand.
Resiliency
An effective supply chain can mitigate supply chain disruptions and substantially limit any adverse business effects due to those that do occur.
Reliability
Supply chain reliability helps deliver consistent performance. Increasing reliability, minimizing inventory costs and preparing for demand enhance business performance.
Realignment
Realignment helps a business change the way it does business. This becomes necessary if it is underperforming compared to the competition.
Conclusion
Technological innovations as well as disruptions add complexity to the supply chain. This places an additional onus on business leaders to formulate sound supply chain strategies, implement best practices, and integrate functions, activities, and people along the entire value chain.
Learn how GEP helps enterprises efficiently manage their supply chains.
Frequently Asked Questions
Strategic SCM is important because it helps streamline product and information flow and respond to unexpected disruptions.
Ensure efficiency, optimize logistics, improve quality, monitor financial success, and deliver value to the customer.
Globalization allows firms to reach new customers in new markets, which necessitates changes in how manufacturers manage supply chains.
Enables companies to work with their products' distributors and vendors and improve operational efficiencies and drive down costs.
The elements of strategic SCM interact in support of the business strategy to maximize value for the customer.
