An effective supply chain strategy can help your business reduce operational costs, speed up customer delivery times or react more quickly to changing market conditions—but not all at once. Supply chain strategy is all about tradeoffs and the right fit depends on your organization's goals. Below is a comparison of some of the different models available so you can figure out the best way to finance your success.
Building a Supply Chain Strategy
Successful supply chain strategies are based on four key elements. By considering these elements, you can then decide on the right model and make sure it operates properly:
Each industry has its own specifics for types of suppliers, customers, technology, product life cycle and economic factors. Naturally, your supply chain strategy must match your industry conditions.
Unique Value Proposition
What strengths does your business have that best differentiate you from the competition? Whether it's the lowest cost, fast delivery or the largest variety of products, your supply chain strategy should work to support this advantage.
Your internal processes guide the supply chain from sourcing materials to making your product to handling customer deliveries. Whichever strategy you pick should be consistent along all processes in your supply chain.
All too often, executives do not consider the company's supply chain in their decisions or, if they do, only see it as a way to lower costs. While this could be a goal, it's not always the top priority, as you'll see from the actual models. For a supply chain strategy to be successful, your management team must align it with your business goals.
Supply Chain Strategy Models
With those elements in mind, you can then evaluate the six different models for supply chain strategy management planning and operation:
An efficient supply chain is best used for industries where the product is very similar between companies, so customers tend to shop primarily on price. For example, selling steel or paper. In this strategy, your goal is to make your system as efficient as possible to reduce costs. You should have a high asset utilization rate with as little unused capacity as possible.
In the fast supply chain strategy, you're in a trendier industry where customers expect your product line to change constantly based on what's popular. The top goal of this strategy is to reduce the “time-to-market" after you come up with a new product idea so you can get there before your competitors.
A continuous flow model works best for established industries where market demand is stable. To set yourself apart, you need to make life more convenient for your customers. This system does so by regularly replenishing your stock of products so customers can quickly fill their orders.
Without a clear underlying strategy, it's easy for a supply chain to fall into a series of confused priorities. Don't let this happen at your organization.
An agile supply model fits when demand is unpredictable and you manufacture products under unique specifications from customers. Your manufacturing processes should have excess capacity and the ability to create smaller orders so you can respond to this changing demand.
Like the name implies, this strategy is for when your products are customizable and have many, perhaps unlimited, versions that you can create for customers based on their specifications. The strategy combines parts of the continuous flow and agile models. Your initial materials should be continuously coming in, while the later stage of your manufacturing would be agile to handle the customized orders.
Finally, the flexible strategy fits when your business swings from periods of high and low demand, like when you need to ramp up your supply chain before the holiday. The supply chain should focus on having extra resources on-hand and rapid response capability so you can fill a large order when it comes in.
Selecting the Supply Chain Strategy to Match Your Business Needs
As you can see from the six models above, each one has different strengths and weaknesses. You should pick the strategy that best fits your business plan, industry and unique value proposition.
When you develop your strategy, you may be tempted to merge several different approaches. After all, wouldn't the most successful supply chain strategies be fast, flexible and efficient? But this won't work for your entire organization as each model has conflicting goals. However, you could create parallel supply chains for different segments of your business, like using a fast model for one product line and an efficient model for another.
Once you decide what version makes the most sense, you can go over the different parts of your supply chain and see which internal processes don't match the model. For example, if your priority is to develop an efficient supply chain, you should look for any underutilized assets that are wasting money, like too much storage of unsold inventory.
Without a clear underlying strategy, it's easy for a supply chain to fall into a series of confused priorities. Don't let this happen at your organization. By taking advantage of these models, you can develop one more financial advantage while helping future proof your business.
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