Supply Network strategy.

To identify the critical issues in developing a strategy requires systems thinking, intuition and insight. There are three levels of strategy for an organisation:

1. For large diversified businesses the corporate strategy concerns: the type of business(es) in which the organisation operates; where the business will operate; acquisition and divestment policy and the allocation of financial resources among business units
2. Each business unit, or a single business, develops a business strategy consisting of the Aim and Objectives to compete in selected markets
3. Within the business, each function provides a function strategy which identifies how the objectives of the business (or unit) will be met

An organisation’s strategy for its supply network fits between the business and function strategies, because it is an amalgamation of function strategies.

Supply network planning is where the needs of demand markets are able to be reconciled with the capacity and capability of supply markets and the resources available to the organisation. To achieve this objective requires a Supply Network strategy that:

• Looks forward for a period of 3 – 5 years, to consider how the flow of items and services for the organisation may change and the responses required
• Develops resources and processes which assist the organisation to develop a Sustainable Advantage through its supply network

Identify Sustainable Advantage

Academics specialising in supply chains have formulated various attributes of Availability (the Aim of a supply chain) to assist in thinking about sustainable advantage:

Hau Lee of Stanford University USA:

• Agile – able to respond to unforeseen and unplanned demand variations
• Adaptable – address structural economic changes that can affect changes in demand by geographies and the supply of materials
• Aligned – with the needs of defined supply channels and customer groups
• Architected – modular design to enable quick implementation that addresses constant change

Martin Christopher of Cranfield University UK:

• Relationship – demand and supply requirements aligned at the relationship level
• Reliable – customers get what they want, when required
• Resilient – absorb market and other shocks and adapt quickly
• Responsive – another term for agile

Nigel Slack of Warwick Business School UK:

• Cost/Price – low prices in the demand market, therefore focus on low input costs
• Dependability – delivery in full and on time, with accuracy of documents (electronic and paper)
• Flexibility – adjust product volumes and delivery times to meet customer needs
• Quality – provide high specification and error free products and services
• Speed – quick response to customer requests with short delivery times

The above attributes of time and place can be constrained by:

• Where in a supply chain the business is located i.e. primary industry; producer, converter; fabricator; assembler; retailer (or other end use sales outlets)
• The ease of handling and storage of the products and materials used
• The factor(s) on which orders are won and
• The essential qualifiers required prior to the sales process

Naturally, there are overlaps between the attributes, but their approaches contain less emphasis on efficiency and reducing costs and more about recognising and responding to the current and likely future supply chain situation; for example:

• demand for items can be more volatile, with likely lower forecast accuracy
• inventories may have been reduced to avoid large write-offs of excess stock and to improve cash flow
• volatility in commodity prices can negatively affect input costs
• uncertainty in supply and demand markets requires a reduction in risks

Build a matrix

To begin constructing the supply chain strategy for your enterprise, build a matrix. On the y axis identify your selection of (say) four attributes from the above list that best describes the Availability objectives of your organisation.  On the x axis,  place the main elements for developing your supply chains:

• Improving business relations with customers and suppliers
• Capacity available in the supply network
• Organisation structure for the supply chain resources and capabilities
• Developing people working in the organisation’s supply chain functions
• Acquiring or developing supply chain process and information technologies

Complete the twenty cell matrix (which is a substantial, but important task); however, not all cells will need to be completed, nor are all cells of equal importance – they can be colour coded. The inputs to cells are taken from the function strategies and elements that combine to provide your organisation’s supply chain capability. These were discussed in a previous blog.

To complete entries for the cells, respond to a question i.e. if Flexibility is one of the Attributes selected, how will this will be influenced by each of the five elements listed above? Likewise, consider the element ‘Capacity available in the supply network’ –  how will capacity location and volume affect the four Availability attributes selected? This approach will hopefully identify the critical issues within cells and interrelationships between particular cells.

The current approach to any form of supply chains plan is too often just structuring operational functions to address the business objectives in an efficient and least cost manner. This approach has the danger of locking-in complexity and systemic risk within the supply chains. Instead, recognise that increasing Uncertainty (complexity, variability and constraints) in supply chains can reduce capability concerning the attributes listed by the academics, which in turn affects the performance the whole enterprise.

So, take a strategic view of your supply chains. One way is to use the matrix approach, as an initial step in developing your supply chain strategy.