Does Your Supply Chain Need an Alignment?
If your supply chain isn't aligned with your overall competitive strategy, then performance may fall short of expectations, with higher costs, poor execution, and reduced revenue and profits.
When a company develops a strategic growth plan, it has to decide which priorities—cost, quality, time or flexibility—to focus on. It must then manage the supply chain to support these strategies.
How can you improve alignment and enhance shareholder value? Five Steps to Align Business Strategy With Supply Chain Capabilities, a 2016 Gartner report, suggests the following five steps:
- Refine supply chain strategy and segmentation. You may need to segment your supply chain strategy based on different product lines and customer classes, with cost, speed, and service tradeoffs. Many companies have multiple supply chains without realizing it. For example, a large restaurant chain may have one supply chain for fresh fish, another for canned goods, and yet another for fresh produce.
- Link supply chain segmentation attributes to functional capabilities. Connect attributes such as cost, speed, and service with existing core functional capabilities—for example, supply management cost efficiency or agility.
- Use capabilities to map/configure processes. Map and configure the required capabilities to supply management processes. You may need to change or create new capabilities based upon this process. It is critical to understand the cost and investment requirements of different supply chain services and processes that support trade-offs to deliver customer value. Outsourcing is always an option.
- Align internal stakeholders to execute processes. Supply chain leadership must communicate and collaborate to align internal stakeholders on the processes, actions, and metrics necessary to successfully execute and deliver value.
- Align external stakeholders on processes and actions. Supply chain leadership needs to work with suppliers and partners to ensure they are aligned with actions and performance expectations to support required cost, speed, and service attributes. It can be challenging to achieve strategic fit while serving many customer segments and products across multiple channels. It may require sharing supply chain links with some products, while having separate operations for other links. Other factors making this alignment even more challenging:
- Increasing product variety and shrinking lifecycles. Greater product variety and shorter lifecycles increase uncertainty while reducing the window of opportunity within which the supply chain can achieve fit.
- Globalization and increasing uncertainty. Examples include fluctuations in exchange rates, global demand, and crude oil prices.
- Fragmentation of supply chain ownership. Firms are less vertically integrated so new ownership structures make aligning and managing all supply chain members critical but more difficult.
- Changing technology and business environment. Customer needs and technology changes may force companies to rethink their supply chain strategy.
- Accounting for the environment and sustainability when designing supply chain strategy. Any opportunities may require coordination across different supply chain parties.
Not aligning your supply chain and corporate strategies comes with a price. Giant retailer Target didn't align prices or its supply chain when it entered the Canadian market in 2011. It ended up shuttering all 133 stores in 2015, leading to a $5.4-billion write-down.Parts of this column are adapted from Lean Supply Chain & Logistics Management (McGraw-Hill; 2012), Lean Retail and Wholesale (McGraw-Hill; 2014) and Supply Chain and Logistics Management Made Easy (Pearson, 2015) by Paul A. Myerson with permission from McGraw-Hill and Pearson respectively.