A Publication of WTVP

A recent survey reported senior corporate leaders increasingly recognize their business’ success is closely tied to effective supply chain management, especially as they expand into emerging markets. Hardly a new finding. Yet few executives believe their global supply chains are well managed, and many continue to struggle with domestic supply chains. The next generation of competition won’t be solely among companies, but also will include supply chains.

Supply chains consist of all parties involved in order fulfillment—manufacturers, suppliers, transporters, warehouses, retailers, and end customers. A supply chain’s objective is to maximize the supply chain surplus—the difference between generated revenue and the overall costs across the supply chain. The more efficient and effective the supply chain, the higher the surplus will be.
Successful companies make careful decisions on information flow, products, and funds. Typically, such decisions fall into three categories: strategic, tactical, and operational. Each decision is made in the context of the others, ensuring harmony across the business. This is no different for supply chain management. A company’s supply chain strategy must consider the location and capacities of production and warehousing facilities, the products manufactured and stored at the various locations, and the transportation modes used—hence, the term “strategic supply chain planning.”

All this must be done while ensuring the supply chain configuration supports the company’s strategic objectives. Once the configuration is fixed, the company plans which locations service which markets, inventory policies, and the size and frequency of marketing promotions. At the operational level, the goal is to handle incoming orders in the best possible manner—hence, the term “supply chain optimization.”

A company’s competitive strategy defines the customer needs it seeks to satisfy through its products and services and is identified as a subset of cost, quality, speed, service, and flexibility. Thus, Wal-Mart aims to provide high availability (speed) of reasonable quality products (quality) at low prices (cost). A company’s supply chain must be structured to ensure the same goal. Therefore, a highly flexible supply chain that can quickly customize any product isn’t useful to Wal-Mart. To achieve a strategic fit, a company’s supply chain capabilities must satisfy its targeted customer segments.

Supply chain management is about ensuring this strategic fit. How is this achieved? First, companies must understand their targeted customer segments, the uncertainty faced by the supply chain, and the desired cost and service requirements to satisfy their customers. This uncertainty—a measure of the risk—is what the supply chain must be prepared for. Because different supply chains are designed to perform different tasks, a company must understand what its supply chain is designed to do. Then, the company must evaluate if a mismatch exists between the customer’s needs and the supply chain’s design. If a mismatch exists, the company must restructure the supply chain or alter its competitive strategy. In the end, the long-term success of a company’s supply chain depends on its ability to respond, agility to innovate, and insight to lead. IBI