Thursday, August 5, 2010

Supply Chain as Strategic Asset: The Key to Reaching Business Goals

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I recently spoke to Logipi’s (www.logipi.com) founder Dustin Mattison about my new book on supply chain. This book reviews the concepts of business strategy and explores the relationship of the business strategy with supply chain strategies. It also establishes a process that firms can use for planning their functional evolution so that they can pro-actively create advantages sought by their business strategies rather than reacting to the demands of the business. In the discussion with Dustin, I talk about what is special about this book and the main takeaways.

Click below to listen to the interview or scroll down for a script. And, come back to check for more on the takeaways from this book explained with examples from the industry.

Vivek Sehgal New book on “Supply Chain as Strategic Asset: The Key to Reaching Business Goals”.

Dustin: Vivek, we can start by you introducing yourself to the audience.

Yes, absolutely. My name is Vivek Sehgal and I work for Manhattan Associates, that is a best-of-breed solution provider in the supply chain applications area. We have over 1200 customers world-wide and most of the largest retailers use our solutions. I have a long supply chain consulting background and have also written two books on supply chain, one of which is coming out in this December.

Dustin: Tell me a little about this new book on supply chain.

Dustin, my new book on supply chains is titled “Supply Chain as Strategic Asset: The Key to Reaching Business Goals”. It is currently in print and scheduled for release in December this year. It is being published by John Wiley & Sons and will be distributed through all major book retailers as well as online through Amazon & others.

As the title suggests, this book is about building competitive advantages. It talks about how companies can deliberately design their supply chains to build capabilities that will create the competitive advantages they need. In doing so, of course, the supply chain becomes a strategic asset for them, directly supporting their business goals, and aligned with their corporate strategy.

Dustin: There are similar books on the subject, what is special about your book?

There are quite a few things that make this book unique. This is the first book that brings together the business, functional, and technology strategies and explores their relationship. You will find a lot of books on business strategy, a few on technology, but almost none on functional strategy. The problem is that while the business strategy establishes the goals of the business, it does not say what business capabilities are required to achieve them? That is the role of the functional strategy that I explore and since technology provides the underlying platform for enabling most of the business capabilities: today’s executives have to understand the whole spectrum of strategic planning - from business to functional through technology - to be able to lead. Conventionally, the link between the business strategy and functional strategies has not been understood and explored very well - but the fact is that the functional or process capabilities are the tools that help firms achieve their goals and therefore, to pro-actively build competitive advantages, it is essential to understand what capabilities must be developed to support their business strategy and compete effectively in the market-place.

I will take an example. Conventionally, the supply chain capabilities in most companies grow in an organic fashion. You need an order capturing process today, so that is built, then someone needs to address the customer questions on fulfillment status, so an addition is added to track the fulfillment process and so on. But an organically grown function is never going to provide any competitive advantage to you. Why, because it is reactive by nature - it only solves those problems that have already been encountered by your business & others in the industry, it is not forward-looking, it is not innovative and it does not pro-actively address the needs of the future. And, that is a very typical model of how the functional capabilities in the corporations are built. In this situation, there is no planned evolution for building supply chain capabilities - in other words, the firm has not taken the time to analyze its needs based on its strategy and establish how it should evolve its supply chain capabilities to support those business needs.

Dustin: Ok, so you are saying that the current state of affairs where functional capabilities organically grow to respond to business needs is inherently deficient -- because it is reactive by design. What would be some other main takeaways from the book?

In fact, there are a few that I would like to mention:

  • Most industries while developing their functional capabilities look at the industry best practices. But think about it: pursuing these best practices can only bring capability parity -- not competitive advantages, because these practices are based on what the industry does today, not what it will need tomorrow! Of course, we just talked about how the model of organic evolution to respond to business needs is inherently deficient -- because it is reactive by design. If you want to create competitive advantages, you will have to pro-actively build your capabilities.
  • Next takeaway I would mention is specific to supply chain, I review the current strategies that center around lean, agile, speculative, postponement. I think, this view of supply chain strategy is deficient and misleading. Because, in practice, you obviously need a supply chain that is lean but also agile simultaneously - to me these are not two exclusive attributes, but two firm requirements that a supply chain must provide. The other two strategies of postponement and speculation are equally misleading - because those options are a consequence of the industry and the product attributes - for example, if you manufacture pencils, you will be following a build-to-stock or speculative model. This is pretty mush true for most utilitarian products where the postponement is not an option - for this reason, I do not consider speculative and postponement as real supply chain strategies. For understanding supply chain strategy, we must go back to basics: the only objective of supply chain is to manage variability, which means the objective of the supply chain strategy must also be to manage variability to support the goals of business strategy. Since supply chains only control four common components (demand, supply, inventory, resources), these remain the only levers for managing variability and furthering the goals of business strategy. So if you wish to create competitive advantages through supply chain capabilities, you have to think beyond the best practices, beyond the templates, and beyond the lean and agile concepts. The only way to create competitive advantage is by creating superior processes through deliberate design and do this pro-actively. And how do you know that a process superior to another -- when it has the ability to create at least one of the advantages of Time, Cost, Efficiency, or Quality.
  • My next takeaway is that supply chain strategy must be derived from the business strategy - and not in a vacuum or by claiming that we need a lean or agile supply chain because that is meaningless. And remember that the competitive advantages through supply chain must be built into the processes by pro-active design (not by pushing industry best practices or organic growth of capabilities). Current practice in most companies is to bring in supply chain solution vendors -- with consultants pushing industry best practices (that you would remember lead to parity, not advantage), and companies’ internal staff intent on transferring their existing processes onto the new technology (leading automation of existing processes, not competitive superiority) instead of transforming through analysis of their requirements driven by business goals and designing superior processes. None of these current practices are going to help you create competitive advantages.
  • The last takeaway from the book will be that for an optimal ROI on capital investments, both the business and functional strategies must exist and must be aligned -- because that is the only way to avoid investments that do not contribute anything towards achieving the business goals.

I would really like to talk to each point with real-life examples -- some of these concepts are not obvious unless explained with the help of examples. Possibly next time?

Dustin: Sure, that sounds good, we can continue the discussion next time and you can elaborate these takeaways with examples. Thanks for today.

Thanks Dustin and I look forward to continue the discussion next time. Thank you.

© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

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