Monday, October 11, 2010

Supply Chain Strategies: Time to Refresh?

Conventional thinking on supply chain strategies has been quite restricted to a few major concepts. My objective in presenting this series is to review these concepts, critique where they fall short, and finally, present an alternate way to think of supply chain strategies – that will actually help you build capabilities and design effective supply chains. Designed, ground up for creating and sustaining competitive advantages rather than simply filling up feature/functionality gaps to automate your operations.
image There is a reasonable bulk of literature available on supply chain strategies. Most of the literature surveyed presents similar concepts by varying names in different contexts. They tend to typify the supply chains as being one of four types: lean, agile, speculation, or postponement-oriented. Hau Lee of Stanford identifies four types as Efficient, Risk Hedging, Responsive, and Agile, which are quite similar to the earlier characterizations but with subtle differences. Similar themes are repeated but all of them suffer from the same problem: They are all so generic that they frequently drive the business strategy rather than being driven by it. The level of abstraction precludes the possibility of going into specific details, which are useful in designing the business capabilities for a real-life supply chain. Being lean, for example, is viewed as simply a cost-reduction strategy and will be just as applicable to supply chains as it will be to human resource management or any other business function in a corporation. With that amount of directive, do these concepts really qualify as supply chain strategy?
In the next few days, I will review the following four basic concepts that appear time and again as supply chain strategies. I will argue why they fall short of being of “strategic value” and what alternatives exist. Till then, the briefs below will have to suffice:
  • Lean – The supply chain strategy concept that revolves singularly around cost-reduction abilities of a well-designed and well-run supply chain. (Why would you ever build a supply chain that is not optimized for cost?).
  • Agile – The supply chain strategy with a singular focus on creating responsiveness. (Is there such a thing as an unresponsive, yet effective supply chain?).
  • Postponement – The strategy concept based on the idea that supply allocations or creation of finished goods should be postponed as long as possible towards the time of actual demand. (Great concept, but is it really applicable to you – when you are in build-to-stock business model for a commodity item? What if you were manufacturing staples?).
  • Speculation – The strategy based on the idea of leveraging economies of scale to reduce the incremental cost of supplies for addressing incremental demand. (Once again, great concept, but what if your business model is not suited to a build-to-stock scenario? What if your business’s value proposition lies in providing custom-tailored jackets?)
Next few weeks, I will expand on each one of them and finally conclude with a supply chain design paradigm that will allow you to actually build an effective supply chain rather than chasing the phantom strategy concepts that are too abstract to be useful in a real-life scenario! Keep tuned.
Looking for an alternate way to design effective supply chains? The answer does not lie in adopting theories in the hope of finding the right answer, but to build your own supply chain capabilities driven by your business strategy. To find this new approach to build effective supply chains, understand the supply chain sphere of influence, find out what drives your supply chain and the new design imperative to build supply chain capabilities that directly support your business strategies.
This article is adopted from my book, Supply Chain as Strategic Asset: The Key to Reaching Business Goals. You can continue reading more about the subject in the book.

Related Articles:
  1. Strategy Alignment: Poor State of Affairs
  2. Business Strategy & Supply Chains
  3. Business, Functional & Deployment Strategy Alignment for Supply Chains
© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chains? How they work, what they afford, and how to design one? Check out my books on Supply Chain Management at Amazon.

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