Wednesday, November 3, 2010

Conventional Supply Chain Strategies: Simply Inadequate

So far, we have discussed the most common of the supply chain strategies: lean, agile, speculation, and postponement. In doing so, we also highlighted the underlying concepts behind each of these so-called strategies and why they fail to deliver as supply chain strategies.
image A comparison with Michael Porter’s generic business strategies will further clarify why the above concepts don’t qualify as supply chain strategies. Porter introduced the generic business strategies as cost, differentiation, and focus. These generic business strategies are based on these three factors because these three factors are common to all businesses, across all industry segments, all products and services, all demographics, all geographies and so on. Since all commercial business activity involves selling (cost) of products and services (differentiation) to its customers (focus), therefore, cost, differentiation, and focus are common attributes to all business activity. A business’s ability to control and leverage any one of these common attributes is what allows Porter to define these generic business strategies, applicable equally across the whole business landscape. Therefore, focusing on any one of these three can serve as an effective business strategy or business model that is generically applicable.
Now think of the conventional supply chain strategies in a similar context: What do supply chains control? What is truly common across all supply chains irrespective of whether they belong to a manufacturer, retailer, distributor, or service provider? Only such basic characteristics that are specific to supply chain functions will be truly acquiescent to qualify as generic supply chain strategy drivers. Notice that lean and agile do not fit in this category being too generic and therefore applicable across everything a business does. Nor do speculation and postponement qualify because they are situational business models that their attendant supply chains must support and not generic supply chain drivers.
To answer the above questions, we must first understand the supply chain sphere of influence. Without understanding this sphere of influence clearly, we run the risk of creating supply chain strategies like lean and agile or speculation and postponement, which are higher-level business directives and are equally applicable to all business functions. While they set the tone for supply chain functional capabilities, they do so to no more extent than they set the tone for merchandising or financing or any other corporate functions. In this context, they serve no better purpose than reinforcing the business strategy’s guidance for all business functions without offering any specific insights for creating supply chain capabilities. The supply chain sphere of influence helps one to understand what supply chains can and cannot affect. Only then, can one proceed to define how supply chain strategies can be formulated and how best to leverage them to create competitive advantages and support business goals.
So what is this supply chain sphere of influence? That is the subject of my next post, till then…
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.
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© 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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