Formulating a clear supply chain strategy is more important than ever. Especially now that volatility, uncertainty and complexity are on the rise and companies increasingly have to adapt to the changing world, strategy is an important foothold. Tijmen Muijs, strategy specialist at BLMC Supply Chain Optimisation, explains how to formulate and implement a supply chain strategy, inspired by BLMC and Tijmen at all SCELP meetings.
First, a word of caution: formulating a supply chain strategy should not be taken lightly. It is a journey that takes time and capacity and requires key competences. In practice, it appears time and again that companies do not enter that journey seriously enough. While they hire battery consultants for the redesign of an IT system or the switch to a different accounting method, they briefly try to put a supply chain strategy on paper between business. The result is a strategy that does not work or that is imperfectlynted to the shop floor.
Differentiation in supply chains
The first step towards a supply chain strategy consists of differentiation. Differentiate between different product-market combinations in a sufficiently tight manner. This can be a group of products or a group of customers, but also a region that requires a different approach to the supply chain. Then determine for each product/market combination where the emphasis should be placed.
This is where things often go wrong already. Some companies cry out that they do everything for their customers. That can never be true. After further questioning, they often have to admit that some customers are just that little bit more important than others. The challenge is to identify which customers they are willing to do everything for and which they are not. This is relevant for everyone in the company, including, for instance, customer service. If it does not distinguish between customer groups, that department incurs high costs for all customers. Even for the customers who do not bring in anything as a result.
Order qualifiers and order winners
Two things are important for setting the right accents in the various product/market combinations. First, these are the 'order qualifiers': what is the minimum requirement for each product/market combination to compete for customers? Secondly, it is important to identify the 'order winners': what makes you stand out in the market? What are the factors why the customer chooses you and not another supplier?
Once the order qualifiers and order winners are mapped, it automatically becomes clear what the direction of the supply chain strategy for that product/market combination should be. Essentially, three strategies are possible: product leadership, customer intimacy and cost leadership (aka operational excellence). Is your product unique in the market? Then that product is the order winner and product leadership is the strategy. Do competitors also sell your product? Then the product is nothing more than an order qualifier. It must be good enough to sell, but to make the difference, other aspects are important: a low price (cost leadership) or service excellence (customer intimacy).
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Pointless without translation
Once the strategy per product/market combination has been mapped out, it is important to translate it into processes, procedures and performance indicators for the operation. Suppose that customer intimacy is the leading strategy and that the service level is the most important weapon in competition. So what does that mean for operations? Same-day delivery? Accepting last-minute order changes? Stock availability of 99.9 per cent?
Without proper follow-through, a supply chain strategy is meaningless. If only the strategy is communicated without further explanation, people on the shop floor still don't know what to do. A customer service employee only wants to know whether a customer belongs to customer group A or customer group B and what costs he may incur for customer group A and for customer group B.
More important than ever
Especially as volatility, uncertainty and complexity continue to increase in the economy, formulating a clear supply chain strategy is more important than ever. In a constantly changing environment, strategy constantly points you to the factors that make the difference for each product/market combination. For example, those who distinguish themselves with a high service level must be careful not to suddenly start stunting prices after the arrival of a new competitor.
If the strategy deployed no longer seems to be working, it needs to be adjusted. Take the example of a company with a unique product, which suddenly turns out not to be so unique anymore due to a competitor's disruptive innovation. Then it has to shift its emphasis and compete on price or service. However, this only becomes clear if a clear supply chain strategy is in place. Without a strategy, it is damned hard to figure out how to adjust operations.
Constantly mirroring
The days are gone when a strategy could be fixed for five years. In a dynamic, rapidly changing market, it is important to constantly mirror the strategy against the environment. What are the changes in the market? Is the strategy still adequate? Are new processes or procedures needed to keep the strategy alive? Or is adaptation necessary? The more dynamic the market in which the company operates, the higher the frequency with which the strategy should be reviewed. Those who fix their strategy for five years now will no longer exist in five years' time.
Tijmen Muijs is one of BLMC Supply Chain Optimisation's supply chain specialists speaking at the Successful SCM Implementation conference on 20 June.
