In a context of global markets, the importance of supply chains is ever growing. One of the most relevant aspects of logistics is the strategy defining it, while developing a Supply Chain Strategy, you should consider a lot of things.
Firstly, You need to have an internal perspective of the system. Understand it’s structure, economics, and requirements. Doing that you can establish the needs of the system and its constraints but you must also look for a inter functional perspective and Interact constantly with other managers to see what the marketing, production and finance area are doing.
One of the reasons to do that is maximize the total channel benefit, because the supply chain decisions affects the whole company and the other way around.
Above all, making a well-designed management that will advance the company goals and increase profitability.
Tactical or Strategic?
The role of a supply chain manager is to pay attention to its day-to-day control and coordination. Therefore, you need to combine the strategic vision of your supply chain and take account of tactical and analytic questions that occur. These two combined will ensure the functionality of the supply chain.
But what are the difference between those two visions?
The tactical way of thinking focusses on short-term results. It is more quantitative and detailed, however, the major strategic vision is a broad sense. It establishes long term objectives and focus on the qualitative side.
We can see an image from the MITx Supply Chain course, based on Shapiro and Haskett (1985):
That diagram, as put by Shapiro and Heskett, shows the tension between tactical and strategic visions. That complexity is one of the reasons that makes the supply chain manager job a necessity.
Why Supply Chain Strategy?
Firstly, organizations that deal with Supply Chains must have an overall strategy. They have goals and key procedures, performance indicators and defining culture.
So, the functionality of the supply chain is fundamental to formulate an overall strategy. It establishes a direction of operations to get to the point where the company wants.
This is a business strategy or a competitive strategy, in other words its function is to make a objectives become decisions and actions. It’s a translation of high-level goals into more specific policies and choices.
Furthermore, most areas of the supply chain must be included when referring into a strategy, which includes purchasing, logistics, operations, and sales. Key aspects that should be considered are quality, sustainability, service level and safety.
The five forces of Porter
Harvard professor Michael E. Porter defined a method for evaluating the competitiveness of a business. It considers five aspects that goes from the ability to increase profit to rivalry with competitors. The five forces are:
- Internal Rivalry: the competition between existing companies. It is evaluated by number of existing competitors, rate of market growth, supply, and demand.
- Threat of new entrants: how hard it is to become a competitive company in a market. It looks at technology, brand, recognition, laws, and regulations.
- Substitution: what are the possible substitutes of your product on the market?
- Power of Suppliers: number of suppliers available, substitutes of material, number of customers of a supplier.
- Power of Customers: the quantity bought by each customer, availability of similar products in competitors, profit margin etc.
Although these points are often used to evaluate a firm strategy, Porter affirms that the framework is designed to evaluate a line-of-business industry level, not an industry sector level.
The Growth-Share Matrix
In the same vein, a important tool is the growth-share matrix, developed by the Boston Consulting Group. You can use this tool to manage a business portfolio within a firm.
The theory states a two-by-two matrix that classify the lines of business.
The first category is Stars, which include businesses with higher growth rates and greater market share. Usually, those businesses have a lot of cash and they require large investments to maintain itself.
Secondly, there are the Cash Cows, businesses with a lot of market share but slower growth rate, which also move a lot of cash, but they don’t have a lot of investments.
The third one is Dogs. Businesses with a low market share and low growth rate, above all, they don’t move a lot of cash and therefore don’t generate a lot of profit. The best strategy here is to divest.
Finally, there are the Question Mark, that is to say businesses with a high growth rate but low market share. With these cases, the strategy is to invest, increasing market share and reallocating resources.
In short a Supply Chain strategy is a couple of decisions that establish a pattern of functionality for a business. They consider the products, capacity of planning, conversion of raw materials and other things.
The idea behind a supply chain strategy is to make sure a company reach the goals it set. It needs to ensure competitive advantages, reinforce activities, and optimize effort.
In conclusion, a successful strategy is the result of many things done well and integrating each other, ensuring the efficiency of the whole company and each of its divisions.
With artificial intelligence tools you can automate operational processes and free up time to think more strategically. Understand how Supply Brain can help you. Schedule a conversation!