When we think of strategists, we tend to visualize men educated in elite universities able to see things the rest of us cannot. But strategy is often more prosaic. For example, when it comes to supply chain strategy, there is a playbook that can be followed.
The Supply Chain Strategy Playbook
- Understand the corporate strategy and adopt the supply chain strategies to the corporate strategy! What a company’s supply chain should attempt to do is very different for companies that compete based on cost, service, innovative products or services, or compete in a niche market.
- Build supply chains from the customer backwards! Many companies seek to understand how their customers perceive them by using the Net Promoter Score methodology. The Net Promoter Score (NPS) is a management tool that can be used to gauge the loyalty of a firm’s customer relationships and claims to be correlated with revenue growth. NPS is calculated based on responses to a single simple question: How likely is it that you would recommend our company/product/service to a friend or colleague? When companies see their NPS scores fall, the supply chain team needs to go on a perfect order journey to better understand how they are failing their customers.
- Engage in integrated business planning (IBP)! IBP is the process that balances supply and demand over a short and medium term. Over longer planning horizons, IBP can help time hiring for seasonal surges, insure there is warehouse and trucking capacity for promotions, and lead to the right kinds of capital investments. IBP is a collaborative process that includes logistics, manufacturing, finance, sales and marketing, and potentially other groups as well. Supply chain excellence is a team sport that must involve collaboration with other parts of a company, and even suppliers and customers.
- Implement new supply chain applications in an integrated fashion! Existing supply chain applications have proven benefits and an ROI that ranges from good to excellent depending upon the application. But companies will get much better payback from their supply chain projects if they do not do them in an ad hoc manner. A company should have a comprehensive end-to-end vision of what they want to accomplish, in other words, a view of what their integrated supply chain should look like. Companies can then logically sequence their projects to achieve that vision.
- Engage in comprehensive training! If your people are the most important ingredient in success, companies need to think about training first. When companies put in new processes, new applications, and ask for change, they often find that some people do not have the skills for their new jobs. A comprehensive approach to training helps to slot people into the right jobs and acquire new people with skills better adopted to the new strategy.
- Implement supply chain segmentation! The idea behind supply chain segmentation is that not all customers or products should be served with a one size fits all supply chain. Different service levels, inventory policies, and supply chain networks can make sense depending on the specific goals for a customer or set of products.
- Engage in a digital transformation! This is a new addition to the supply chain strategy playbook. Historically, most companies only looked at proven technologies. Companies looking at these kinds of solutions would put together a detailed business plan, and then only implement the technology if the forecasted financial returns exceeded their return on investment (ROI) target. But more companies are experimenting with potentially transformative technologies, regardless of whether the ROI is there or not based on the premise that they have to learn what may be possible. Engaging in this kind of experimentation requires a massive culture shift. ARC’s upcoming forum in February, Driving a Digital Transformation, addresses this issue head on.