How does a supply chain support an organizational strategy?

Chief supply chain officers (CSCOs) must link business strategy with supply chain segmentation and functional capabilities, however, in reality few supply chain management professionals are aware of who is responsible for end-to-end and functional supply chain segmentation. They don’t understand how segmentation can impact the trade-offs and functional capabilities, including supply management processes, necessary to support the business.

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• What is a supply chain strategy?
• Supply chain management (SCM) lessons from the COVID-19 pandemic
• 4 supply chain strategies for 2021 (with examples)
• 1. Place buffers along the supply chain
• 2. Diversify your manufacturing and sourcing network
• 3. Invest in demand forecasting
• 4. Standardize your processes
• Examples of Supply Chain Strategy in Action
• 1. Walgreens leans into big data
• 2. Bob’s Discount Furniture: keeping tabs on tariffs
• 3 benefits of a resilient supply chain strategy
• 1. Improved productivity
• 2. Less risk
• 3. It’s a path to innovation
• Optimizing your supply chain is an investment, not a cost
• What is supply chain support strategies?
• What is supply chain strategy and why is it important in an organization?
• How does good supply chain management provide advantage for organizations?
• How the competitive strategy and supply chain strategy of a company are connected?

“Supply chain leadership must learn to decode demand-driven customer value and business strategy to drive supply chain strategy and identify key capabilities required for profitable fulfilment,” said Ray Barger, research director at Gartner.

“Offerings valued by external customers drive supply chain strategy and trade-offs. Supply management leaders must communicate these trade-offs to functional teams, so they thoroughly understand them,” Mr. Barger said “They must be able to translate them into specific functional strategies that support cost, speed, service or other supply chain segmentation outcomes.”

There are five essential steps to connect supply chain strategy and segmentation with the centers of excellence (COE) and functional execution capabilities and processes. This five-step flow will enhance supply management value:

1. Refine the supply chain strategy and segmentation: This involves defining or refining your supply chain strategy to drive segmentation and make key trade-offs around cost, speed and service.
2. Link supply chain segmentation attributes to functional capabilities: This involves creating linkages between cost, speed and service attributes and core functional capabilities (for example, supply management cost-efficiency or agility).
3. Use capabilities to map/configure processes: This involves mapping and configuring the needed capabilities to supply management processes (for example, efficient bulk buys and locked volumes). Consider using a cost-to-serve model to understand the cost and working capital implications of different supply chain services and processes that support trade-offs to deliver customer value.
4. Align internal stakeholders to execute processes: This involves supply management leadership communication and collaboration to align internal stakeholders on the specific processes, actions and appropriate metrics necessary to successfully execute and deliver value.
5. Align external stakeholders on processes and actions to execute and deliver value: This also requires leadership engagement to ensure that suppliers are clear on, and aligned with, the actions and performance expectations necessary to support cost, speed and service attributes.

A supply chain strategy is a formal approach to managing the network between an organization and its suppliers. A supply chain manager usually develops this strategy with the primary goal of maximizing value across all stages of the production cycle.

As you’ll see in this article, supply chain planning requires a delicate balance of efficiency, resilience, and alignment with the overarching business strategy. But before we dive into specific tactics, let’s take a step back.

What is a supply chain strategy?

A supply chain strategy is like a roadmap that helps companies get their products to customers with as little friction as possible. This plan ensures that every phase of the supply chain is optimized, including the sourcing of materials, manufacturing, delivery, and logistics.

Four factors usually influence an organization’s supply chain strategy:

1. Industry
2. Company value proposition
3. Internal decision-making processes
4. Business goals

As the global market becomes more complex, proactively establishing a supply chain strategy is critical for any business that turns raw materials into finished goods. This includes industries such as manufacturing, retail, construction, and wholesale or distribution.

The term “supply chain” was innocuous for decades—until it made global headlines in 2020.

Supply chain management (SCM) lessons from the COVID-19 pandemic

In the past, making supply chains “lean” was a popular strategy for leaders, meaning the priority was to minimize waste to deliver products as fast as possible. However, the COVID-19 pandemic prompted supply chain leaders to shift their focus from efficiency to resilience to withstand global volatility.

Increasing your supply chain’s resilience may not be particularly cost-effective in the short-term, but it’s a risk many organizations are willing to take to ensure long-term profitability. According to a survey by Gartner, just 21% of respondents said their network was “highly resilient,” referring to the ability to adjust sourcing, manufacturing, and distribution activities quickly. However, over half of respondents expect to increase their supply chain resilience within 2-3 years.

So, what can supply chain leaders do to bolster their supply network? Here are five strategies to consider for 2021 and beyond.

4 supply chain strategies for 2021 (with examples)

If you’re concerned that your supply chain process is vulnerable to demand surges, shipping difficulties, or other external factors, consider these five strategies:

1. Place buffers along the supply chain

Strategically placing buffers can help organizations absorb the impact of unexpected delays. There are three types of buffers you can implement along the supply chain:

• Inventory: Keep safety stock or buffer stock to protect against delays or demand surges (this is the most common buffer since inventory can be easily tracked and controlled in real-time with inventory management software).
• Time Buffer: Materials arrive before demand to protect an upstream or downstream process or delivery point.
• Capacity Buffer: Leverage underutilized space like warehouses or production facilities.

2. Diversify your manufacturing and sourcing network

As supply chain disruptions have intensified over the past decade, procurement directors are realizing relying on a single source to get products is risky. For example, in 2011, natural disasters in Thailand and Japan prevented nearly-finished cars from being shipped overseas.

Diversifying your network (also called multisourcing) starts with categorizing partners based on two criteria: current cost and financial impact if that partner can’t follow through in the event of unforeseen circumstances. Then, you can forge relationships with additional suppliers or a supplier that has capabilities in multiple locations.

3. Invest in demand forecasting

Demand forecasting is the process of using data—not gut feelings—to gauge the demand for materials ahead of time, so you don’t come up short when it matters most. Accurate demand forecasting improves lead times, cuts costs, and improves customer satisfaction.

Think of it like your weather app: if there’s a chance of rain, you know to pack an umbrella and dry clothes. Is it more stuff to carry? Sure, but you’d be upset if you ignored the forecast and got soaked.

There are numerous methods to predict demand, like surveying customers, monitoring social media, reviewing historical data and trends, or soliciting advice from a consultant.

4. Standardize your processes

The more consistent you keep your supply chain operations, the more dependable it will be. This is especially true for organizations whose suppliers and manufacturers are scattered across the world.

Templates for platforms, products, and plants enable seamless production and adherence to compliance regulations. For example, companies in the automotive industry use common vehicle platforms to harmonize their supply chain strategy.

Examples of Supply Chain Strategy in Action

Let’s look at two quick examples of companies pivoting their supply chain strategy to adapt to market changes.

1. Walgreens leans into big data

In 2016, Walgreens, one of the biggest pharmacy chains in the world, started investing in forward-looking supply chain technology that aggregates consumer data and crunches the numbers to predict future purchasing behavior.

These metrics help Walgreens adjust its supply chain to reduce excess inventory and cut costs for warehousing and transportation. They also ensure they have enough stock to meet expected customer demands.

2. Bob’s Discount Furniture: keeping tabs on tariffs

Trade wars are notorious for rattling global supply chains. But the stakeholders at Bob’s Discount Furniture couldn’t afford to get blindsided.

In 2018, the US-based furniture retailer kept a pulse on the news about the potential for higher tariffs on goods sourced from China—which would directly impact their business. In response, they shifted 25-30% of their furniture sourcing out of China within 3-4 months at the beginning of 2019.

3 benefits of a resilient supply chain strategy

Supply chain resilience isn’t just a theory. It’s a practical strategy that gives organizations a competitive advantage—and it’s backed by evidence.

1. Improved productivity

A 2020 McKinsey survey found that supply chain leaders improved their productivity due to resilient supply chain systems. Moreover, 93% of respondents planned to increase their supply chain resilience through strategies like multisourcing and rising inventory levels.

2. Less risk

There’s no such thing as a “risk-free” supply chain. The complexity of supply chains makes them inherently vulnerable to factors outside the organization’s control. However, incorporating the strategies above into your planning process can improve sustainability and minimize the impact of interference if and when it happens.

3. It’s a path to innovation

When risk is mitigated along the supply chain, leaders can set their sights on other aspects of the business, like new technology and automation. A 2020 global business analysis by Brian and Company found that companies that prioritized supply chain resilience expanded their output capacity by up to 25% and had up to 60% shorter product development cycles.

Optimizing your supply chain is an investment, not a cost

It’s almost impossible to predict what the next big threat will be, and that’s precisely why supply chain professionals are starting to turn away from the lean supply chain design that prevailed for decades.

You can’t put a price on resilience—it can make the difference between merely surviving a challenge and emerging more robust than before.

What is supply chain support strategies?

What is supply chain strategy and why is it important in an organization?

How does good supply chain management provide advantage for organizations?

How the competitive strategy and supply chain strategy of a company are connected?