Business

Effectively Aligning Business Strategy and Supply Chain Strategy

Effectively Aligning Business Strategy and Supply Chain Strategy

When we think about value creation within an organisation, it is clear the extent to which the supply chain is involved. From forecasting and sensing demand, managing inventory and service levels, distribution and warehousing through to sourcing and procuring products and raw materials, supply chain activities have a profound effect on the organisation’s ability to generate value.

What guides these activities is the supply chain strategy. What defines “value” for an organisation is the overall business strategy. Alignment between the two is therefore imperative in supporting the value creation process and overall performance of the organisation.

How can we ensure our supply chain strategy is strongly aligned with the overall business strategy? One way is to change our perspective of the overall business strategy and view it along four hierarchical levels, and then align the particular supply chain strategy elements to those levels. These levels are network strategy, corporate strategy, competitive strategy and functional strategy.

  • Network strategydefines the interactions and relationships between different enterprises, the network structures that define them and the level of competition or cooperation that exists between them.
  • Corporate strategydeals primarily with the “portfolio” aspects of the organisation. What businesses should we invest in? How should we structure our acquisitions? Even for single-firm organisations, portfolio decisions arise in, for example, what distinct markets should be targeted.
  • Competitive strategy deals with “position”. How do we position ourselves relative to the competition within a particular market? How do we perform activities that cannot be easily replicated by rivals, or how can we perform the same activities at a lower cost?
  • Functional strategydeals with the arrangement of internal capabilities (people, process, systems and data) within an organisation in support of higher-level strategies.

By defining strategy in terms of these four levels, we can then clearly delineate the supply chain strategy elements that align to them.[i] Table 1 illustrates this:

Strategy Level Level Focus Supply Chain Oportunities Value
Network Extended supply chain Obtaining and incorporating downstream data to improve planningUnderstand the extended supply base and the associated risk profile Provides more flexibility to respond to supply chain disruptions
Corporate “Portfolio” decisions Opportunities for shared logistics services (e.g. warehousing) to realise synergies and/or cost savingsMultiple supply chain structures (e.g. efficient or responsive) to support different market offerings More efficient use of enterprise supply chain resources
Competitive “Position” decisions Performing supply chain activities that rivals cannot match (e.g. same-day home delivery)Cost leadership through highly efficient supply chain operations Supply chain becomes a source of competitive advantage
Functional Capability design and arrangement Improving information flow across functions through, for example, the introduction of a sales and operations planning (S&OP) processImplementing advanced technology solutions to improve supply chain management Successfully execute higher-level strategies

Let’s look at a few examples of how leading companies develop supply chain capabilities at each of the four strategy levels:

  • At the network level, Apple develops partnerships with a selection of key suppliers (both direct and those further upstream), rather than multiple separate suppliers, to share information and ensure the high-quality manufacture of iPhones and iPads.
  • At the corporate level, clothing retailer Gap operates three distinct supply chains to support different market offerings – a low cost supply chain based in China for the cost conscious Old Navy brand, an agile supply chain in Central America to support the core Gap brand, and a high quality supply chain in Italy to support the premium Banana Republic brand.
  • At the competitive level, Amazon has positioned their supply chain as a key source of competitive advantage, offering second-day delivery on 15 million items (including groceries in select cities) through their Amazon Prime and AmazonFresh initiatives.
  • At the functional level, global food manufacturer General Mills has invested in several key supply chain technologies, supported by a world-class internal IT team. Technologies implemented and used successfully include demand sensing software from Terra Technology and transportation optimisation software from ORTEC.

Authoring By : Mathew Tolley

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