The 6 Elements of Supply Chain Strategy

Supply chain management is often a tactical pursuit, managing challenges and opportunities on a transactional basis, rather than holistically and strategically. This less than strategic approach is driven by both internal and external influences that divert attention from a holistic perspective, in turn directing focus on distinct or unique issues, challenges, and concerns. Falling into this tactical melee not only increases complexity, but also reduces the value opportunity that can be derived from strategic management of the supply chain.

Supply chain management must be perceived as a critical component of business strategy; delivering improved profitability through increased efficiencies and vendor management strategy requires the dedicated efforts of a talented team. An even greater challenge lies with those who manage within the supply chain, in having the ability to maintain focus on strategy despite the barrage of transactional issues they are immersed in.

There are six elements of supply chain strategy, which, if employed collectively and managed closely, will deliver significant value across the organization.

1. Leverage:

Despite the size and revenue of an organization, reduction and management of spending while continuously improving upon service levels is a significant benefit of managing leverage. Leverage has typically been applied based on historical usage trends and market expectations. However, the more powerful means to initiate leverage is through solid and supported predictions of future growth potential. Several of our best clients are high-growth companies who have grown both organically, as well as through acquisition. Unfortunately, in many instances, their focus has remained solely on growth, and not on leveraging the potential spending power of the organization to further improve profitability.

2. Communication:

A significant component of any business is the support provided by external resources, be they service providers or product and component suppliers. Obtaining value from these external resources to meet evolving company objectives requires a communication strategy. One such example is the development and implementation of a “supplier feedback” model to effectively ensure external parties supporting organizational operations and growth are aware of challenges, opportunities, and threats to business viability. Developing these models is an important component of managing information in a form that supports organizational strategy.

3. Efficiency:

Process and operating efficiency is a fundamental component of any high performing company, and the supply chain often impacts this efficiency either directly or indirectly. For example, improvements in production efficiency require increased volumes of supply of both components and maintenance equipment; improvements in process efficiency require increases in volume and timeliness of support from external suppliers and contractors; increased speed to market requires the support of accurate and timely freight management. Here again, building the right strategy to support organizational efficiency is key to meeting objectives and improving efficiencies.

4. Innovation:

Managing daily operations while initiating innovation are not mutually exclusive events. Building innovation in any organization requires significant input and support from external suppliers and service partners, both of whom must be willing to provide insight and support and take potential risks in pursing innovative solutions. Organizations such as Apple would not have reached their pinnacle levels of success if it were not for the engagement and support of their suppliers such as Samsung (interestingly also one of their largest competitors at the time of this writing, an obviously unplanned result of their supply chain strategy).

5. Risk Management:

Those organizations that represent and support company operations externally (i.e. suppliers) present the greatest, most unmanageable degrees of risk to an organization. External risk is often also the most disregarded risk as it is not as prevalent or visible as other internal risk factors. Supply chain management is the function most in-tune with external support groups, and is able to identify potential risks as well as mitigating solutions to protect the organization’s interest. Developing an effective and all encompassing risk management strategy requires the support and input from key Supply Chain professionals.

6. Continuous Improvement:

The greatest performing organizations engage continuously in improving their performance. Considering that most improvements have an impact on external support groups (either directly or indirectly), supply chain management is the tool to identify and manage improvement opportunities. Continued updates to Apple software for iPhones, iTunes, and other products are the direct result of supplier involvement in continuous improvement that results in the rapid resolution of immediate for foreseen challenges, in turn creating enhanced customer satisfaction and brand loyalty. Continuous improvement also provides significant opportunities to reduce cost, and supply chain management is often the most adept and knowledgeable party relative to reducing cost through internal and external efficiency.

Viewing supply chain management as a strategic tool through the application and management of these six elements can deliver significant reductions in working capital and organizational risk, and change perspective relative to the value inherent in the role. Anything less would be tactical by nature and result in less than satisfactory results.

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