The domain of supply chain management has evolved greatly over the last few decades. It is no longer isolated to the back office but viewed in a more strategic light. A lot has been written about supply chain management’s impact on quantifiable measures such as shareholder value, profitability, return on net assets (RONA) or return on capital employed (ROCE). Many top corporate executives and board room members have taken notice and now view supply chain management as a critical end to end process that could ensure their future success and competitiveness in the market. As a result, leading business organizations have integrated SCM into their strategic agendas. As supply chain and logistics professionals, we should welcome this trend as it gives rise to our work on a more high profile strategic stage.
As markets are dynamic, a firm’s supply chain should be responsive enough to take into account market variation and remain continuously adaptable. In addition to this, the design of the supply chain strategy should be flexible enough to handle market capitulation, yet simultaneously embeds a level of advanced foresight that addresses longer term structural business issues and objectives. A fundamental question businesses need to answer is: what supply chain resources and capabilities will need to be developed in the near to medium term, in order for the firm to compete effectively and efficiently in the future? A thorough analysis of the firm’s global operational footprint and relevant supply chain actors is a good starting point. This includes several tiers of suppliers, customers and third party service providers, as well as the locations, productivity, throughput flows, volumetrics, fixed and variable costs of production and distribution facility network. Companies should also address make or buy decisions and weigh the trade-offs between transaction and production costs, as well as understanding the lead time and service implications of their decisions. This analysis should take an end to end system wide / network view of the supply chain, as opposed to a fragmented “piece-meal” view. The latter approach can result in a sub-optimal design of the operational footprint and create serious service and cost implications for the future.
Cranfield University conducted a study about supply chain strategy in the board room in 2010. Researchers identified two main functional drivers of supply chain strategy, which were 1) customer service and 2) corporate strategy and three main performance drivers which were 1) cost focus, 2) customer lead time and 3) customer quality. One can deduce from this study that the centricity around the customer is crucial to the formulation of the supply chain strategy. This should not come as a major surprise as one of the core design drivers of business strategy is also the customer. If business strategy seeks to answer the question of “what”, then the operations / supply chain strategy should seek to answer the question “how”. These distinct strategy processes are not mutually exclusive to one another but very much inter-related. Therefore, it is paramount that the alignment between the corporate strategy and supply chain strategy be tightly coupled.
The inter-organizational and cross functional nature of supply chain management dictate a level of collaboration, integration and coordination required for the successful execution of the overall business strategy. The role of supply chain management in achieving competitive advantage should not be underestimated, as it can play an important role in attaining cost leadership or differentiating positions in an industry marketplace. As board room members and C-level executives now see supply chain strategy as a critical component to their business success, it is up to us as supply chain & logistics professionals to raise our game to the next level. This means being able to engage in strategic discussions with the executive team on how the supply chain can be used strategically to enhance value and ensure the delivery of superior performance.
Until next time,
Gautam Basu
+358 (0)50 401 6830
gautam.basu(fi)fi.pwc.com
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