Why Supply Chain Needs Strategy

Having spent many years in a large corporation developing and executing Supply Chain strategies, I have seen first-person, the bottom-line impact of having a good strategy. I have also seen things go sideways more than once due to not having the right long-term strategy in place.

Often small to medium-sized companies tend to be transactionally or short-term focused due to not having a strategic Supply Chain team member or placing enough value on the long-term plan for Supply Chain. Lack of vision for the future and what could be or should be for the supply chain results in companies that are reactive, focusing on the next PO, the next shortage, or the next production run. Once a company adopts this “firefighter” approach, reacting to what has already happened, it becomes difficult to break the cycle and think proactively. The value left on the table with this approach is not only in purchase cost, but also in production downtime, under-utilized employees, and unknown supply chain risk.

A good supply chain strategy addresses these issues with a sustainable, long-term solution-based approach. It will not only provide a good defense for supply chain disruptions but also provides an offense generating cost reduction and providing options for alternate suppliers and materials. By starting with the end in mind, the strategist works backward to determine what major steps and results are needed to achieve the organizational objectives. Once these major steps are identified, smaller daily actions can be identified and executed. The strategy will inform the daily decisions, rather than reacting to the latest supply chain disruption.

Supply Chain defense is one of the major benefits of the strategy that has recently received a lot of attention with all of the global supply disruptions. Companies that already had a strategies in place were far less likely to be impacted. Tactical supply chain defense looks like finding stock at alternate suppliers and buying as much as you can. Strategic supply chain defense for the same issues would start with an analysis of the market, perhaps a SWAT analysis. The strategic approach would define specific short and long-term goals such as securing supply. Once these goals were established plans would be established to achieve each goal. In addition, evaluating the current supply base will give insight into where the largest risk is such as sole-sourced suppliers, critical supplier with majority customer in cyclical businesses and over-seas suppliers where global transportation is required to receive product or materials. Long-term solutions could include developing new suppliers, possibly in a different geography than current suppliers. Phase in or phase out certain raw materials or products that are especially troublesome to secure or costly.

Supply Chain strategy should not only provide a good defence against disruption and cost increase, but should also provide a good offense. Many companies expect some type of cost savings from the supply chain, not only to offset the cost of increases in other areas, but to also justify their own existence. There are three main way to reduce cost and secure supply: resource, renegotiate and re-engineer. Re-source to a lower cost supplier or dual-soucring can create a more competitive landscape for quoting and create a more robust supply base. Renegotiating either price or supplier stocked inventory can be a quick win, assuming the supplier is willing to negotiate. Results from re-sourcing activities can provide the leverage you need to encourage your supplier to sharpen their pencil or stock more of your needed inventory to prevent disruptions. Finally, regineering your specification, product or material can provide new supplier options or lower cost material options. By increasing the number of options for supply, you decrease the risk of a disruption being crippling.

As previously described, a good strategy can really transform the Supply Chain through a focused view on the ideal future state. The value provided though this transformation can be measured in terms of reduced down-time, reduced cost and optimized inventory.