What does a company need to do to achieve strategic fit between the supply chain and 20 competitive strategies?

Some managers believe that there are universal definitions of good or bad supply chains. We often see companies attempt to build the most efficient supply chain, regardless of whether their market strategy is to compete on price. Optimizing cost and inventory may come at the expense of lead-times, flexibility and risk. Your supply chain needs to compete the same way your company does. Supply chains cannot be measured in absolutes or designed in isolation of the corporate strategy. Here are six steps to align your supply chain with your corporate strategy:

1. Define and communicate a clear corporate strategy.

One of the biggest failure points in aligning strategy is when the supply chain organization doesnt know what to align with. Strategies cannot be too limited and fail to consider and prioritize all the market requirements and factors on which participants compete (features, price, delivery, etc). And strategies cannot be platitudes promising all things to all people. Corporate strategy needs to define how you are going to be different and better than your competitors, and it needs to set specific, measurable goals. Then the strategy needs to be communicated to the organization thoroughly and repeatedly.

2. Identify the areas of your corporate strategy that are enabled by the supply chain.

You need to connect the dots between your strategic goals and how those get delivered by the company. This process defines what your supply chain needs to be good at, and it allows you to prioritize supply chain objectives. Ask the question, "What part of my core competence and competitive differentiation falls within or derives from my supply chain activity?" This step is especially critical in making in-house/outsource decisions.

3. Align supply chain performance metrics with the corporate strategy.

One of the most common issues we see is the belief that there are standard supply chain performance measures, and the company should strive to maximize them all. This belief fails to account for the fact that there are tradeoffs in optimizing different goals. There are also no absolutes in competitive strategy. Goals should be set based on your performance relative to your competitors.

We have a client who had operated their supply chain with the goal of shipping product within one day after an order. But their mature market no longer needed that level of performance. Relaxing that delivery requirement opened up a significant opportunity for inventory improvement. It is important to note that they didn't stop delivering in a timely manner or stop measuring delivery performance; they just re-prioritized their goals to optimize a different objective.

4. Structure your supply chain to optimize the strategic goals.

This step is where you address the elements of supply chain design: Supply chain network, locations, supplier selection and business terms, inventory and planning policy, organizational structure. Supply chains that are optimized for cost efficiency will look different than supply chains that are optimized for flexibility and responsiveness. Your organization and the skill sets of your people will be different, too.

5. Align incentives end to end.

Internal performance evaluations and bonus structures need to match the aligned metrics that have been set. Supplier performance management and business models should align the suppliers' incentives with yours. Don't forget that channel and demand management are part of the supply chain, too. Build a robust S&OP process and drive your sales and marketing teams with objectives that aren't at odds with your supply chain objectives. One common failure is when sales and marketing have no incentive to control inventory. They will overdrive the forecast to guarantee availability and then the supply chain organization is left with the excess inventory.

6. Keep refreshing the strategy and alignment process.

Most companies have strategic planning cycles of one to three years, but we have seen companies that literally go decades without re-aligning their supply chain strategy. Put your supply chain strategy on the same schedule as the rest of your planning.

Good luck aligning your supply chain with your corporate strategy! I welcome your feedback.

Jeff Wallingford is vice president, Supply Chain Strategy for Riverwood Solutions.

A company needs to take some steps to achieve a strategic fit between the supply chain and competitive strategies. These strategies may be implicated or explicated or one or more customer segments. So that the company can satisfy these segments. At first, a company should ensure its supply chain capabilities to satisfy the needs of the targeted customer segments.

Now, we are going to learn three major steps to achieving strategic fit. Have a look –

Understanding the customer and supply chain uncertainty

Primarily, a company must understand the customer needs for each targeted segments. After understanding this, the company also tries to understand the uncertainty of these needs of the supply chain. However, these needs help to understand the desired cost and service requirement for these. Besides, we also see that uncertainty identifies the extent of the unpredictability of demand and supply. This helps the company to prepare for the desired supply chain.

Before selecting a segment, a company needs to understand the customer needs. For example, if your customers are very price sensitive, you can’t charge higher for them. On the other hand, if your customers are ready to pay for higher quality then you have to fulfill them.

In general, customer demands are varying from different segments along with several attributes. Such as –

Quantity of the product needed in each lot

It means that customers want a one-stop solution in which they can purchase everything.

Response time that customers are willing to tolerate

It is the main factor. Because customers are more sensitive at the response time. It is more obvious in the restaurant. Some customers prefer quick delivery and others may not.

Variety of products needed

A growing number of customers present here, their need, want and demand is not the same at all. All of them want different types of goods to fulfill their desire.

The restaurant is the best example of it. In an emergency order, they need to respond to fast otherwise they will lose consumers as well as reputation.

Usually, a high-quality product has a higher price than fewer quality goods. Besides, an emergency order can charge more than construction order.

The desired rate of innovation in the product

In a departmental store, customers want different types of innovative products and new designs in their store.

Each customer in particular segment has similar needs and in a different segment has different needs. However, our key goal is to identify the main measure that can satisfy their different needs. Through this way, a company is able to achieve a strategic fit.

Understanding the supply chain capabilities

Here, many types of supply chains are designed for performing different tasks quickly. That’s why a company needs to understand its supply chain design well.

However, there is a big question that how the firm best meets customer’s demand in the uncertain situation. Now, we are going to see different characteristics of the supply chain that influence their responsiveness and efficiency.

At first, we will learn the supply chain ability that means responsiveness. Let’s see –

Respond to wide ranges of quantities demanded
Meet short lead times
Handle a large variety of products
Build a highly innovative level
Handle supply uncertainty

These are similar characteristics among several firms to maintain demand and supply.

If any mismatch exists between supply chain and consumer needs, then the company needs to restructure its supply chain or select an alternative course of action to change its competitive strategy.

After understanding the uncertainty level, the final step is to ensure supply chain responsiveness. It ensures supply chain responsiveness is consistent with the implied uncertainty. However, its main goal is to maintain high responsiveness for a supply chain. Besides, it tries to identify whether there is any mismatch or not.