A firm wins in the marketplace by providing better value for customers than its competitors, and achieving that goal starts with strategy. At the enterprise level, strategy is the result of decisions executives make about what to do and not to do. A firm’s strategy is intended to answer some key questions such as: what markets do we serve, who are our customers, and what do our customers value that we offer. Providing the answers to these questions require trade-offs influenced by supply chain considerations. That’s why merging the development of business and supply chain strategies is critical.
Bring supply chain into the strategy development process.
Although some surveys have shown that many CEOs are unaware or ambivalent about supply chain considerations, internal collaboration must start at the executive level. Bringing supply chain representation into the executive level strategy planning process ensures that the internal collaboration required is directed from the top. It also assures that attention is paid to the resources required to execute the strategy. In one high-tech medical electronics firm, an executive decision was made to penetrate a new market with products no other company offered. A supremely confident president announced to the company that “within 18 months the majority of our revenue will come from products we do not yet even make!” Just one problem—there were currently no suppliers capable of producing the required component of those new products.
Communicate and deploy the strategy.
To achieve the goals of the firm’s strategy, the strategy must be clearly communicated to everyone. Each functional area in the firm must align their strategies with that of the overarching enterprise strategy. They must also collaborate in making those strategies synergistic. For example, design for supply chain is a best practice among many firms. This starts with the consumer and works backward up the supply chain to look for ways to maximize value and minimize cost. Multiple functional areas must collaborate in both product and supply chain design. For instance, competing in high-end fashion apparel will require a different supply chain strategy than selling cotton briefs. If the procurement function is focused on low-price instead of agility, then there’s no chance for success.
Create the right metrics and monitor them.
There is no one right set of supply chain metrics, and there will be trade-offs that reflect the needs of the markets and customers. Align metrics with what is most important to the successful execution of the strategy. This applies to the executive level where KPIs (key performance indicators) may focus only on short term financial results, and it’s relevant to functional groups where KPIs may actually conflict. For instance, reducing all forms of inventory to minimize cost is a terrific goal, assuming the procurement, production, and logistics functions collaborate to make it happen without retail stock-outs.
Great strategies need perspectives from across the enterprise. Unfortunately even great strategies are useless unless they can be executed. Integrating enterprise and supply chain strategies will help ensure better strategies and profitable results.
Posted by Ben Benjabutr, the editor of SupplyChainOpz.com