Understanding Supply Chain Flows and Strategic Fit for Business Success
The Importance of Supply Chain Flows
Supply chain flows are critical because of the strong link between their design and management (for products, information, and cash) and the overall success of a supply chain. Many companies owe their success to effectively designed and managed supply chains. Conversely, numerous businesses face failure due to their inability to establish and maintain efficient supply chain flows.
Decision Phases in a Successful Supply Chain
Three Key Decision Phases
A successful supply chain relies on three primary decision phases:
- Supply Chain Strategy (or Design): This phase focuses on long-term decisions, determining the chain’s structure, resource allocation, and processes for each stage. It lays the foundation for the supply chain’s operation for several years.
- Supply Chain Planning: Covering a timeframe of 3 months to a year, this phase works within the strategic framework. Key decisions include market allocation, subcontracting, inventory policies, and marketing promotions.
- Supply Chain Operation: This phase handles daily or weekly decisions related to individual customer orders, ensuring smooth order fulfillment and efficient resource utilization.
Understanding Supply Chain Processes
The Cycle View
The cycle view breaks down the supply chain into four interconnected cycles:
- Customer Order Cycle: Occurring at the customer/retailer interface, this cycle encompasses processes for receiving and fulfilling customer orders.
- Replenishment Cycle: This cycle, at the retailer/distributor interface, focuses on replenishing retailer inventory to meet customer demand.
- Manufacturing Cycle: Typically at the distributor/manufacturer (or retailer/manufacturer) interface, this cycle involves processes for replenishing distributor (or retailer) inventory through manufacturing.
- Procurement Cycle: Occurring at the manufacturer/supplier interface, this cycle ensures timely material availability for manufacturing.
The Push/Pull View
This view categorizes supply chain processes based on their timing relative to customer orders:
- Pull Processes: Initiated in reaction to customer orders, these processes fulfill actual demand.
- Push Processes: Initiated in anticipation of customer orders based on forecasts, these processes operate in an uncertain environment.
The push/pull boundary separates these two process types. This view is crucial for strategic decisions related to supply chain design, as it encourages a holistic understanding of processes and their connection to customer demand.
Three Macro Processes
All supply chain processes can be grouped into three macro processes:
- Customer Relationship Management (CRM): This process focuses on the company’s interaction with customers, encompassing marketing, sales, call center management, and order management.
- Internal Supply Chain Management (ISCM): This process covers internal operations such as demand and supply planning, inventory management, order fulfillment, and capacity planning.
- Supplier Relationship Management (SRM): This process manages the company’s relationship with suppliers, including supplier evaluation and selection, negotiation of terms, and communication regarding new products and orders.
Push vs. Pull Processes
Supply chain processes are categorized as either push or pull based on their timing relative to customer demand:
- Pull Processes: Reactive processes triggered by customer orders, operating in an environment of known demand.
- Push Processes: Speculative processes initiated based on demand forecasts, operating in an environment of demand uncertainty.
The push/pull boundary demarcates these two process types. While pull processes deal with known demand, they are often limited by inventory and capacity decisions made during the push phase.
The Generic Value Chain
for a company and briefly describe the contributions of each of its elements.The value chain begins with New Product Development, which creates specifications for the product. Marketing and Sales generate demand by publicizing the customer priorities that the products and services will satisfy. Marketing also brings customer input back to new product development. Operations transforms inputs to outputs to create the product according to new product specifications. Distribution either takes the product to the customer or brings the customer to the product. Service responds to customer requests during or after the sale. These are core processes or functions that must be performed for a successful sale. Finance, accounting, information technology, and human resources support and facilitate the functioning of the value chain.Discuss the two keys to the success or failure of a company. A company’s success or failure is thus closely linked to the following keys:1. The competitive strategy and all functional strategies must fit together to form a coordinated overall strategy. Each functional strategy must support other functional strategies and help a firm reach its competitive strategy goal. 2. The different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully.List and explain the three basic steps to achieving strategic fit. There are three basic steps to achieving strategic fit: 1. Understanding the customer and supply chain uncertainty. First a company must understand the customer needs for each targeted segment and the uncertainty the supply chain faces in satisfying these needs. These needs help the company define the desired cost and service requirements. The supply chain uncertainty helps the company identify the extent of disruption and delay the supply chain must be prepared for. 2. Understanding the supply chain capabilities. There are many types of supply chains, each of which is designed to perform different tasks well. A company must understand what its supply chain is designed to do well. 3. Achieving strategic fit. If a mismatch exists between what the supply chain does particularly well and the desired customer needs, the company will either need to restructure the supply chain to support the competitive strategy or alter its strategy.Discuss the impact of the product life cycle on strategic fit between implied demand uncertainty and supply chain responsiveness.As products go through their life cycle, the demand characteristics and the needs of the customer segments being served change. Supply characteristics also change as the product and production technologies mature. High-tech products are particularly prone to these life cycle swings over a very compressed time span. A product goes through life cycle phases from the introductory phase, when only the leading edge of customers is interested in it and supply is uncertain, all the way to the point at which the product becomes a commodity, the market is saturated, and supply is predictable. Thus, if a company is to maintain strategic fit, its supply chain strategy must evolve as its products enter different phases. As products mature, the corresponding supply chain strategy should, in general, move from being responsive to being efficient. The key point here is that demand and supply characteristics change over a product’s life cycle. Because demand and supply characteristics change, the supply chain strategy must also change over the product life cycle if a company is to continue achieving strategic fit. Explain scope of strategic fit. Scope of strategic fit refers to the functions and stages that devise an integrated strategy with a shared objective. It is a key issue relating to strategic fit in terms of supply chain stages, across which the strategic fit applies. At one extreme, every operation within each functional area devises its own independent strategy with the objective of optimizing its individual performance. In this case, the scope of strategic fit is restricted to an operation in a functional area within a stage of the supply chain. At the opposite extreme, all functional areas within all stages of the supply chain devise strategy jointly with a common objective of maximizing supply chain profit. In this case, the scope of strategic fit extends to the entire supply chain. Expanding the scope of strategic fit improves supply chain performance. The scope of strategic fit can be represented on a two-dimensional grid. Horizontally, the scope of strategic fit is considered across different supply chain stages, starting from suppliers and moving all the way along the chain to the customer. Vertically, the scope is applied to the fit achieved across different functional strategies, competitive, product development, supply chain, and marketing.