SUPPLY CHAIN ACCORDING TO BUSINESS STRATEGY

The Business Strategy will define the central axis on which the mission and vision will be elaborated. It will also be the base differentiation of the company and will indicate the way forward. Concerning the Supply Chain, it will help us to define our assortment and product management. Discover how your Supply Chain should be according to the company’s Business Strategy.

Continuing with the previous article “Customer-Focused Business Strategy” (see article here), today we will delve into each of the 3 Value Disciplines. We will also see how they complement their Supply Chains according to the strategic needs of each company.

Supply Chain According to the Business Strategy

The 3 Disciplines of Value (elaborated by Michael Treacy and Fred Wiersema), help us to define a Business Strategy. Each of them involves different ways of acting with Supply Chain Management.

Operational Excellence:
A business strategy based on operational excellence offers products and services at the lowest possible price. In a very accessible way to the client, they look for the continuous improvement of all their logistics processes. They worry about having reduced total costs and deliver the lowest possible prices and delivery times to their customers. Their supply chains tend to be very efficient, have a very focused and reduced assortment and a minimum inventory level.

Close Relationship with the Client:
Unlike the others, this type of company is entirely customer oriented, and it’s changing needs. They usually adapt their products and services, to deliver segmented solutions. For this reason, they generally have much higher costs and prices. They invest many efforts in achieving the loyalty of their consumers, doing brand work. Solve problems that may arise, aiming to improve the quality of life of the consumer. Its assortment is vast and to avoid inventory breakdowns posses a higher stock level. They also have a much more flexible supply chain.

Product Leadership:
They are those that focus their operations on constant innovation. This type of company continually seeks to make improvements in their products, even though the current ones work perfectly. For this reason, they tend to cannibalize their assortment consistently, offering new versions that make old ones obsolete. They tend to have a swift supply chain and a very variable assortment, with many introductions of new products and very short life cycles. They aim to have the minimum risk of obsolescence, so the number of units in inventory will sometimes be smaller than usual. Generate expectations of obtaining the products and their new versions.

Choose a Strategy

Many of the successful companies in the world have opted for an approach in an explicit way, following almost dogmatically the chosen foundations and incorporating them throughout the company’s decision making, despite having to meet a minimum level in both approaches remaining.

Regardless of the chosen business strategy, it will have a significant impact on the company’s inventory management. The amount of inventory to maintain does not depend only on the market and the demand, but it is a conscious decision about what is to be delivered to the clients.

Inventory management is affected by a large number of factors and variables, which makes its execution very difficult. Having too little inventory can cause a loss of sales and market share while having too much inventory can create high levels of obsolescence and generate significant losses for the company. That is why it is necessary to define your Supply Chain according to the Business Strategy.

Does your company have a clear and defined business strategy?

Is the inventory management aligned with the chosen strategic focus?

Do they reach a minimum level of management in the other two approaches?

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