There is a direct connection between supply chain management and business performance.
The product cost, customer perception, responsiveness to demands, and other elements are firmly attached to the way we manage our supply chain.
What is a Supply Chain?
In that image, the blue arrow illustrates how a product flows in a Supply Chain from its raw material stage to the end customer.
There are other flows in a that are also moving up and downstream the Supply Chain, take a look at the following image.
Information flows upstream and downstream of the Supply Chain. Cash flows upstream back to the supplier. The Reverse flows brings products back to the supplier, repair, recycle, remanufacture, or disposal.
While all these flows are moving back and forth the Supply Chain, there are endless processes running behind them.
Simply stated, those processes include planning, sourcing, executing, delivering, and returning.
The most important part of a business' behind the scenes is how we strategize all these processes and take them to action.
How is a Supply Chain strategy shaped?
There are many factors, but there are also unique elements involved in a business' Supply Chain strategy, including our value proposition, internal supply chain process, and organizational culture.
Based on those unique elements, a business can direct its supply chain efforts in two directions:
oriented to efficiency
oriented to responsiveness
Orientation to Efficiency
There are industries where the priority behind its value proposition is a high significance of asset utilization, low cost, and end-to-end efficiency. Commodities like cement, paper, steel, and low-cost fashion, among others, are examples of manufacturing industries oriented to efficiency.
There are three conventional supply chain models oriented to efficiency.
1. The efficient Supply Chain Model accommodates best to highly competitive market industries; commodities like cement are an example. Under this model, customers may not recognize the value propositions; businesses compete with the price. The principal objective in this model is to focus on maximizing end-to-end efficiency, including high standards of asset utilization with lower costs.
2. The Fast Supply Chain Model benefits companies that manufacture modern products with short lifecycles. Consumers are interested in keeping up with the trends and are looking for product updates. This model's principal objective is to reduce the time from the idea generation process to the product's arrival to the market while maximizing the forecast accuracy levels.
3. The Continuous-Flow Supply Chain Model works best in industries where the demand is high and stable. Mature sectors with a manufacturing process that supports a regular flow of product and information. This model's competitive positioning requires a continuous-replenishment practice ensuring high-level service and low-level inventory at distribution facilities.
Orientation to Responsiveness
Industries with high demand uncertainty and where market mediation costs are a top priority can choose this direction.
There are three general supply chain models oriented to responsiveness.
1. The Agile Supply Chain Model is great for manufacturers of products with unique specifications by their customers. This model supports industries with unpredictable demand, such as where the manufacturing process happens after receiving customers' purchase orders. This model focuses on having the ability to designing manufacturing processes capable of small batches.
2. The Custom-Configured Supply Chain Model is an excellent fit for products with multiple product configurations. With a high degree of correlation between asset cost and the total cost, the assembly process allows making the product to the customer's specifications. This model is a hybrid of the continuous-flow model and the agile model. The product's configuration runs with the continuous-flow model and downstream processes, operates with the agile model.
3. The Flexible Supply Chain Model suits best for industries with high demand peaks, followed by extended periods of low demand, like the ones producing seasonal commodities. This model provides high adaptability with the capability to reconfigure internal manufacturing processes to meet specific customer needs or solve customer problems. This model needs ample flexibility with an emphasis on rapid response capability. It also requires an additional capacity of critical resources, possessing adequate technical strengths, and developing a quickly reconfigurable process flow.
One, or many models?
Businesses may choose to have a multifaceted supply chain by combining models.
Developing combined supply chain models within the same organization is a great choice. Each model should focus on serving a particular market segment or niche.
As our Supply Chain develops, the usage of proper metrics and performance indicators are imperative to analyze and measure our results. That data will document trends helping the management team in the decision making process.
In the end, special features like your product's value proposition, your very own internal supply chain process, and your organizational culture serve as the foundation to reach your final customer successfully.
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About the author: My name is Gloria Isamar Rivera. I have more than 17 years of combined experience in business administration, marketing, customer service, supply chain, logistics, and 3PLs. I consider myself a young professional, a supply chain leader, and an out-of-the-box strategist. I enjoy the simple things in life and value every process as a learning experience. I am looking onward to sharing something interesting for you very soon! Thank you so much for reading! ;-)
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