Chapter 2

Setup for Success:

Strategic Design for the Supply Chain

“Here’s the secret to creating the 3 year Strategic Plan. Year one should have small, achievable goals: a slight improvement over the current year. Year two should have some major breakthroughs, and year three should get you to the ideal state that everybody wants. Then, of course, you repeat the process next year.”

Director of Supply Chain, Consumer Products Company

Matching Supply Chain to the Business Strategy

The Idea

Creating a strategic plan does not have to be an effort in chicanery, nor should it be something that is re-created each year. Rather, a strategic plan is a slow build in the direction that the company wishes to follow. For supply chain leaders, this is especially relevant, because changing production and logistics assets are not easy to change. But how does one actually come up the correct design for one’s business?

With some exceptions, supply chain improvements are not the main strategic initiatives for a company. Instead, the supply chain is an enabler for sales and marketing. Then the questions are: What is the strategic plan? Is the company planning to double its sales over the next two years? Does the company need to reduce costs by fifty percent to be competitive? Will the company offer three times the number of products by the year 2010? Is there regional or global expansion planned?

In the best case, the supply chain leader should be asking each functional group to detail the go-to-market approach for their part of the business: channel, product family, or other meaningful delineation. These should give the clues to where the supply chain needs to improve.

In some cases, the strategic design is easy. If current performance is not meeting the business objectives of the business, then the plan for next year and beyond is to fix those areas.

The Real-Life Problem

Unfortunately, not all sales and marketing plans give supply chain leaders a clear direction for their strategic design. When supply chain leaders ask their internal customers where improvement is needed, they get one answer back—Everywhere. Should we improve service? Yes. Should we improve delivery times? Yes. What about improving quality? Of course. And should we reduce cost? Absolutely.

Without specific guidance, most supply chains fall back on driving small incremental change in every area of the business. If goals are set to improve service, cost, quality, speed, and flexibility at the same time, the end result will be that none of these attributes will make a significant change. And if little consideration is made for the effort to change and the trade-offs involved, then one improvement may actually worsen performance in another area.

The Effective Practice

Rather than asking their sales and marketing peers for preference, a supply chain manager should ask for priority. A good means to have this is to perform a Voice of Customer session with the internal stakeholders. The supply chain leaders can facilitate a half-day session that should elicit his strategic goals.

Start with a listing of the supply chain attributes: service, cost, working capital, quality, speed, flexibility (refined for any given business). Ask each team member to rank their importance for today’s business picture and for a future business state. Tally the results for both items. This will show the trajectory of change for the supply chain.

Next, review the ranked attributes for the future state and run a quick trade-off exercise. First, are there any attributes that cannot be considered? Challenge the assumption for any sacred cows and move on to the comparison. Would the business be willing to increase working capital to improve service? Can costs increase to improve flexibility? By going through the main combinations, the most important attributes should come out. Another approach is to run through the attributes with this question in mind: how much would we be willing to pay for improved performance in X?

The end result should be some general direction for the supply chain strategy. A great side benefit is that the overall business team will come away with an appreciation for the supply chain balancing act of performance. The supply chain leader then can go back to work with his or her team to develop their network, sourcing, and materials strategy.