Supply Chain Strategy

A supply chain strategy is a plan with goals and objectives. It is about using all of the elements involved in the sourcing and procurement of goods and services to produce better results for the company. Typically, strategy is aimed at achieving objectives such as pushing a new product development faster, improving the use of current technologies, bringing products and services to market faster, minimizing resource investment, and reducing specific costs and response/cycle times. Supply chain strategy is often confused with supply chain management, even though it is a lot broader, which explains why many people traditionally call it “supply strategy”, “operations strategy”, and “logistics strategy”. It defines what processes within the firm should do well, as well as what the role played by each supply chain entity is. It also supports the firm’s competitive strategy by focusing on driving down operational costs and maximizing efficiencies. It establishes the way a firm will work with its supply chain partners, including suppliers, distributors, and customers. A well executed supply chain strategy results in value creation for the firm. Developing a good supply chain strategy requires the involvement of several issues.

The first one is focus. The ultimate purpose of the focus is the establishment and communication of the technology road maps that will be needed to improve or design a company's finished products. The need to develop processes for reviewing components and materials comes at the beginning of the planning. A major part of this process involves finding ways to maximize standardization efforts. A company needs to recognize its focus, core competencies, and means of differentiation. It needs to make decisions such as the needs to outsource processes that are not of its core competency, and rather focus at the ones it holds a competitive advantage. Doing so, there are two major advantages; first, the companies can specialize only on certain processes and try to establish economies of scale, and second, it can increase its returns by using assets that are not owned and maintained by them. Outsourcing requires negotiation and good communication that leads to coordination. The issue of quality assurance arises at this point, because outsourcing usually tends towards standardization.

Finding ways to maximize standardization efforts leads the company to process planning. Supply chain is a sequence of processes that get combined to fulfill the customer’s needs for a product. When these processes are aligned, the supply chain can deliver the right product to the right customer at the right time and place. There are two levels of planning: the strategic and the execution one. During the strategic level, demand and supply planning take place. Demand planning requires the alignment of expected resources, parts, people and capacity in order to satisfy the anticipated customer requirements. If the company plans according to initiated customer orders, then they can use a push process. On the other hand, if they decide to plan in response to customer demand, then they can use a pull process. The advantage of a pull process is that the demand is known with certainty, whereas the push process requires a forecast. An accurate demand forecast is necessary to avoid the bullwhip effect. Once the strategic level of planning is complete, the company is ready for its execution level of planning.

During the execution level, the workload and the transportation planning take place. There are four steps for the execution of demand process. The front-end agreement, the mission and logistics plan, the unconstrained requirements definition, and the constrained functional plan.. The front-end agreement is the establishment of different roles across the supply chain teams. Each role has different responsibilities with one goal in common; that is to satisfy the customer’s requirements. The mission and logistics plan’s purpose to document all logistics issues and set a mission that will drive the demand planning efforts. The unconstrained requirements definition is a forecast number, which does not include financial and capacity factors. It is used as the basis for all demand planning activities. The constrained functional plan is used to translate the unconstrained demand forecast by incorporating constraints in it. It can then be used to develop plans to optimize their logistics system performance. Following the process planning, the company is ready to