Supply Chain Strategy: 6 Paths To A Perfect Result
The supply chain is to business what the instruction manual is to consumers: a step-by-step system that ensures the fastest yet most thorough route to a perfect end result. Businesses that invest time and capital into their supply chains, whether for the processing of products or information, almost always reap a very satisfying and profitable return.
This guide highlights six of the best, most popular examples of supply chain strategies. From speed to flexibility, there’s a way to structure your system to achieve a desired result. If you want to test these methods before implementing them, check out this course on how to build a supply chain model in Microsoft Excel.
1. Prioritizing Efficiency
Almost everyone can agree that efficiency is a good thing. This supply chain is ideal when competition is intense, products are similar, and customers are confused. An efficient supply chain will give you the most important advantage: price.
A lower price will allow you to gain a competitive edge (read this blog post on 7 competitive positioning tips and strategies). But to take advantage of this edge, you need to base your production on accurate consumer forecasts, or else you will lose any gains in stagnant product.
Two things need to happen: you need to reduce cost through equipment efficiency and you need to sell everything you produce. Here are some tips to help get you there:
- When transportation costs are high, try to consolidate. Can multiple customers’ orders ship together? Are delivery vehicles loaded to capacity? Have you actually given necessary thought to how your products are delivered, i.e. regionally, by state, etc.?
- If you load trucks to capacity, do you have extra transportation you can call on if you need it? When demand hits, you absolutely have to be able to supply. It won’t last forever, so you need to move product while there’s somewhere for it to go.
- Avoid being like a restaurant with 100 things on the menu. Whittle away excess products that are only marginally active.
- Coordinate with long-term customers; they will have the best idea of when their demands will be highest and this will allow you to anticipate your market. It will also pave the way for advancing your supply chain further, which we will discuss momentarily.
2. Prioritizing Speed
Speed is quite different from efficiency. With speed, businesses generally want to get short-term or short-lived products/novelties off the shelves as quickly as possible. Companies that profit from popular trends feel the need for speed. But it’s not easy constantly manufacturing new products at low prices.
The idea is to bring out products in one huge wave that is the perfect size for the demand. If you have to produce more product when the product is on the out, you’re going to incur more production costs and you might even miss out on a large chunk of business. Here are some ideas on how to shorten production time while lowering cost:
- There’s nothing wrong with outsourcing. I know this sounds counter-intuitive, but just having the option to outsource some work allows you to crank up production if you need to. This way you can produce what you think you will sell on the conservative end of the scale and will have a lower risk of wasting product.
- You have to forecast like your life depends on it. You need to do it quickly, accurately and, uh, did I say quickly? Seriously, do yourself a favor: learn the fundamentals of sales forecasting today.
- If you’re pumping out products quickly, chances are many of them will not be in the quantities you would see if you these were long-term staples. Give your full attention to finding affordable manufacturers/supplies of small quantities.
- If it looks like a product, somehow, is going to be around for a while, see above and try to prioritize efficiency around it.
Fashion and retail are prime examples of markets that need speedy supply chains. Use this five star course to learn about supply chain management in retail.
3. Prioritizing Flow
By flow I mean “continuous flow.” This is one of the most popular models of all time. Basically, its ideal is a perfect balance between supply and demand. When a product is relatively stable, you want to be able to supply a “continuous flow” of product to consumers. This means you don’t have to ship a million pairs of Air Jordans to the biggest Foot-Locker outlet in the country and hope they sell in one weekend. Instead, you ship continuous, small batches of product that allow your clients to give you accurate feedback on what they need and what they use (plus it allows them to be more stable themselves, as they aren’t dealing with overwhelming amounts of inventory).
- Your production cycle should make sense. Don’t constantly switch back and forth between what you are producing. Allow the system to find its rhythm.
- Certain customers will be more consistent than others. The secret lies in balancing those that are less consistent; collaboration is necessary for continuous flow.
- You need to set some rules for your customers. For example, orders must be placed at the exact same time every week, every month, etc. You need to be able to predict demand with almost perfect accuracy so that you don’t interrupt your “continuous flow.” As with many of these supply chains, forecasting is vital. Learn how to predict the future like a sage with this course on using ARIMA and ARMAX methods to forecast.
- Eventually, unless you are Coke or Morton Salt, your product will got out of fashion. You do not want to interrupt the flow of other products, so identify this early and immediately switch this product to a plan that prioritizes efficiency over flow.
4. Prioritizing Athleticism
An athletic supply chain is ideal when your distribution centers each get a unique product. Many times this is a tricky business, as products are not even produced until they are ordered. Sure, it cuts down on wasted product, but man you’ve got to move like lightening when the orders start coming in.
Therefore you have to be athletic. You have to move gracefully and powerfully. This means that simultaneously you have to be able to produce more than you can ever anticipate, but also less than what is desired.
- A smart supply chain designed for athleticism will focus itself around a group of products that have certain things in common. A product line such as Toyota’s four Prius models allows them to use many of the same parts for each car. Having parts that can be used for whatever is selling is a huge athletic advantage. In the car industry, you will see many companies that use the same frames, the same grills, the same door handles, etc.
- Reward your best, easiest customers with low prices; make up for it by charging your difficult customers (i.e. they are constantly changing your orders and exhausting your athleticism) higher prices.
- Always be ready for change. Some products will switch between athletic and efficient supply chains. Be prepared for this. Develop strong, trusting relationships with customers so that you work together to anticipate changes before they before emergency situations.
If you need help managing your inventory, pick up some free advice from this blog post on inventory management techniques and why they are important.
5. Prioritizing Customization
This is just like it sounds. Whereas an athletic supply chain can produce products on a made-to-order basis, customization requires an ability to produce (you guessed it) custom products. The obvious way to accomplish this is to design your products intelligently so that the customization process is as easy and stream-lined as possible.
Naturally, due to the ability of customers to customize their products, making predictions is all but impossible. Still, there is much that can be done to prioritize customization to be profitable.
- The first thing is to design products that can primarily assembled during the main phase of production. This way you can have the products 90% completed and can perform the actual custom effects when the product is in its downstream processes.
- Basically, the initial part of processing is a continuous flow priority, while the latter part is as agile as humanly possible.
- Because confusion runs rampant in custom products, try to make the entire process, from order to delivery, so simple and easy to understand that it does not require extensive training or re-learning when switching from one supply chain to another.
- Custom products are profitable because they can be customized. Get the most options out of the fewest parts and you’re golden.
- If, after time, a few products stand above the rest in terms of demand, it might be a good idea to give them their own supply chain and to have them constructed to completion before they hit the downstream processes.
- Apple, the electronics manufacturer, is the king of prioritizing customization. Think about it and emulate it.
One of the keys to getting ahead in customization, if you can manage it, is strategy analysis. Find out all there is to know with this master class featuring 30 tools for competitor, company and industry analysis.
6. Prioritizing Flexibility
As all of these strategies are somewhat self-explanatory in their general aims, then you have probably guessed that a flexible chain is designed to accommodate variations in demand, as well as long droughts in activity. One overcomes the droughts by evolving. One might even make a business of constantly designing new products in response to clients’ new problems. It’s all part of the circle of business life.
When problems need to be solved quickly, something changes: price no longer matters. This gives the supplier one advantage that many businesses would love to have. Still, you have to delivery, which means making your supply chain flexible.
- There are several essentials that you have no choice but to prioritize: large reserves of your most important resources, a system that can be modified easily, a team that can respond instantaneously, and some seriously advanced people who, ideally, know how to fix things no one else does.
- Unfortunately, or maybe fortunately, you should probably partner with a competitor or two. There’s nothing wrong with splitting profits on gargantuan projects that you couldn’t handle without help.
- Whoever you work with, make sure they are reliable to a fault. If you need to respond to an emergency, you need to be able to rely on someone.
- And whoever answers your phones or takes orders or enter anything into your system, make sure they are experienced and that these processes are all but fool-proof.
Now that you have a number of solid options to choose from, you need to do some serious thinking and figure out what is going to work best for you and your company. While some of these systems are complex, the key is to always tailor them to be as simple as possible. That’s a common theme. Get invaluable advice with this five star course on solving problems faster by using strategy theories.
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