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Business Strategy Should Design and Determine Supply Chains

What Comprises an Effective Supply Chain?
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By Vivek Sehgal
May 31, 2012

Editor’s Note: Vivek Sehgal is senior director, development, at Manhattan Associates. Prior to working with Manhattan, Vivek worked for Fortune 20 companies, including The Home Depot and GE, in various leadership roles in their supply chain technology groups. This is the first of a four-part feature.

If you had to decide what supply chain capabilities your company should build to create advantage, what would they be? We are all familiar with constantly juggling the conflicting goals of minimizing inventory while establishing the highest service levels, reducing labor while increasing throughput, and reducing supply costs while maintaining stable supplies. We know that a supply chain that is integrated with the rest of the business functions, that senses changes, adapts, optimizes, and works within the context of the larger business strategy without any conflicts would be great. What we grapple with is how a supply chain strategy can be created that is not only aligned, but actually enhances the business strategy. This is not a theoretical discussion: Pioneering companies must continuously evolve their supply chains to create capabilities mandated by their business strategy to create competitive advantages. The failure to do so can be fatal.

So what comprises an effective supply chain? Is it the ability to quickly react to volatile demand? Is it the ability to maintain the highest inventory turnover in the industry? Does it mean having the lowest days of accounts receivable? What about accounts payable? Shortest cash-to-cash cycle? Highest ROA? Agility? Lean manufacturing? Optimal product mix? Highest resource utilization?

In fact, an effective supply chain may do all of the above or none of them. What makes a supply chain effective is unique to each business and determined solely by its ability to support the business strategy of the company. It is only effective for you if it works for you. Therefore, creating a supply chain that is an organizational asset involves creating supply chain capabilities that are aligned with the business strategy. Without such an explicit alignment, there would always be conflicts between what the business seeks and what the supply chain can deliver. Not understanding the intricate and complementary relationship between business and supply chain strategies can lead to missed opportunities and conflicting investment priorities.

Technology has become the de facto enabler of business capabilities, including those for managing the supply chains. It is great for creating cost effective, streamlined, and standard processes that are largely skill independent. However, technology brings additional complexity. Companies must not only develop effective technology to enable their supply chain processes, they must also ensure that the technology complexity remains manageable and cost-effective at the same time.

Therefore, to create an effective supply chain, companies must understand and articulate their business strategy and use it to pro-actively design and develop their supply chain capabilities. But to do so in the most effective fashion requires that the companies must also develop technology savvy to enable such capabilities and deploy them consistently across their operations.

Consequently, to truly create a competitive asset through its supply chain, companies must strive to align their business, supply chain and technology strategies in a symbiotic and mutually beneficial relationship. If the supply chain strategy is not aligned with the business strategy, the capabilities created by the supply chain may not create the advantages that the business strategy seeks to achieve its goals. If the technology is not aligned with the requirements of the supply chain strategy, the solutions enabling the supply chain processes may not be effective, flexible, and sustainable to create and maintain these capabilities.

Tomorrow:

To illustrate the point and the disastrous consequences that can come about as a result of the misalignment between the business and supply chain strategies and the inability to leverage technology, we will use the case of Kmart.


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