The Strategy-Driven Supply Chain Lab: A 5-step guide to cultivate strategic thinking about your supply chain

Aligning strategy, supply chain, and finance have never been more relevant. Today’s business environment exists within an increasingly dynamic, connected, and consumer-oriented economy. These shifting sands challenge those who attempt to build a supply chain to deliver a desirable offering that is economically viable and environmentally and socially acceptable. Further, the cadence for decisions in our current business environment encourages quick solutions which are often at odds with sustainable results.

Those up to the challenge of designing the supply chain of the future must understand how this can be feasibly achieved based on fundamental mechanics of supply chain and finance, but also must anticipate how long-term customer value creation may evolve. Designing such a supply chain requires understanding factors influencing the future. While this may seem abstract, especially to pragmatic supply chain practitioners, developing such organizational muscle is no longer optional—it is an essential prerequisite for survival and success.

This article provides an overview of how to cultivate such strategic thinking and design a robust, fit-for-purpose supply chain—a strategy-driven supply chain—for the future, by describing a multi-step workshop series combining frameworks for market outlook analysis, scenario planning, strategic value proposition design, supply chain design, and triple bottom line impact analysis. These frameworks can be seen as a series of steps, each fed by the outcomes of its predecessor. The nucleus is a strategic challenge, defined as long-term (five-plus-year horizon), broadly relevant across the organization, and open-ended in terms of potential solutions.

This “strategy-driven supply chain lab” draws from The Strategy-Driven Supply Chain: Integrating Strategy, Finance and Supply Chain for a Competitive Edge (DeSmet, 2021) and Strategic planning for dynamic supply chains: Preparing for uncertainty using scenarios (Phadnis et al., 2022) and illustrates the melding of these innovative works using examples from a workshop series facilitated with cross-functional senior leaders of a $10.8B annual revenue multi-brand retail group confronting the strategic challenge to increase market share in urban areas.

 

Workshop 1: Market outlook analysis

The first step to design the supply chain of the future is to assess what is influencing the future. The initial workshop focuses on long-term market outlook including presentations by various experts with relevant connections to the strategic challenge. The cross-functional workshop cohort performs fishbone exercises to identify causal drivers for their business and subsequently link those drivers to potential market indicators.

In the case of the retailer seeking to increase market share in urban areas, the cohort received presentations from a futurist with a rich outlook on technology, supply chain, and retail; an academic specializing in city logistics; and internal subject matter experts with relevant market and location intelligence. The mix of external and internal presenters was critical to considering a multi-dimensional perspective.

After receiving and discussing input from the presenters, the participants break into smaller, pre-defined, cross-functional teams. They then populate a fishbone diagram identifying causal factors and sub-factors influencing demand for the company’s offering. The teams are guided to categorize drivers first by “macro forces” versus “local factors.” Macro forces are large-scale externalities that cannot be influenced or controlled by the organization such as demographic shifts, societal trends, geopolitical activity, sweeping technological advancements, or regulatory changes. Examples could be population urbanization, lifestyle trends, adoption of artificial intelligence, and political polarization. Local factors are more directly within the organization’s environment and can be influenced but still not fully controlled, including customer perception, material availability, and affordability of offerings. For instance, demand for one’s products and services can be shaped by marketing and promotions and input costs can be influenced through strategic sourcing and contract negotiations.

 

To be as comprehensive as possible, participants are encouraged to consider the “PESTELE” factors (Political, Economic, Social, Technological, Environmental, Legal, and Ethical). Inputs to the diagram are not limited to the experts’ presentations but may also be taken from the collective business acumen and domain knowledge of the cohort.

Next, each of the small teams is asked to create a table of the factors from their fishbone diagram and link them to potential market indicators which could be used to monitor trends. For instance, new building permits might be a strong leading indicator of construction beginning within a few months which, in turn, could be a short-term predictor of demand for construction materials. Similarly, an increase in prescriptions of weight-loss drugs like Ozempic or Wegovy could precede a decrease in the sales of sugary snacks and alcohol.

Workshop 2: Scenario planning

The second workshop builds on the market outlook analysis by leveraging the macro forces and local factors to generate scenarios of plausible futures. While it may sound esoteric, scenarios are not rooted in pure imagination or science fiction; rather they are based on observable themes and key uncertainties. The methodology for scenario planning is adapted from Strategic planning for dynamic supply chains (Phadnis et al., 2022). In three broad steps, it involves identifying macro forces and local factors, evaluating the relationships among these and the strategic challenge at hand, and generating scenarios based on the outcomes.

The macro forces and local factors are informed by the preceding expert presentations and results of the fishbone exercise. The cohort pools its thoughts and deliberates to populate 20 to 25 local factors and 6 to 10 macro forces to list items being mutually exclusive, collectively exhaustive, and appropriate to the scope of the strategic challenge.

At the heart of scenario planning is a scenario generation matrix. One axis lists the agreed-upon local factors, the other lists the macro forces. This is followed by a two-stage scoring process. First, each local factor is scored for its potential impact on the strategic challenge. For instance, a local factor such as the availability and price of commercial real estate may have a significant impact on the ability to capture urban market share. Second, the strength of relationship between each local factor and each macro force is evaluated. As an example, a macro force like population urbanization would be strongly related to the availability and price of commercial real estate. In both scoring exercises, a simple rating of zero (meaning no relationship) through three (meaning strong relationship) provides sufficient stratification.

The intent of the two-stage scoring is to identify the most impactful macro forces. Each macro force receives a final score based on the sum of the products of two relationship scores—its relationship to the local factors and the relationship of the local factors to the strategic challenge. A higher-scoring macro force indicates a greater potential impact on the strategic challenge.

Scenario planning is intended to prepare for a range of potential outcomes, so it is concerned with more than just trends; therefore, it is important to distinguish key uncertainties from trends. A trend is defined as a macro force that can be predicted with reasonable accuracy over the horizon for the strategic challenge, whereas uncertainty cannot be readily predicted. Healthy debate helps the cohort flag each macro force as a trend or uncertainty.

Ultimately, the two highest-scoring and uncertain macro forces are selected. These two forces are then polarized as the axes of a two-by-two matrix with each of the four resulting quadrants representing a unique, structurally diverse scenario based on the combination of its position on the axis. For instance, if the selected macro forces are “Urbanization” and “Political Stability,” one axis of the matrix would be “Urbanization: High” vs. “Urbanization: Low” and the other would be “Political Stability: High” vs. “Political Stability: Low”. Further, any relevant high-scoring trends should be incorporated into each quadrant. Continuing with the example, “Sustainability,” may be a trend included in each scenario. Therefore, one scenario may be a combination High Urbanization and Low Political Stability and Sustainability.

 

Next, each of the resulting four scenarios is randomly assigned to a small team to navigate through the remainder of the steps (developing a value proposition, designing a supply chain to serve that value proposition, and evaluating the economic viability of that supply chain design). To further substantiate the scenarios, the small teams each populate a narrative for their respective scenario cataloging key characteristics and writing potential future news headlines. Finally, the teams identify five to eight customer groups (subject to the nature of the business, these could be channels, markets, or demographic groups) and each group’s relative size (small, medium, large) within the scenario. These customer groups feed into the strategic value proposition design.

Workshop 3: Strategic value proposition design

Because market and consumer expectations continue to evolve, they must viewed within the context of the scenarios. Astute supply chain practitioners recognize that different value propositions require different supply chains. Consider the product assortment link to inventory; the service level link to distribution footprint; and the volume and mix variability link to sourcing and manufacturing. It would be a mistake to design a supply chain without considering the value proposition it should serve. While the value proposition is clearly beyond the mandate of supply chain alone, the importance of considering supply chain should be equally clear. Once again, there is merit in cross-functional participation.

At this point in the series, each small, cross-functional team has one scenario, and teams are provided with a value proposition matrix. Based on their scenario narrative outcomes, they populate one axis with the customer groups and their relative size, and the other axis with value drivers such as price, psychological access, physical access, service, assortment, quality, experience, sustainability, and resilience. These are based on The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything (Crawford & Mathews, 2005) and extended in The Strategy-Driven Supply Chain (DeSmet, 2021) and again in Rethinking Supply Chain: Build a Strategy-Driven, Sustainable and Resilient Supply Chain (DeSmet, 2024). Teams can further extend the value drivers to whatever may be unique and relevant for the key customer groups within their scenarios.

Once both axes of the matrix are populated, the teams first perform a current state analysis, identifying each combination of customer group and value driver where their company already dominates or differentiates, and then similarly plots its key competitors. Next, the teams move beyond the current state and into their respective scenarios, identifying any relevant emerging intersections that may be underserved (“blue oceans”) and also speculate on what may be crowded, highly competitive intersections (“red oceans”) a la Blue Ocean Strategy (Kim, W. C., & Mauborgne, R. 2005). On the value proposition matrix, the blue oceans and red oceans are circled in their respective colors for clarity. The teams evaluate whether the blue oceans contain a worthwhile addressable market based on their customer group size from the scenario narrative and whether the red oceans should indeed be avoided. The ultimate outcome of the strategic value proposition design is the defining value drivers on which to dominate and differentiate in the scenario.

 

Workshop 4: Supply chain design

The fourth workshop determines how the value proposition can be viably served through the supply chain. While supply chain design is commonly viewed quantitatively through the lens of mathematical optimization comprising an objective function, constraints, and decision variables, here it is re-cast qualitatively.

Teams first translate the value drivers identified during the strategic value proposition design session into Key Performance Indicators to measure those value drivers. Rather than objectifying a single KPI, teams collate a basket of KPIs across the categories of financial, customer orientation, and general welfare (ecological and social). Sample KPIs include traditional financial measures such as gross margin and inventory turns, but also more innovative metrics such as percent of goods sourced within N distance and percent of assortment which is circular. These KPIs form the objectives.

From there, teams project what types of complexity and variability might exist in their scenarios. For instance, in the case of capturing market share in urban areas, it is easy to foresee regulatory restrictions on vehicle size, delivery windows, and emissions impacting logistics. Another example could include more rigid customer expectations related to service levels or hyper-localized neighborhood-specific product assortments. A socially and culturally diverse urban population may demand a proportionally diverse assortment of goods. These types of complexity and variability can be viewed as constraints.

The teams then determine “How will we respond to these types of complexity and variability?” and “What is eligible for change?” For example, the addition of certain specialized production or distribution capabilities, the size of the assortment, or frequency of shipments. These comprise the decision variables.

 

With the objectives, constraints, and decision variables identified, the next activity is to design supply chains to deliver on those value propositions while honoring the complexities and constraints of the scenarios. Each team creates a schematic diagram to represent the sites, equipment, and network flows of the supply chain. There is significant value to diagramming the physical value chain, as this often yields additional inquiries and insights. For example, does it make sense to have separate or adjoining facilities for a kitting and cross-docking hub? The diagrams are annotated to include details for specific activities, frequencies of shipments, and types of vehicles.

These diagrams subsequently enable the teams to identify the types of investments in both assets and capabilities required to operate the scenario supply chain. Categories may consist of real estate and facility types, equipment such as vehicles or production assets, information systems, human resources with certain qualifications, and anything else the teams identify as relevant.

 

Workshop 5: Triple bottom line impact analysis

The fifth workshop evaluates the supply chain design for economic viability, as well as environmental and social acceptability. Once again, different value propositions require different supply chains. Some focus on cost efficiency while others focus on responsive service. Some offer a niche product assortment, and others have a broad product portfolio. Some are asset-light while others are capital-intensive. Some buffer with inventory while others buffer with production capacity.

To deep dive on the financial tradeoffs, teams are provided with a series of graphs plotting historic company performance of profitability and capital efficiency (e.g., net profit x asset turnover, gross margin percent x inventory turns, etc.). The teams then plot their hypothesized performance on each graph. Each team evaluates how it expects to perform on previously scoped financial, customer, and general welfare KPIs. As the non-financial objectives developed during the strategic value proposition design are considered (e.g., customer satisfaction, sustainability, etc.), additional constraints and tradeoffs emerge.

One of the final exercises is a cross-scenario investment review. Here, the full cohort evaluates the collective assets and capabilities identified as investments across the structurally diverse scenarios. The intent is to determine which investments are robust and would deliver value across all or most of the scenarios, as well as which investments may be contingent on a specific scenario and could be postponed until market indicators (identified during the market outlook analysis) indicate that scenario may be coming to fruition. This is achieved through a voting exercise wherein each stakeholder has a finite number of points to allocate across the investments based on the expected value of each asset or capability across the scenarios.

 

Conclusion

As a capstone activity, each team creates a Strategy-Driven Supply Chain Map to link the strategic value proposition to the supply chain design to the triple bottom line impact for their scenario. This canvas allows for tracing the implications of strategy through supply chain to the triple bottom-line impact. As such, it serves as both a cross-check for alignment and a summary of the end-to-end process.

Engaging in such a multi-step workshop series yields a range of beneficial outcomes for the organization. One the on hand, fresh ideas will have sprouted among management for their real strategic challenge. More broadly, the organization now has its own language, frameworks, and mental models with which to prepare robust supply chains to optimize resource allocation in the face of an uncertain future. The organization has begun to cultivate strategy-driven supply chain thinking.

About the authors

Dan Kogan is managing director of The Strategy-Driven Supply Chain Institute and a Professor of Practice at Washington University in St. Louis.

Prof. Dr. Bram DeSmet is CEO of Solventure, Professor at Vlerick Business School, and author of multiple books including, “The Strategy-Driven Supply Chain and Rethinking Supply Chain.”

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