Published on September 23rd, 2014 | by Jan Godsell

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Getting Supply Chains Right

Supply chains have an omnipresence that many people do not realise.

In the UK, we talk about the economy being service-orientated, but what many of us do not realise is that 80 per cent of our population work in the supply chain industry. They range from the farmer producing food, to the factory worker cleaning and packaging it, the lorry driver that transports the food and the retail assistant handling its distribution in the store. They are all part of the supply chain that is helping to feed the nation.

Given the critical role that supply chains play in our economies, it is therefore crucial for companies to strategically align their businesses to get the best results from their supply chains, and this is something that has to come from the top.

For the biggest supply chain risk right now is the lack of visionary leadership. Fundamentally, organisations are not being strategic enough in that they are not seeing the supply chain as an integral part of their business strategy.

In most organisations, the supply chain is normally separated from the product, sales and marketing aspects of the business. Firms see the supply chain side as focusing on costs, separate from the product side which focuses on growth. And many believe that the only benefit the supply chain can provide is in cost savings.

What they don’t realise however, is that the most successful businesses are built on a symbiosis between the firm’s product marketing and supply chain strategy. To facilitate this, the firm’s leadership must have a clear vision of the firm’s global supply network. They must truly understand business strategy, and know how to balance supply and demand and how to make that happen throughout their business. Such joined up thinking is at the heart of the strategy of retailers such as Aldi and McDonalds. They drive efficiency both within their own business and across their supply chain by having a stable base range of products that they do not promote, which enables them to compete on price. driven by Consumer interest and growth is created through specific events that have a separate ‘when its gone its gone’ (WIGIG) supply chain. For Aldi this is their Thursday and Sunday ‘sales’ of themed items (e.g. camping, cycling, DIY) at rock-bottom process. For McDonalds it is their monthly themed menus. This integrated approach to the development of a congruent business strategy is what the smart companies do, to simultaneously minimise supply chain costs today whilst developing the capabilities for innovation and growth.

Of course, this is not a one-size-fits-all approach. Individual companies need to identify where their businesses will grow, recognise where demand will be more variable, and focus on managing this well. Companies should also build supply chains proactively rather than reactively. For instance, low cost high fashion retailers (e.g. H&M, Primark) have a network of potential suppliers that they have approved based on their adherence to a rigorous set of quality and conformance standards. Each season they re-tender for that season’s business and re-configure the network based on lowest overall cost. Everyone in the supply network understands the ‘rules’ within it, and focuses on improving their internal operational effectiveness to maintain cost competitiveness whilst being able to dock and undock with all other partners in that network as required.

With such a large percentage of our population involved in the supply chain industry, the more we can do to help raise the visibility of supply chains, the better we can help people understand how they contribute to that positively – not just to the UK economy, but also the European and global economies. This will really help to inspire people to work within it.

by

Jan Godsell is Professor of Operations and Supply Chain Strategy at WMG. Jan's research focus is on the way that product, marketing and supply chain strategy align to create a responsive or demand-driven approach to supply chain management.

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