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How to Develop an Effective Supply Chain Strategy

Supply chain management requires developing an effective supply chain strategy. Your supply chain strategy should focus on the efficient transfer and movement of inventory — it’s the only efficient way of balancing the often difficult-to-forecast pulls of customer demand and supplier availability.

What type of supply chain do you want? There is no one “right” way to organize and optimize a supply chain. Depending your industry and your goals, your supply chain may be organized around different sets of criteria.

Products with a short lifecycle may require a supply chain that focuses on speed; highly competitive industries may instead focus on supply chain efficiency in order to contain costs. If there is considerable uncertainty around demand, then responsiveness is more important than efficiency. A more flexible approach might be appropriate for industries where there are unexpected demand peaks or highly seasonal demand. Your strategy should be aligned with the business pressures and customer requirements you face in the real world.

Below we’ve outlined some of the most important steps required to develop an effective supply chain strategy.

1. Take a holistic view: Supply chain management requires more than just sales and inventory information. Forecasting technology has become much more reliable and granular. Forecasting tools backed by high-performance computing resources can generate reliable forecasts based on sales data as well as outside demographic data, geographic trends, and even weather forecasts.

Your supply chain strategy should involve integrating the flow of information both upstream and downstream so that all stakeholders can respond to these demand signals in a timely fashion.

2. Take heed of industry trends: Each industry has its own set of demand drivers, industry standards, and supply chain management protocols. These change and evolve over time. While you can’t reconfigure your supply chain strategy in response to every passing technology or inventory management fad, it’s not too difficult to see which way the proverbial wind is blowing when it comes to major shifts.

If a number of your suppliers are beginning to demand certain types of information or are shifting to just-in-time supply models, or if suppliers seem to be coalescing around a particular data standard, you should at least prepare to change your supply chain strategy so that you’re ready to adopt the changes when it is prudent. You can wait and see, up to a point; a worse strategy is stubbornly resisting to avoid disruption or technology investments. If your company winds up on the outside of what has become an industry standard, it could cost you a lot more in lost business in the long term.

3. Understand your company’s unique value proposal: What is your competitive positioning within the supply chain? What are the minimum requirements that will make you an option for customers, and what elements can differentiate you from competitors in the supply chain? Your strategy should focus on that differentiation, and the added value you can provide through your supply chain.

4. Incorporate risk management: Identify the risks to optimal performance, both internal and external. What are the weakest or least secure “links” in your supply chain? How can you mitigate those risks? Come up with action plans, identify alternate suppliers or transportation resources, and assign team members for specific response actions when there is a breakdown in the supply chain.

Finally, implement your supply chain strategy in such a way that you can continuously monitor performance and adjust accordingly to enable improvement.

The supply chain strategy development process is both cross-functional and requires continuous monitoring and adaptation. Markets change. Your customers and suppliers change. By implementing a continuous improvement process, your supply chain strategy can quickly adapt and respond to those changes.

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