Strategic Importance of the Supply Chain.

Strategic Importance of the Supply Chain | Imperia
Imperia Article
Published: 14/12/2020

In today's digitalized society, the strategy in the supply chain becomes increasingly important. Going to physical stores is becoming less common, online shopping is prevalent, and more brands compete against each other to sell practically the same product.

For this reason, many companies seek to differentiate themselves from their competitors in three possible ways: low cost, rapid response, or differentiated product. Despite these differences, they all share the need to have an agile and efficient supply chain.

Key activities of the supply chain

Regarding the direction of the supply chain, it involves the integration of activities necessary to bring tangible products or services to the market. These activities include the transformation of raw materials or intermediate goods into finished products, as well as their distribution to customers. Additionally, activities such as procurement and process outsourcing are considered, among other essential functions for the relationship with suppliers and distributors.

Today, competition no longer takes place between companies, but between supply chains. These supply chains are becoming increasingly global and adaptable. Therefore, it is crucial to build a supplier chain focused on maximizing value for the end customer, which creates a significant competitive advantage for companies.

As companies strive to increase competitiveness through product personalization, high-quality levels, cost reductions, and rapid market response, they attach greater importance to the supply chain. The key to achieving an effective supply chain management is to make suppliers "partners" in the company's strategy to meet an ever-changing market. Thus, a competitive advantage may depend on a long-term strategic relationship with a few suppliers.

Key aspects for aligning the supply chain with the company's strategy

To ensure that the supply chain supports the company's strategy, managers need to consider the following aspects of the supply chain:

Low-cost strategy Rapid response strategy Differentiation strategy
Objectives of the suppliers
Supplying demand at the lowest possible cost Responding quickly to changes in requirements and demand to minimize stockouts Sharing market research, joint development of options, and products
Key selection criteria
Selecting based on cost Selecting for flexibility, capacity, and speed Selecting based on product development skills
Process characteristics
Maintaining high average utilization Investing in excess capacity and flexible processes Modular processes allowing mass customization
Inventory characteristics
Minimizing inventory to keep costs low Quick response systems with high safety stock to ensure supply Minimizing inventory to avoid obsolescence
Lead time characteristics
Shortening lead times if costs do not increase Aggressively investing to reduce production lead time Investing to reduce development lead times
Product design characteristics
Maximizing performance and minimizing costs Products allowing low setup times and rapid production increases Module-based design to postpone product differentiation as long as possible

Aspects to consider based on the strategy

The activities of supply chain managers include aspects of accounting, finance, marketing, and operations. Therefore, it is essential for the supply chain to support the operations management strategy, just as operations management supports the overall company strategy.

It is also important to consider that low-cost or rapid response market strategies require different things from the supply chain compared to a differentiation strategy.

For example, a low-cost strategy, as shown in the table, requires supplier selection primarily based on cost. In this sense, suppliers must have the ability to design low-cost products that meet functional requirements of minimizing inventory and reducing delivery times.

The importance of integrating the company's strategy into the supply chain

Therefore, to achieve top-down integration of the chosen strategy into the supply chain, it is necessary to understand that the strategy may vary for different products and may change as they progress through their lifecycle.

In conclusion, if you want to know how our solution can help you work on your supply chain strategy right away, contact us and choose the date and time that suits you best!