William B. Lee, PhD, CFPIM | March/April 2013 | 23 | 2
The importance of focus on supply chain
Why be concerned about strategy? Why not just jump right into the meat of our problems and solve them? Why worry about macro issues and complex expressions? Don’t we all just have a job to do? After all, when we as supply chain and operations managers have a problem, don’t we just roll up our sleeves and wrestle it to the ground? Let’s get on with it!
We don’t want our companies to be like that. The big picture is extremely important, and we must link our supply chains with our corporate strategy. Let’s begin by understanding strategy: The APICS Dictionary
defines it as “how a company will function in its environment” and goes on to explain that strategy specifies how to satisfy customers, grow the business, compete in the environment, manage the organization, develop capabilities, and achieve financial objectives. Crafting and Executing Strategy: The Question for Competitive Advantage
by Arthur Thompson, A.J. Strickland, and John E. Gamble further defines strategy as “management’s action plan for running the business and conducting operations.” The supply chain connection
Businesses that succeed in linking corporate strategy with the supply chain view their supply chains as strategic assets. Company leaders know supply chains must go beyond cost savings and significantly contribute to sustainable growth. Consider the following key questions:
- What is your company’s strategy?
- How does your company define strategy?
- How do you think strategically?
- What are some of your company’s strategic objectives?
- What might be a more effective approach to strategy deployment?
- How do your company’s supply chains link with the rest of the organization and vice versa?
The following supply chain strategy models are directly pertinent to this discussion. Operational excellence
. In The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market, Michael Treacy and Fred Wiersema write, “[Henry Ford was] a paragon of operational excellence because the founder’s business model was tuned to a single purpose: delivering an acceptable product at the lowest possible price. As Ford’s costs fell, the retail price of the Model T car fell too, from $850 to $290.” Ford’s supply chain was something we don’t see much today—a fully integrated network from the raw materials, through all stages of manufacturing and logistics, to the ultimate finished automobile. Overall cost leadership
. This strategy concentrates on an organization’s value chain and how to reduce expenses at each point. A low-cost operation obviously will bring about improved returns—even in a highly competitive marketplace. Product leadership
. Businesses that set themselves apart from the crowd are those that dominate the marketplace by consistently offering the best and most innovative products or services. Differentiation
. Michael E. Porter, in Competitive Strategy: Techniques for Analyzing Industries and Competitors
, discusses what makes differentiation such a powerful strategy. “Approaches to differentiating can take many forms. Caterpillar, for example, is known not only for its dealer network and excellent spare parts availability, but also for its extremely high-quality, durable products, all of which are crucial in heavy equipment where downtime is very expensive.”
. More than low prices, customer intimacy is about a business being a true friend. Becoming the place people go to understand and solve their problems can be invaluable. Focus
. This strategy is about centering on a specific consumer segment or geographic market and serving it more effectively than the more broadly focused competition.
Meeting these strategic objectives requires the entire organization to be connected, understand customer needs, and ensure that the supply chain is clearly tied to corporate strategy. The trade-offs
It’s interesting to consider all the different linkages—and the fact that companies cannot serve multiple strategic leaders at the same time. In fact, it’s difficult to serve more than one, because they all require trade-offs that balance important factors, of which not all are attainable at the same time. Each of these strategic operating models requires making choices in terms of what to do and what not to do.
The strategic planning process must be linked from the corporate strategic plan downward to the supply chain organization and out to the individual contributor. Figure 1 shows how this process works. Notice the cascading, level-by-level structure. Level 1 represents the top corporate level. Level 2 is the supply chain organization. Level 3 shows supply chain processes. Finally, level 4 is the individual contributor level.
At level 1, the following actions occur:
- Management establishes the vital few strategic company objectives. These are the essential elements of the corporate strategic plan.
- Current and new company actions are specified to support and implement the strategic objectives.
- Company measures are chosen that specify how the actions will be evaluated.
- Company resources spell out what are required to implement the actions to support the objectives.
Level 1 actions become the links to level 2. Company actions set the requirements for the supply chain actions. These, in turn, drive the supply chain measures and the resources required for the supply chain organization. Level 2 actions become the links to level 3 and make up the supply chain in its entirety. Note that supply chain processes are not necessarily contained wholly within the supply chain organization. In level 3, supply chain process actions become the links to level 4, when each person has his or her actions, measures, and resources. In this manner, the corporate strategic plan is implemented with objectives, actions, measures, and resources.
The arrows, which indicate the iterative nature of this process, go around the boxes enough times to get it right. This process
- sets strategic direction for the business
- establishes the objectives to deliver results
- identifies the actions required to meet those objectives and deploys them down through the organization
- creates measures to track progress of the actions and to link back to higher-level objectives and actions
- identifies resources required to complete the actions and align responsibility
- specifies behaviors that are required to implement the strategy.
This approach is known as hoshin planning—a system developed in Japan in the 1960s, which is similar to management by objectives. It is more than just planning; it includes doing what is planned and the review and evaluation of what is done. The APICS Dictionary
describes it as “breakthrough planning. A Japanese strategic planning process in which a company develops up to four vision statements that indicate where the company should be in the next five years. Company goals and work plans are developed based on the vision statements. Periodic audits are then conducted to monitor progress.”
Getting it done
In essence, the process for linking supply chains with corporate strategy is a process of asking three questions:
- What do we need to accomplish?
- How should we go about doing it?
- How well are we achieving our objectives?
It is a simple process in concept. The key to success, ultimately, is to follow the process, measuring progress as you go. Realize that your objective is to fully integrate the organization around a well-thought-out strategic plan and ensure that the supply chain plays an important part in the process.
William B. Lee, PhD, CFPIM, has experience in supply chain and operations management, having served as an electronics design engineer with Martin Marietta Corporation, plant manager for Rockwell, professor and chairman of the department of systems and operations management in the College of Business Administration at the University of Houston, global partner in charge of the manufacturing and distribution consulting Practice at Deloitte, and president of Oliver Wight Management Consulting. He also held numerous positions at the Jesse H. Jones Graduate School of Business at Rice University. Lee may be contacted at firstname.lastname@example.org
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