Building Block #7: Strategy

Supply chains have existed since the first time a farmer harvested their crops, put them in a silo or barn and then shared or sold their inventory to friends and neighbors. For thousands of years, these supply chains functioned well. As economies grew, businesses became more global, customer expectations became more demanding and supply chains were able to adapt and evolve to meet the increasingly complex needs. Even in the years just prior to the pandemic, supply chains experienced disruptions due to the increased occurrence of natural disasters. As such, companies started to focus more on managing the risks of a supply chain disruption. This enabled supply chains to operate so well that the critical importance of a well-performing supply chain went unnoticed by the general public. A  friend of mine relates the general public's expectations of supply chain performance to a light switch in your home, when we flip the switch it just happens. 

Similarly, we go to a store or shop online and we expect the products we need to be available. Unless someone is involved in the supply chain profession, they rarely think about all the challenges, relationships, systems and resources required to make the product “magically” appear when and where we need it and at a reasonable price.

During the pandemic, we all went on hunting expeditions to find food and sanitizer. If we were really lucky we came home like the proud hunter with a 6 pack of toilet paper. If nothing else, the impact of the pandemic has made everyone much more aware of the critical role well-performing supply chains play in our daily lives. The increase in the frequency and severity of disruptions, capacity constraints and scarcity of labor has most companies feeling like they are playing a marathon game of whack-a-mole as they try to serve their customers while controlling cost. 

The bad news is that experts are now saying they don’t expect to see supply chain costs to stabilize until 2025. This has caused many companies to adjust their supply chain strategy from “just in time” to “just in case” -  increasing inventories, purchasing expedited transportation and implementing other drastic measures, which have all contributed to increased costs and higher pricing for the customer.

So, what should be your focus given all of the challenges and factors that seem to be out of our control?

The entire supply chain should be aligned to achieve the same goals: serving end customers’ needs and, to the greatest extent possible, delivering products that customers want when they want them and at the prices they are willing to pay. With a focus on serving your customers, your supply chain strategy should consider...

Holistic Approach

Your strategy needs to recognize the interrelated nature of all of the elements of your supply chain - inventory, transportation, warehousing, compliance and customer service. By optimizing one element, it can have an equal or even greater negative impact on another element. When this occurs, good intentions to reduce costs in one area can result in an even greater negative impact in another. As a result the overall performance of your supply chain can suffer, or you increase total cost.

Collaboration and Relationships

The companies that are thriving during these times of scarce labor resources and more frequent disruption are the ones with strong trusted relationships. Relationships where all parties have mutual respect and emphasize win / win outcomes versus adversarial outcomes where you win at the expense of a partner. One way to encourage collaboration and nurture trusted relationships can be as simple as ensuring that the KPIs reviewed during periodic partner check-ins (something you should do at least once a quarter) include both indicators on your partner’s performance as well as indicators on your performance in meeting your partner’s expectations of you.

Another simple example is to always make sure that one question on your agenda is “what can I, as your customer or partner, do to help you be more successful?”

And finally, as you create your objectives for your supply chain partners make sure you incorporate initiatives that will benefit all parties, not just your interests.

Leverage Technology and Visibility

Some experts say that many companies have visibility into as little as 30% of their shipments, and even those considered to be more progressive companies have visibility of only 70% of their shipments. As a result, their supply chains are not able to perform up to customer expectations, and they are being forced to overcompensate with excess inventory, manual workarounds, more expensive expedited services and disappointed customers. It’s more important than ever that part of your strategy includes a focus on leveraging technology to enhance the visibility you have throughout your supply chain.

Clear Objectives and Measurements

As the famous Yankee catcher Yogi Berra once said...“If you don't know where you are going, you might wind up someplace else.” This is a great lesson to keep in mind as you develop your strategy. It’s critical that you work with all partners in your supply chain to develop clearly defined and measurable desired outcomes. All parties must be explicit in defining the outcomes they want and what “success” looks like for them. Failure to do this could cause you to end up somewhere you don’t want to be. 

It’s also important that the outcomes you develop be represented and communicated through no more than 3 to 5 metrics or KPIs. By investing time up front as you develop your strategy you ensure that all partners are focusing on the things that are important and not wasting energy on activities that are not critical to realizing your strategic objectives.

Having clearly defined outcomes and KPIs also provides the benefit of all parties to respond to gaps in performance and take corrective action - plus highlighting opportunities to celebrate successes.

Focus on What You Do Best

You started with a dream, you created an amazing product and now you have a culture that attracts both high-performing team members and customers that rave about your brand. Continue to focus on these things and partner with supply chain professionals that have built trusted relationships with service providers over years (and in some cases decades). It’s these relationships that enable them to get things done on your behalf through the teams that ultimately pick the orders, load the trucks and complete the deliveries that make the product “magically” appear when and where your customer needs it and all at a reasonable price.