Organizational Strategy and SCM

The strategy of an enterprise identifies how a company will function in its environment. This supply chain strategy specifies how to satisfy customers, how to grow the business, how to compete in its environment, how to manage the organization and develop capabilities within the business, and how to achieve financial objectives.

Prior to discussing organizational and supply chain strategy in more detail, the first topic in the section addresses business strategy and competitive advantages. Competitive advantages are closely related to business strategy because they outline the advantages the organization should realize once it has decided how it will compete.

Recall that the supply chain strategy of an enterprise identifies how a company will function in its environment. The strategy specifies how to satisfy customers, how to grow the business, how to compete in its environment, how to manage the organization and develop capabilities within the business, and how to achieve financial objectives.

Where do you start when building an organization’s strategy? As author and business consultant Stephen R. Covey says in The Seven Habits of Highly Effective People, “begin with the end in mind,” that is, think first about the goals of the supply chain strategy.

Goals of Organizational Strategy

Whatever strategy the corporation adopts to satisfy customers, grow, compete, organize itself, and make money, the supply chain has to operate in a manner that furthers those goals. To give a simple example, if customers are clamoring for deeply discounted prices on durable, high-volume goods with stable demand, a supply chain strategy that invests heavily in sourcing lower-cost materials in emerging markets would be on target for accomplishing that goal. Low-cost sourcing is probably the best option for this strategy because purchasing machines involves a high capital investment and lower labor expenses could help offset the investment costs. However, you might also look into investing in equipment, as the high investment is covered by lower labor costs and increased revenue. (It is possible for an organization to do both¬ invest in automation and move into a geographic area where labor costs are less. That decision would be based on volume, payback period, product life cycle, etc.).

Horizontal supply chains will contain a number of independent organizations, each with its own goals, processes, operations, technology, and strategy. So, when we refer to the necessity of aligning supply chain strategy with organizational strategy, we are referring to the strategies of a channel master or nucleus firm. Traditionally, that’s the manufacturer of a product—the company that sits right at the center of the chain (or network) with suppliers in tiers on one side and customers on the other.

However, if a supply chain has a dominant firm with a dominating supply chain strategy (one that is dictating its requirements to others), for example, a large retailer, then supplier and manufacturer strategies and goals must align with that retailer’s organizational and supply chain strategies. The suppliers of suppliers also have strategies to be brought into alignment. Finally, the strategies, once aligned, have to do two things: serve the end customers’ needs and be profitable for the chain as a whole and each company individually.