Because supply chain management cuts across business functional and organizational boundaries, its impact is much broader and longer lasting. Therefore, supply chain management is inherently tied to strategic decision making. Put simply, the role of strategy is to plan the use of resources to meet objectives. In other words, a strategy is a series of plans to integrate an organization’s long-term objectives of supporting markets. It differs from a corporate philosophy, which concerns itself with a way of doing business. It also differs from a business doctrine, which represents a code of beliefs such as slogans. Depending on the extent of its scope, a strategy can be divided into three categories
- Corporate strategy—This is concerned with decisions by the business as a whole in terms of the industry sectors (e.g., transportation, cosmetic, auto manufacturing, construction, public utility) in which it wishes to compete.
- Business unit strategy—This is concerned with decisions on the target markets (e.g., seniors, teenagers, and women) in which the business currently competes or wishes to compete in the future. These decisions involve the coordination and integration of new product/service development, branding, customer relationship management, quality assurance, and delivery scheduling. This strategy can be sub-classified into cost, differentiation, and focus. A cost strategy zeroes in on low cost to sustain the firm’s competitive edge. A differentiation strategy stresses product/service innovations to attract new customers. A focus strategy develops a unique market niche to concentrate on the firm’s current strength.
- Functional strategy—This focuses on the management and control of the range of tasks supporting each specific business function, such as marketing, operations, purchasing, logistics, and finance. It also determines the bases on which the function will support the desired competitive advantage
Regardless of the aforementioned strategic scope, the elevation of supply chain perspectives to a strategic position expands the responsibility of a supply chain manager in charting the direction of the organization and its partnering organizations. Thus, the supply chain manager should carefully formulate and select supply chain strategy.
The formulation of the supply chain strategy may begin with answering the following fundamental business questions
- What do we do best?
- How can we improve what we have been doing?
- Where do we go from here?
To elaborate, the question of what we do best is concerned with the identification of an organization’s core competency in terms of its principal strengths, business focus, financial/production capacity, and managerial talents. This question also dictates the organization’s make-or-buy (i.e., outsourcing) decisions.
Once the organization identifies its areas of core competency, it needs to gain greater dominance in those areas by increasing competitiveness and the subsequent sales opportunities. As such, the question of how we improve what we have been doing is concerned with the enhancement of a competitive position in the market and the continuous improvement of product and service quality. For example, the use of promotional strategy through discount coupon offerings and interest-free deferred payment may answer such a question. Finally, the question of where we go from here is concerned with the adaptation of the organization to innovation and various environmental changes (e.g., regulations, economic fluctuations, globalization, customer preferences, and market shifts). The answer to such a question includes new product development, new service offerings, new market penetration, and diversification.
The selection of proper strategy is followed by the formulation of alternative strategies. In general, the strategy selection decision involves the analysis of the costs and benefits associated with alternative strategies and their probability of success.
Red Ocean versus Blue Ocean Strategy
Although alternative strategies can be classified into three different categories with respect to their decision hierarchy, they can be broken down into two types—red ocean strategy and blue ocean strategy—with respect to their language of competition and fundamental business model. Generally speaking, red ocean strategy is designed to capture a greater share of existing demand in the clearly defined market boundaries by outperforming industry rivals through low-cost offerings and product/service differentiation. This strategy, however, cannot provide a sustainable competitive edge over the company’s rivals because prospects for profit and growth will be reduced as the existing market gets crowded and the competition gets tougher over time. In contrast, blue ocean strategy aims to target untapped market space so that the company can create new demand and opportunities for highly profitable growth in the unexplored market well beyond the existing industry boundaries.
Strategic Supply Chain Planning Process
- Creating the vision of the firm—The vision of the firm specifies the current and future expected business scope, markets, geographical coverage of the business activities, key business partners sharing information, resources and risks, and corporate philosophy facilitating the integration of business activities into a supply chain.
- Developing the supply chain planning guidelines—The vision of the firm should be translated into pragmatic guidelines with respect to supply chain planning horizons, assessment of external environmental factors (e.g., technical, social, and political climates), assignment of managerial responsibilities, and corporate performance goals.
- Formulating strategic action plans—Once the supply chain planning guidelines are set, strategic action plans should be formulated to sustain a long-term competitive advantage. These action plans focus on the identification of core competencies residing in the firm, which will determine the unique potential for competitive leadership, the allocation of available resources (e.g., funds and people), and the development of the business portfolio.
- Evaluating the success or failure of strategic action plans—The specific progress of strategic action plans should be monitored based on clear performance measurements that could provide early warning signals for potential failures. These performance measurements include cost/benefit analyses, risk analyses, financial efficiency, coherence to planned schedules, and relative priorities of action plans.
- Gaining support from the stakeholders, including top management—To make strategic action plans successful, the strategic planner should garner organization-wide support and financial commitments. Therefore, this final stage of the strategic planning process should include efforts to ensure strategic and budgetary commitments from key stakeholders who will be affected by the strategic action plans.
Here are some examples of logistics strategies that can mitigate potential supply disruptions:
- Postponement—Delay the formation of the finished product/service bundle as long as possible. The “last-minute” customization made available through postponement will reduce the customer response time without relying on the supplier’s production capacity.
- Co-location of manufacturers and their suppliers—Proximity of supplier bases to the manufacturing facilities will help reduce lead time and thus enhance the responsiveness to unexpected supply disruptions.
- Avoidance of choke points—The use of intermodal transportation modes such as piggyback and fishy back that can bypass choke points and are therefore less prone to traffic congestion should be considered to increase delivery reliability.
