Supply Chain Strategy

The competitive strategy is defined based on how the customer prioritizes product cost, delivery time, variety, and quality. Competitive strategy targets one or more customer segments and aims to provide products and services that satisfy these customers’ needs. To see the relationship between competitive and supply chain strategies, we start with the value chain for a typical organization.

 The value chain begins with new product development, which creates specifications for the product. Marketing and sales generate demand by publicizing the customer priorities that the products and services will satisfy. Marketing also brings customer input back to new product development. Operations transforms inputs to outputs to create the product according to new product specifications. Distribution either takes the product to the customer or brings the customer to the product. Service responds to customer requests during or after the sale. These are core processes or functions that must be performed for a successful sale. Finance, accounting, information technology, and human resources support and facilitate the functioning of the value chain.

 To execute a company’s competitive strategy, all these functions play a role, and each must develop its own strategy. Here, strategy refers to what each process or function will try to do particularly well.

 A supply chain strategy determines the nature of procurement of raw materials, transportation of materials to and from the company, manufacture of the product or operation to provide the service, and distribution of the product to the customer, along with any follow-up service and a specification of whether these processes will be performed in-house or outsourced. Supply chain strategy specifies what the operations, distribution, and service functions, whether performed in-house or outsourced, should do particularly well.

 Supply chain strategy includes a specification of the broad structure of the supply chain and what many traditionally call “supplier strategy,” “operations strategy,” and “logistics strategy.”

 Supply chain strategy also includes design decisions regarding inventory, transportation, operating facilities, and information flows. For a firm to succeed, all functional strategies must support one another and the competitive strategy.