Supply Chain Strategy: Expectations Vs. Reality

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Chain Supply Strategy

In his Supply Chain Transformation book, J. Paul Dittman defines supply chain strategy. He describes it as a formal written plan that details what actions the organization will take over a multi-year horizon. Fast-growing business need and are now moving towards a supply chain. This is because a supply chain is effective in improving services from suppliers to customers. All the activities involved in between when a supplier receives goods and delivering them to a customer constitute a supply chain. In making this chain as successful as possible, a strategy must exist. Interestingly, the expectations people have of such a plan tend to differ from reality. Let’s see how.

  • A planned chain will solve cost-related problems.

A survey was conducted, and investors asked why they opted for strategizing their supply chain (for businesses and investments that already had done so), and most people mentioned cost reduction as the primary reason. That’s not bad, though, for who does not want costs reduced? The reality is different, though. Having a formal plan in place does not mean that the expenses incurred in your business will go down. More is involved, and there are so many factors that determine costs and not strategizing the chain in isolation.

  • ‘Best in class’ yields a competitive advantage

Naturally, we are inclined to want the best and nothing else. Even in supply chain management, the battle is still there since investors believe that they will get the best back by having the best. While that could be partly true, history has proved that some of the most incredible advantages were realized through mediocre tools and not what we would call the best. The best may result in the best, but for how long? Settling for ‘just-enough’ developmental skills and paying attention to making your supply chain more agile will yield sustainable results. These results will last longer than the ‘best in class’ that is short-lived.

  • A well-documented layout will yield results immediately
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Most investors think that laying down a formal plan for a multi-year horizon will produce the results immediately. Think about the advantages that a well-laid down strategy brings. Reputational benefits where a company earns positive reviews and increased profitability which sees a business accruing massive profits. Additionally, resource wastage is minimized with a properly-laid down plan covering years of investment. Those are the expectations, but we are left with a question, will we realize them immediately? Admittedly, it may take a long time for the benefits to be realized. Remember, the business models vary from one company to another.  The market itself is dynamic, and even with proper plans in place, you may not control some external factors. Hence, the truth is, the results will not always come immediately. It requires patience.

  • Modeling will reduce costs

As an element of formal plan layout, modeling can be a tenet for having better organizations in place, but in itself will not alter the ultimate behavior of the supply chain. A modeler working alone predisposes himself to challenges that will lead to the proposed project’s legitimacy and conclusion being questioned. Such challenges that he’s prone to face while working alone revolve around data, the approximations, the assumptions, the results, and the application of the final outcome. As these squabbles continue, costs go up instead of scaling down. This simply means that the stakeholders involved can either increase or decrease the costs, depending on what course they choose to follow.

  • Outsourcing will reduce costs and increase flexibility

In the high-tech business, outsourcing is one of the elements of strategizing a supply chain. When they opt for outsourced service providers, investors expect to see the overall costs reduced and the business’s flexibility increased. What, though, is the reality? If the expenses ever reduce, then that is courtesy of a myopic focus, abbreviated time horizons, or a zooming-in on one isolated driver of supply chain costs. While shortsightedly looking at things, a supply chain will neglect the effects of rework, logistics, escalation, support, warranty, and cash-flow. All these determine the end cost and how flexible the supply chain will be to changing customer needs. If both external and internal factors affecting commodities are generalized and a thickened view is applied to mask both, flexibility is automatically compromised.

  • Having a plan for the chain means the business is safe
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This, too, is a crazy assumption. People do well to have clear strategies in mind. They then go wrong when they expect these strategies to fully fortify their business. How real can that be? In laying out a plan, models are used for predictions. Market characteristics such as demand, cost, weather, the sourcing point’s political status, pandemics, and competition are prone to change. So the models help see what the results will look like should any of these factors change. But think it over; are the models in place 100% accurate? That can’t be. What then is the implication?  There is only so much that the models can do, but they cannot guarantee you safety. So then, invest in some other options to try (we can only try) to make your business safe. Supplement the supply chain with other tools.

  • Killer application

The killer application is a myth that companies and industries closely attribute to the success or failure of a technology. Simply put, it is wrongfully believed that a technological idea has to be superior to the existing ones for a particular technological idea to succeed. That’s not all, though; a product could be unique, but it lacks standards. Yet, these very lacking standards are what the clients were interested in. The product will automatically flop. Hence, the success or failure a formal plan will have depends not on the killer application but on the customer attitude toward the product.

  • Having a plan is the  gateway to profitability

As already mentioned, most investors opt for strategizing the supply chain to reduce costs, which is not bad. A reduction in the commodity cost massively translates into profits accruing, provided all the other factors remain constant. This is to say that when all other market variables remain unchanged, a reduced cost ultimately results in profit, and that’s what sustains a business. Ask yourself, though, ‘what guarantee is there that the other factors influencing will always remain constant? In fact, all the market variables can never remain constant together. Though closely related, the force determining how the variable in question reacts will vary in its exertion. Depending on the exerted force, the factors in place change, and do the profitability. You may have a stable strategy, but the profits will take time. Yes, the plan is the key to success but remember that even a key can fail to open a door when it rusts. So do what it costs to ensure that your key doesn’t develop rust and fail to lock the door to your formal plan’s success.

Conclusion

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Supply chain strategy means laying down a formal plan for a supply chain, covering a horizon of years. Today, more than ever, the quest for success is crazy. We just want to succeed in our business and nothing else. Thus, we opt for the plan, confusing the expectations and the realities. This article discussed eight expectations versus reality in strategizing a supply chain.

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