Tuesday, November 1, 2011

Choice Of Supply Chain Strategies

As we all know Supply Chain Management has become an important and strategic Business Process that helps organizations stay high up in the market competition. In addition to focusing on the quality of products and services, firms have realized that there needs to be enough research on how they satisfy their customers by means of reach. This paves way for a discussion on how companies use supply chain management principles to maintain a competitive advantage and ensure steady growth. The focus naturally Shifts towards whether they design their supply chain based on efficiency or responsiveness.

Efficient supply chains focus more on the certainty of the demand and the way firms can minimize the production costs by making the best use of the supply system. The time for the product to reach the customer is kept at optimal but not at the expense of greater cost. The vendor selection process is primarily driven by the theme of delivering at low cost and high quality. UPS is a very good example for an efficient supply chain management. It continues to surpass its optimization process to ensure that they meet the committed service levels

Responsive supply chains focus primarily on how quickly they respond to the customer needs and the manufacturing operations are driven by flexibility to produce variable capacity. The strategy is focused on aggressive reduction of lead time, even if significant cost is involved. Quality aspects like flexibility and speed with which they deliver, decide the fate of vendors who bid for supplier contracts. The Success story of Zara’s fashion is a classic example of a flexible supply chain model. The idea exclusivity triggered Zara's supply chain strategy to be tweaked to ensure only limited quantity in stores but sent in batches. This helped them use the volatility of demand to their advantage.

Many businesses rely on Supply Chain Management for their success and now the critical consideration is whether to focus on efficiency or responsiveness. Research indicates that this needs to primarily revolve around the balancing between the quantity demanded and the volatility of the demand. Hence the supply chain can never be homogenous.

Responsiveness will be the way to handle high volume/highly volatile demand market. When the volume is high and the demand is stable, companies will be better off in devising a strategy that would focus on efficiency. Another interesting way to determine the supply chain strategy is by classifying the products as functional or innovative. Functional products include the basic needs of people that are available in wide range of stores and the demand for these products remain constant through time warranting efficient supply chains. Campbell Soup case (1991) set the precedence to a lot of companies on how to manage the inventory based on demands of the customer. Campbell established electronic links with retailers to gather info on the demand and used this to predict the amount of inventory to be stocked at locations. This idea of Campbell is still used by companies like Target; Wal-Mart to manage their supply chain. National Bicycles case is a classic example of handling innovative products segments through responsive supply chain techniques. When the demand of bicycles became flat in 1986, the company shifted its focus towards sports bicycles, which had an uncertain demand. The challenge was handled by the radical idea of allowing customers to choose from a selection of 2 million options for size, color and components. The specs would be faxed to the factory, where computer controlled machines delivered the products within two weeks of order. This was a classic example of Mass Customization, which is still being adopted by companies like Dell to assemble computers based on user-preferred configurations.

The examples of Campbell, Zara and National Bicycles highlight the need for identifying the right supply chain strategies. But each of these strategies carries their own drawbacks and challenges. Mass customization is not cheap and has its own complexities. The efficiency oriented methods, might have single point of failures. In addition to this, at times firms might have challenges in clearly classifying their category of business/ products. These challenges pose critical questions like whether the choice of strategy depends solely on the nature of their business or do we have other rational ways of deciding strategies based on Return on Investment, throughput or operation expenses and other factors that might impact the strategy decisions or should companies adopt a blend of both strategies And If so how to manage optimal levels/balance.


1. What is the Right supply Chain for your product? – By Marshall L. Fisher

2. Zara's Secret for Fast Fashion – Working Knowledge for Business Leaders – HBS Archive

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