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4 business owners planning their supply chain strategy

4 ways to strengthen your supply chain strategy (with examples)

A supply chain strategy is a formal approach to managing the supply chain network between an organisation and its suppliers. A supply chain manager usually develops this strategy with the primary goal of maximising value across all stages of the production cycle.

As you’ll see in this article, supply chain planning requires a delicate balance of efficiency, resilience, and alignment with the overarching business strategy. But before we dive into specific tactics, let’s take a step back.

What is a supply chain strategy?

A supply chain strategy is like a roadmap that helps companies get their products to customers with as little friction as possible. This plan ensures that every phase of the supply chain is optimised through supply chain excellence, including the sourcing of materials, manufacturing, delivery, and logistics management.

Four factors usually influence an organisation’s supply chain strategy for the supply chain models they use:

  1. Industry
  2. Company value proposition
  3. Internal decision-making processes
  4. Business goals

As the global market and, subsequently, the global supply chain becomes more complex, proactively establishing a supply chain strategy is critical for any business that turns raw materials into finished goods. This includes industries such as manufacturing, retail, construction, and wholesale or distribution.

The term “supply chain” wasn’t popularised for decades—until it made global headlines in 2020.

Supply chain management (SCM) lessons from the COVID-19 pandemic

In the past, making supply chains “lean” was a popular strategy for leaders, meaning the priority was to minimise waste to deliver products as fast as possible. However, the COVID-19 pandemic prompted supply chain leaders to shift their focus from efficiency to resilience to withstand global volatility.

Increasing your supply chain’s resilience may not be particularly cost-effective in the short-term, but it’s a risk many organisations are willing to take to ensure long term profitability. According to a survey by Gartner, just 21% of respondents said their network was “highly resilient,” referring to the ability to adjust sourcing, manufacturing, and distribution activities quickly. However, over half of respondents expect to increase their supply chain resilience within 2-3 years.

What Are The Steps In a Supply Chain?

The first step of constructing a supply chain is creating a plan to control inventory and manufacturing. This step requires that businesses match their supply with a demand by using analytics. Planning allows businesses to figure out how much they need to manufacture as well as the service levels they require to deliver what they manufacture. 

Next comes the process of sourcing. Businesses need to figure out which suppliers should be responsible for producing the products and services they need to deliver. Sourcing requires that suppliers adhere to particular standards and guidelines in order to ensure that what they deliver is of sufficient quality. 

Manufacturing comes next, which requires that a business perform the necessary activites to turn raw materials into the final product it wishes to deliver. This step includes activities like assembly, testing, and product packing. 

After the manufacturing phase, businesses need to deliver their product via the direct/indirect integration with their customers. During this step, businesses need to make sure that they've met the expectations as demanded by their customers through their delivery channels and logistics chains. 

FInally, the post-delivery return process begins, which is the step that you probably associate with returned or refunded products. This step is also called "reverse logistics", and its one of the most important parts of supply chain management when it comes to establishing and solidifying good customer relationships.

So, what can supply chain leaders do to bolster their supply chain network? Here are five strategies to consider for 2022 and beyond.

4 supply chain strategies for 2022 (with examples)

If you’re concerned that your supply chain process is vulnerable to demand surges, shipping difficulties, or other external factors, consider these five strategies:

1. Place buffers along the supply chain

Strategically placing buffers can help organisations absorb the impact of unexpected delays. There are three types of buffers you can implement along the supply chain:

  • Inventory: Keep safety inventory or buffer inventory to protect against delays or demand surges (this is the most common buffer since inventory can be easily tracked and controlled in real-time with inventory management software).
  • Time Buffer: Materials arrive before demand to protect an upstream or downstream process or delivery point.
  • Capacity Buffer: Leverage underutilised space like warehouses or production facilities.

2. Diversify your manufacturing and sourcing network

As supply chain disruptions have intensified over the past decade, procurement directors are realising that relying on a single source to get products is risky. For example, in 2011, natural disasters in Thailand and Japan prevented nearly-finished cars from being shipped overseas.

Diversifying your network (also called multisourcing) starts with categorising partners based on two criteria: current cost and financial impact if that partner can’t follow through in the event of unforeseen circumstances. Then, you can forge relationships with additional suppliers or a supplier that has capabilities in multiple locations.

3. Invest in demand forecasting

Demand forecasting is the process of using data—not gut feelings—to gauge the demand for materials ahead of time, so you don’t come up short when it matters most. Accurate demand forecasting improves lead times, cuts costs, and improves customer satisfaction.

Think of it like your weather app: if there’s a chance of rain, you know to pack an umbrella and dry clothes. Is it more stuff to carry? Sure, but you’d be upset if you ignored the forecast and got soaked.

There are numerous methods to predict demand, like surveying customers, monitoring social media, reviewing historical data and trends, or soliciting advice from a consultant.

4. Standardise your processes

The more consistent you keep your supply chain operations, the more dependable it will be. This is especially true for organisations whose suppliers and manufacturers are scattered across the world.

Templates for platforms, products, and plants enable seamless production and adherence to compliance regulations. For example, companies in the automotive industry use common vehicle platforms to harmonise their supply chain strategy.

Discover QuickBooks Free Inventory Management Tools & Templates

Examples of Supply Chain Strategy in Action

Let’s look at two quick examples of companies pivoting their supply chain strategy to adapt to market changes.

1. Walgreens leans into big data

In 2016, Walgreens, one of the biggest pharmacy chains in the world, started investing in forward-looking supply chain technology that aggregates consumer data and crunches the numbers to predict future purchasing behaviour.

These metrics help Walgreens adjust its supply chain to reduce excess inventory and cut supply chain costs for warehousing and transportation. They also ensure they have enough inventory to meet expected customer demands.

2. Bob’s Discount Furniture: keeping tabs on tariffs

Trade wars are notorious for rattling the global supply chain. But the stakeholders at Bob’s Discount Furniture couldn’t afford to get blindsided.

In 2018, the US-based furniture retailer kept a pulse on the news about the potential for higher tariffs on goods sourced from China—which would directly impact their business. In response, they shifted 25-30% of their furniture sourcing out of China within 3-4 months at the beginning of 2019.

3 Importance of a Resilient Supply Chain Strategy

Supply chain resilience isn’t just a theory. It’s a practical strategy that gives organisations a competitive advantage—and it’s backed by evidence.

1. Improved productivity

A 2020 McKinsey survey found that supply chain leaders improved their productivity with the use of a resilient supply chain management system. Moreover, 93% of respondents planned to increase their supply chain resilience through strategies like multisourcing and rising inventory levels.

2. Less risk

There’s no such thing as a “risk-free” supply chain. The complexity of supply chains makes them inherently vulnerable to factors outside the organisation’s control. However, incorporating the strategies above into your planning process can improve sustainability and minimise the impact of interference if and when it happens.

3. It’s a path to innovation

When risk is mitigated along the supply chain, leaders can set their sights on other aspects of the business, like new technology and automation. A 2020 global business analysis by Brian and Company found that companies that prioritised supply chain resilience expanded their output capacity by up to 25% and had up to 60% shorter product development cycles.

Optimising your supply chain is an investment, not a cost

It’s almost impossible to predict what the next big threat will be, and that’s precisely why supply chain professionals are starting to turn away from the lean supply chain design that prevailed for decades.

You can’t put a price on resilience—it can make the difference between merely surviving a challenge and emerging more robust than before.

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