A supply chain strategy is a formal approach to managing the network between an organization and its suppliers. A supply chain manager usually develops this strategy with the primary goal of maximizing 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 optimized, including the sourcing of materials, manufacturing, delivery, and logistics.
Four factors usually influence an organization’s supply chain strategy:
- Industry
- Company value proposition
- Internal decision-making processes
- Business goals
As the global market 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” was innocuous 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 minimize 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 organizations 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.
So, what can supply chain leaders do to bolster their supply network? Here are five strategies to consider for 2021 and beyond.
4 supply chain strategies for 2021 (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 organizations absorb the impact of unexpected delays. There are three types of buffers you can implement along the supply chain:
- Inventory: Keep safety stock or buffer stock 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 underutilized 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 realizing 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 categorizing 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. Standardize your processes
The more consistent you keep your supply chain operations, the more dependable it will be. This is especially true for organizations 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 harmonize their supply chain strategy.
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 behavior.
These metrics help Walgreens adjust its supply chain to reduce excess inventory and cut costs for warehousing and transportation. They also ensure they have enough stock to meet expected customer demands.
2. Bob’s Discount Furniture: keeping tabs on tariffs
Trade wars are notorious for rattling global supply chains. 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 benefits of a resilient supply chain strategy
Supply chain resilience isn’t just a theory. It’s a practical strategy that gives organizations a competitive advantage—and it’s backed by evidence.
1. Improved productivity
A 2020 McKinsey survey found that supply chain leaders improved their productivity due to resilient supply chain systems. 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 organization’s control. However, incorporating the strategies above into your planning process can improve sustainability and minimize 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 prioritized supply chain resilience expanded their output capacity by up to 25% and had up to 60% shorter product development cycles.
Optimizing 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.
