Aligning Supply Chain with Business Strategy

Napoleon is said to have commented, “An army marches on its stomach.” According to author and supply chain expert Michael Hugos, that demonstrates that Napoleon understood the importance of what we now call a supply chain, “he clearly understood the importance of what we now would call an efficient supply chain. Unless the soldiers are fed, the army cannot move.”

In his book, The Essentials of Supply Chain Management, one of the top-selling books in Amazon’s management category, Hugos outlines three steps to align your supply chain with your strategy:

1. Understand your customer’s requirements
2. Define your company’s core competencies and roles in meeting those requirements
3. Develop capabilities to support those roles

Hugos provides a series of questions to help you first determine what your customer’s requirements are:

• Does the customer need small or large quantities of product? A small retailer will have different needs from a superstore
• How quickly does the customer need the product? A restaurant may need a quick turnaround, while large machines mght be purchased only occasionally
• How large a variety does the customer need? A large pharmacy may need a wide variety of products, while a coffee shop has a narrow variety
• What level of service dos the customer require? Do they need quick turnaround and customized orders, or can they wait for their orders
• What price level will customer pay for service? If they require fast turnaround, are they willing to pay for it?
• How often does the customer require innovation? Are they looking for a stream of new products or is there little variance in their needs over time?

Once these questions have been answered, the second step is to define the core competencies of your company. Again, the author provides a helpful checklist to guide the way:

• How is your company a part of the supply chain; are you a producer, distributor or retailer or do you
supply transportation or add services?
• What does your company do to enable the supply chain, that is, what are your core competencies?
• How does you company make money?

If, for example, your company is capable of fast turnaround of product in your market area, then you may be able to capitalize on this by charging marginally higher prices for the service. On the other hand, personalized service may not help you increase prices, but it will help to maintain reatain customers.

The third step of aligning your supply chain with strategy is to determine how you need to develop your supply chain capabilities. These capabilities are normally weighted towards either responsiveness, that is the ability to respond relatively quickly to your customer needs with customized services, as opposed to efficiency, where the emphasis may be on low inventory levels, efficiency and low cost.

Wherever you find yourself in the supply chain, and whatever you company’s status is, new or well established, Michael Hugos’ book, The Essentials of Supply Chain Management is an interesting and informative read. In the interest of journalistic transparency, I would also let you know that Michael Hugos and I are colleagues, which happened as a result of my reading his book the first time!

* The Essentials of Supply Chain Management, 2nd edition 2006. Michael Hugos, John Wiley & Sons, Hoboken New Jersey

2 thoughts on “Aligning Supply Chain with Business Strategy

  1. Kevin, great writeup as usual. As an IT services strategist, IT seems to be just catching on with these basic concepts. We’ve been talking Supply and Demand Chain management in our practices for awhile and those that have bought in to the approach have gained efficiencies, become more agile to respond to dynamic business needs, and developed the elasticity needed to meet planned and unplanned demand. Of course the marketing around cloud capabilities have helped open many eyes too around the ability to innovate the IT supply chain.

  2. Kevin, an interesting topic. I don’t think you’ll find too many people who will disagree that supply chain strategies and processes are critical to a successful business. But, I do find that many companies struggle with aligning their Supply Chain with their customer-facing functions, like Sales and Marketing. The best practices I have seen have been the organizations that truly treat the business as an integrated one and the leaders don’t operate in Supply Chain vs. Sales silos. If Supply Chain is just trying to move product efficiently, and it’s only after the fact that Marketing and Sales learns when the product or service is available, then it is too late. When you think of operating a P&L, it must start with the customer needs for all functions at the same time. And if you truly want to be the first-mover, it’s also figuring out what the unstated and future needs of your customers are.

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