Chapter Four
Supply Chain Strategies
What is Supply Chain Strategy?
A supply chain strategy is the overarching plan that an organization uses to manage the flow of goods and
services, from sourcing raw materials to delivering products to customers. It outlines the key processes,
technologies, and partnerships that the organization will use to optimize the efficiency and effectiveness of its
supply chain.
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.
A supply chain strategy is like a roadmap that helps companies gets 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.
4.1. Lean, Agile and Lean - agile Strategies
What is a lean supply chain?
A lean strategy is a business approach that aims to optimize efficiency, reduce waste, and improve
organizational workflow to deliver more value to customers.
It is based on the principles of lean manufacturing, which was originally developed in the automotive
industry as a way to streamline production and eliminate waste.
In the 1980s, Toyota’s production system, which was based on lean principles, became widely known and
studied, and lean principles have since been applied in various industries beyond manufacturing.
The core principles of lean strategy are based on the idea that organizations should strive to create value for
customers by identifying and eliminating waste in all business areas.
Waste, in this context, refers to any activity that does not add value from the customer’s perspective.
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Lean supply chain management is about reducing costs and lowering waste as much as possible. Anything
that doesn’t add value for the end customer is eliminated. Managers make purchases on an as-needed or just-
in-time basis to avoid any overproduction and unnecessary storage.
Generally, this method is important for organizations with high volumes of purchase orders since waste and
costs can accumulate quickly. A lean supply chain usually works best for products with low variability
purchase orders, such as food items and personal care items.
What are the 7 lean principles?
Now that we know what lean strategy and waste are, we need to define the building blocks of the whole
strategy so we can implement them.
Womack and Jones originally defined 5 principles, but further work, especially around technological start-
ups, has increased the count to 7.
These are the 7 key principles we need to ensure as part of our lean strategy to ensure its effectiveness:
1. Identify value: The first principle of lean is to identify value from the customer’s perspective. This
involves understanding what customers value and are willing to pay for. This is extremely
important to identify ourselves as unicorns in our industry and to move away from commoditized
services or products.
2. Map the value stream: The second principle of lean is to map the value stream, which refers to the
activities required to create value for the customer. So we first identify what customers are willing to
pay for, then we break down into steps how to deliver that. This includes everything from raw
materials to the final product or service. By mapping the value stream, a company can identify areas
of waste and inefficiency and work to eliminate those to streamline the process.
3. Create flow: The third principle of lean is to create flow in the value stream. This involves ensuring
that each process step is completed as efficiently and effectively as possible, with minimal delays or
disruptions. This can be achieved in different ways, and there are a lot of lean techniques we can use,
like implementing just-in-time.
4. Establish pull: The fourth principle of lean is to establish pull in the value stream. This involves
setting up systems and processes that allow the customer to “pull” products or services through the
value stream as needed rather than pushing products through the system whether or not there is
demand.
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5. Continuous improvement: The fifth principle of lean is pursuing perfection by repeating the steps
above continuously. New technologies and methodologies can be used to enhance our work further
6. Respect for people: The sixth principle of lean is respect for people, which means treating all people
with dignity and respect. In a lean organization, everyone is encouraged to contribute ideas and
participate in continuous improvement efforts.
7. Create knowledge: The seventh principle of lean is to create knowledge by continuously learning
and improving. This involves constantly seeking new knowledge and learning from both successes
and failures. It also involves sharing knowledge and best practices within the organization to
continually improve processes and eliminate waste.
Lean strategy focuses on producing more with less input. Thus, it seeks to eliminate waste throughout the
entire manufacturing process. Efficiency can be achieved in two ways:
Technical Efficiency Here, a firm that produces the maximum amount of products given limited
resources and capital is said to be technically efficient.
Economic Efficiency - This deals with minimizing manufacturing costs through wise allocation of
resources to achieve the best output. A firm whose main goal is maximizing profits should also
efficiently allocate resources to keep costs down.
Lean strategies seek to enhance the technical efficiency of a firm, methodologies, and processes. Lean firms
reduce wasted time, human resources, and space.
Tips for a lean supply chain
Take note of your inventory:- One of the keys to lean supply chain management is reducing the
inventory you have on hand. You also need to make sure that your inventory systems are reporting
accurate, real-time information.
Coordination is key:- Coordinate effectively with your suppliers, manufacturers, transportation
and logistics, and head office to make sure the supply chain process moves as smoothly and
efficiently as possible and to make sure there is as little waste as possible.
Take advantage of technology:- Having the right technology in place can help your supply chain
stay lean. For example, install RFID technology for tracking inventory, GPS for tracking
shipments, and a CRM system for broader organizational goals. Automation technology can also
make your supply chain more efficient.
Eliminate all waste in the supply chain:- Waste includes things like unused storage space, a lot of
excess inventory, excessive wait times, packaging, and energy.
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What is an agile supply chain?
An agile supply chain is built to be highly flexible for the purpose of being able to quickly adapt to changing
situations. This methodology is important for organizations that want to be able to adapt to unanticipated
external economic changes, such as economic swings, changes in technology, or changes to customer
demand.
Implementing an agile supply chain allows organizations to quickly adjust their sourcing, logistics, and
sales. An agile supply chain typically works best for organizations that offer products with short life cycles or
customizable elements. These organizations need to be able to quickly adapt to changing circumstances and
trends.
Tips for Agile supply chain strategies
Good supplier relationship management is the key to the success of an agile supply chain. You
want to make sure that your suppliers are also flexible and adaptable to integrate into your supply
chain. Trust and communication with suppliers is essential.
Agile supply chains demand good processes – and processes are established by people. Having the
right team in place is crucial in order to remain flexible and agile so you can meet market
demands.
Improve visibility across the organization so that people are prepared to react when change
happens. Share knowledge, data, and insights information so everyone knows exactly what’s going
on.
Using the right supply chain software can give you data and insights into current market trends and
your current operations so you can optimize your supply chain accordingly.
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Benefits of having an agile strategy
Speed: Traditional marketing efforts require in-depth research and planning that can take several months.
With agile marketing, you create a brief strategy and learn by trying out new techniques with consumers.
This allows you to release more advertisements and promotional materials quickly. An agile framework also
allows you to validate your assumptions quicker, confirming whether your techniques work or if you might
shift, rather than waiting until the end of a project or campaign.
Innovation: Agile strategies also allow companies to innovate with their marketing initiatives. With a focus
on customer feedback, you can quickly innovate solutions that people want. This allows you to use data
showing what works and how customers respond, quickly adapting to the changing needs of the market.
Agile environments also foster new ideas among teams that might not typically have involvement in the
marketing process, allowing for new ideas and perspectives.
Flexibility: Rather than a rigid marketing strategy that companies might create and execute over time, the
agile method allows you to be flexible. This includes adjusting budgets and schedules based on results. For
example, you might create graphics for a new marketing campaign, scheduling iterations for advertisements
and email marketing. If there is lower customer engagement for the first segment of the campaign, you can
discuss with the team and create new content that can perform better.
Collaboration: One essential principle in the agile framework is to have teams collaborate across
departments. Rather than leadership detailing a marketing plan and employees executing it, people from
several teams can share their opinions and agree on plans for execution. This provides employees the
opportunity to develop their skills and better understand company strategies and goals. It also allows for
teams in several groups to better understand customer feedback through regular discussions.
Differences
The difference between lean and agile is the fluidity with the response to the market. A lean supply chain
focuses on cutting costs by producing high volumes of products with low variability. An agile supply chain
focuses on responding to the market demand with smaller, customizable batches of items. Often a lean supply
chain is more cost-effective and predictable, while an agile supply chain is more flexible and adaptable.
Leanness and agility are applicable to different situations. Lean was found to be of better use environments
with relatively high volumes of stable demand, whereas agility is better capable of dealing with low-volume,
unpredictable demand. As a result, lean is better applicable in controllable situations, where companies are
able to forecast demand on some time scale. Agility on the other hand is more useful in demand driven
situations, where demand is not known in advance (Vinke, 2010).
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Agile or lean? What should you choose?
As you can see, when it comes to supply chain management, there is no “one size fits all.” Both agile and
lean supply chain management have their benefits. In today’s fast-paced, global market many organizations
are choosing agile supply chains to keep up with ever-changing demand. However, whether you choose agile
or lean supply chain management will depend on your type of business and your goals.
Most of the time, lean supply chains are more cost-effective and predictable while agile supply chains are
more flexible and are able to react quickly to market changes. You need to consider your product, your
customers and end-users, the market, and your partners and suppliers to determine which supply chain
strategy works best for your business. Many organizations find that they need elements of both lean and agile
methods and use a hybrid model of supply chain management.
What is Lean-agility strategy?
Lean-agility strategy: lean agility as a hybrid strategy, consisting of lean and agile parts, lean and agile are
complementary to each other and that neither one is better than the other; which one to implement is
dependent of the specific situation (Naylor, 1999). Lean agile strategy should be seen as complementary to
each other, applicable to specific situations, rather than being mutually exclusive strategies (Cristoper,
2001).
Lean agile aims to eliminate wasteful resources and tasks for improved efficiency and reduced costs — while
never sacrificing quality. In fact, lean agile prioritizes bringing value to the customer with every decision
that’s made.
Lean agile is a development method that helps teams identify waste and refine processes. A guiding mind-set
facilitates efficiency, effectiveness, and continuous improvement.
Consider this: You probably work a lot better when your desk isn’t completely covered with a mess of
things you don’t need. When you eliminate distractions and waste, it establishes an organized workspace and
workflow. This helps you focus on what’s most important, ensuring you work efficiently and effectively.
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Lean strategy
Supply Chain Responsiveness
Agile strategy
Lean + Agile = Lean-agile strategy
Fig 1: Supply chain strategies
4.2. Postponement and Speculation Strategies
Speculative strategy
Speculative supply chain strategy is not recognized as standard term in supply chain management. It is
possible the term is being used in specific context. It is more likely that the user is referring to “a demand
driven” supply chain strategy or postponement strategy. In a demand driven approach the company
manufacture and deliver products based on customer demand, minimizing risk of overstocking and under
stocking.
Postponement Strategies
Supply chain postponement strategy is an approach to managing the flow of goods and materials through a
supply chain in which final product customization and assembly are delayed until as late as possible in the
production process. This allows organizations to respond more quickly to changing customer demands and
reduce inventory levels by only producing and stocking the components and raw materials needed to meet
current demand.
A postponement strategy is a strategy that businesses implement in their supply chain or distribution networks to
delay the customization of products. Implementing a postponement strategy allows businesses to decrease costs.
There are two main types of postponement strategies: location-based postponement and process-based
postponement.
Location-based postponement involves postponing final product customization and assembly until the
product is close to the end customer. This can help organizations reduce transportation costs and improve
delivery times by locating production closer to the end customer.
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Process-based postponement involves postponing final product customization and assembly until the product
is in the final stages of production. This can help organizations reduce inventory levels by only producing
and stocking the components and raw materials needed to meet current demand.
4.3. Operations Strategy
An operations strategy refers to the system an organization implements to achieve its long-term goals and
mission. It involves decisions based on multiple factors, including product management, supply chain,
inventory, forecasting, scheduling, quality, and facilities planning and management. For service providers,
operations strategy concerns financing, marketing, human resources, and service that match the company’s
goal and mission.
It is a strategy that outlines how an organization will manage its resources and activities within the operations
and supply chain to support its overall business goal. It defines how efficiently and effectively delivers
products or services to customers from sourcing raw materials to final delivery. This strategy encompasses
the design, operation, and continues improvement of supply chain systems.
An effective operations strategy must foster the alignment of people, processes, and products with the
company’s overall mission to ensure long-term sustainability and growth.
When creating an operations strategy, facets of your business such as management of resources play a large
role in shaping how processes are completed, along with who completes them. There are also elements
of project management that must be considered, including any limitations relating to logistics, market
situations, or team collaboration. While these factors are part of the daily operations of your business, they
must still align with the company’s overall mission.
How an effective operations strategy can positively impact your project
Michael Porter, professor and director of the Institute for Strategy and Competitiveness at Harvard Business
School, wrote, “The essence of strategy is choosing what not to do.” An effective and successful operations
strategy must consider the strengths and opportunities of the business but also fully accept the limitations and
challenges it faces.
Putting together an operational plan can help you define company goals and create a detailed outline for how
each employee, team, or department contributes to them. If your business strategy is well executed, this
operational plan can be fine-tuned over time to factor in changes that might occur along the way.
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4.4. Channel Strategy
A channel strategy is a vendor's plan for moving a product or a service through the chain of commerce to the
end customer.
The purpose of a channel strategy
In the business-to-business (B2B) world, a channel strategy aims to provide the best way to expose a
company's products or services to potential customers.
Types of channel strategies
Product manufacturers and service providers have a number of channel options from which to choose.
Direct sales
The simplest approach is the direct channel in which the vendor sells directly to the customer. The vendor
may maintain its own sales force to close deals with customers or sell its products or services through an e-
commerce website. Direct selling via catalogue represents another possibility, although this business has
been largely subsumed by e-commerce.
Indirect sales
Vendors can also pursue sales via indirect channels involving one or more intermediaries. Indirect sales
models include retail, which can involve selling through a physical store or an online e-tailing company. In
addition, vendors can sell through VARs, companies that bundle a vendor's product or service with other
products and services to provide an overarching solution for customers. The vendor-to-VAR-to-customer
channel is sometimes referred to as a one-tier distribution channel strategy. In two-tier distribution, the
vendor sells to a distributor, which, in turn, provides the vendor's products and services to a network of
VARs.
4.5. Outsourcing Strategy
An outsourcing strategy is a plan that describes how a company hires third-party companies or individuals to
perform tasks. As an alternative to relying solely on internal employees, this approach can reduce expenses,
increase productivity and improve the overall quality of the final product.
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Outsourcing strategies consist of the standards, procedures and regulations that dictate factors like who an
organization hires and how much it pays them. A company may outsource to a single individual, a small
business or a large corporation, depending on its needs
Outsourcing is a strategic decision by a company to reduce costs and increase efficiency by hiring another
individual or company to perform tasks, provide services, or handle operations that were previously done by
employees within the company. In other words, outsourcing is the practice of getting certain job functions
done outside a company. The process of outsourcing business functions is also called contracting out.
4.6. Customer Service Strategy
A customer service strategy is a plan of action to deliver the standard of customer care you strives for,
including the process and methods used to achieve that level of customer support.
An effective customer service strategy plan focuses on customer happiness and includes specific steps for
dealing with customer interactions throughout the customer journey.
The best customer service strategies start with understanding what customers want, need, and expect from
your business and then ensure all service and support initiatives, as well as the interactions themselves, align
with that.
The benefits of adopting a customer service management strategy
Customer service is an integral part of a broader customer experience approach and strategy. And it needs to
be, because 82 percent of consumers are willing to abandon a brand after a negative or rude support
experience.
The good news is that when you do implement successful customer service strategies, they come with a
wealth of benefits for your business and your customers. Here are the most prominent.
A customer service strategy is the standard and process of service and care that your business will offer to
consumers along with a way to measure those standards.
A customer service strategy helps businesses with:
Customer Satisfaction – plays a vital role in understanding your customer needs and building
customer satisfaction
Increased Loyalty – making customers happy and driving recurring business. It also helps in
building and improving relationships with past, existing customers
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Delivering Consistently– setting up processes and systems for delivering consistent levels of support
and service whilst continuously measuring its effectiveness
Boosting Revenue – customers become advocates and more likely to rave about the product/service
to other people
4.7. Integrated Logistic Strategies
Integrated logistics is a business management model that is increasingly used to accelerate product delivery
and improve customer service. In this model, all departments, processes and resources are aligned to work in
perfect sync and operate as one cohesive unit. This results in seamless operations and ensures that customer
orders are dispatched quickly.
As logistics involves several departments, the integrated model emphasizes the need for teamwork to
optimize performance. Cross-functional collaboration also gives companies a competitive advantage and
helps them adapt quickly to changes in consumer demand.
To date, however, there is no clear definition of integrated logistics. The Council of Logistics
Management’s definition, although broader than others, is limited to defining:
«Logistics is the process of planning, implementing and controlling the efficient and effective flow and
storage of raw materials, semi-finished and finished products and related information from the point of
origin to the point of consumption in order to meet the needs of customers.».
If we want to give a definition of an integrated logistics system, we can say::
«Integrated logistics is a unique business management process that governs the flow of materials,
information and goods from the point of origin to the point of arrival, in which all management activities are
interconnected and interdependent».
4.7.1. Transport Strategy
In supply chain management a transportation strategy involves planning, executing, and optimizing the
movement of goods from one location to another. This includes decision about which mode of transportation
to use (e.g. Road, rail, air and sea), how to rout shipments and how to manage costs. The goal is to insure
efficient and cost effective delivery of products while meeting customer expectation.
4.7.2 Warehousing Strategy
Warehousing strategy in supply chain management focuses on optimizing the storage, handling and
distribution of goods to improve efficiency, reduce costs and enhance customer satisfaction. It involves
strategic decisions about warehouse location, space utilization inventory management and transportation
logistics.
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Key aspects of warehousing strategy:-
Warehouse location: choosing the right location is crucial. Factors include proximity to suppliers, customers
and transportation roots as well as cost consideration.
Space utilization: maximize warehouse space through efficient storage system, layouts and equipment
placement.
Inventory management: implementing effective inventory control system to balance demand, minimize
costs and avoid stock outs or overstocks.
Transportation logistics: coordinating inbound and outbound transportation, including receiving, sorting
and shipping goods efficiently.
Order fulfillment: streaming the process of picking, packing and shipping orders accurately and timely.
Technology integration: utilizing warehouse management system (WMS) and other technologies to
automate tasks improve visibility and enhance efficiency.
Cost optimization: reducing warehousing and transportation costs through strategic planning and efficiency
improvements.
Value added services: like kitting labeling and assembly to add value to the supply chain.
4.7.3. Procurement strategy
The term procurement strategy refers to a long-term plan to build strategic relationships with competitive
suppliers to acquire the necessary goods and services of the best quality in a specific cost range and have
them delivered on time.
A procurement strategy defines how purchasing decisions are made. It’s an overarching term that
encompasses various processes of a procurement cycle.
Winning procurement strategies outline budgets and actionable steps based on internal analysis and external
observations.
Strategic procurement helps to determine which goods or services to select, from which suppliers, and how
much to pay based on data about vendors, market, pricing, and other vital factors.
What is the Purpose of a Procurement Strategy?
Procurement strategy reflects the company's vision, goals, and objectives and provides a set of methods and
practices to align with them.
It’s a pillar of production, fundamental for ensuring the best quality of its output with optimal use of
resources.
Strategic procurement allows obtaining well-structured and relevant data, which is indispensable for
prioritizing purchases and balancing the quality and price of goods or services.
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In general, effective procurement strategies help companies introduce and promote their best practices of
minimizing costs while maximizing quality and ensuring that the right products are delivered on time.
4.7.4. Inventory strategy
What is an inventory strategy? An inventory strategy refers to having processes and systems in place to
manage the flow of products throughout the supply chain, from manufacturing and procurement to
warehousing and shipping.
• An inventory strategy in a supply chain management is a plan that outlines how a business will
manage its stock, from procurement to delivery, ensuring optimal level to meet demand while
minimizing costs and improving efficiency.
• It provides a roadmap for managing inventory flow, ensuring the right products are available at the
right time and place
What Are Some Inventory Management Strategies?
In order to increase the efficiency level of your business and, at the same time, meet customers’ demands
more effectively, your business needs to implement the right inventory management strategies. Here are 12
of them to seriously consider for your company!
1. Use the Just In Time Inventory Management
Just in Time Inventory Management is a strategy that focuses on adopting the approach of ensuring that only
what’s needed to fulfill current and expected customer orders is kept in stock. This way, you can cut your
warehousing costs and better optimize your existing storage space more cost-effectively!
2. Employ a Safety Stock Inventory
With this strategy, a business owner makes sure that a small but surplus amount of goods are kept on-hand.
This way, they’re able to guard against any unexpected surge in demand that could strain their existing
product stock.
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3. Automate Your Inventory Management Systems
Automated stock management system is not only more efficient than manual stock management, but also
more precise, time-saving and productive. By automating their stock management, business owners can cut
costs while also reducing errors and increasing efficiency!
4. Use Data and Analytics
Using data enables business owners to always have accurate product information and sales forecasts at a
moment’s notice. With the information, they’re able to better predict product market demand and, in turn,
help their businesses to scale their inventory up or down, depending on the immediate need.
5. Use Software to Simply Stock Management
Using the right tools can help make your inventory management much more efficient and accurate while
reducing the likelihood of human error!
6. Integrate with Mobile Technology
By downloading any apps for inventory management tools, business owners can access their critical stock
data anytime and anywhere!
7. Forecast Your Inventory Accurately
This strategy is one of the most important when it comes to proper inventory management. With accurate
forecasting, business owners are able to make informed decisions and predictions on order placement from
customers.
8. Employ a Conventional Manufacturing Strategy
This is aimed at the prevention of idleness, either by employees or machinery. By doing this, productivity is
boosted dramatically!
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9. Use Material Requirements Planning
This particular strategy entails the use of computer software and other applications in effectively managing
inventory. Success is achieved by breaking down inventory requirements into varying planning periods in
order to ensure the smooth running of all operations concerning inventory.
10. Employ the Economic Order Quantity Model
With this model, it’s assumed that a customer’s demand is constant and as such, inventory will deplete at a
fixed rate until it finally reaches zero. The management strategy times reorders to avoid shortages or
overages of products.
11. Try Using Batch Tracking
Also known as lot tracking, this strategy entails tracking goods as they travel along the distribution chain. For
maximum effectiveness, this tracking is done using batch numbers. It shows where goods came from, where
they’re sent, the quantity that was shipped and if and when they’ll expire. Using this data, business owners
can better optimize their supply chains and manage their stock more efficiently.
12. Use a Consignment Inventory Strategy
Finally, this process entails the wholesaler giving their goods to retailers without any payment made by the
retailer. With this arrangement, the wholesaler still owns the goods until the retailer sells them.
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