The importance of Supply Chain Management strategy for an organization

Business organizations today depend on Supply Chain Management (SCM) strategies. The effectiveness of the supply chain strategy is key to effective market coverage and availability of products at locations that are crucial for revenue recognition.

Supply chain strategy defines the connection and combination of activities and functions throughout the value chain, in order to fulfil the business value proposal to customers in a marketplace.

Accordingly, an organization’s supply chain strategy is shaped by the interrelationship between four main elements:

  1. the marketplace;
  2. the organization’s competitive positioning;
  3. the organization’s supply chain processes;
  4. the linkage between supply chain processes and business strategy.

1. The marketplace

If we put it in very simple terms, when a product is introduced in the market and advertised, the entire market in the country and all the sales counters need to have the product where the customer can buy and take delivery. Any glitch in availability at the right time can result in a drop in customer interest and demand, and this can be disastrous.

In a global scenario, the finished goods inventory is held at many locations and distribution centers, managed by third parties. A lot of inventory is also in the pipeline in transportation, as well as the inventory that is with distributors and retail stocking points. Since any loss of inventory anywhere in the supply chain results in loss of value, effective control of inventory and visibility of inventory gains importance as a key factor of the Supply Chain Management function.

2. Competitive positioning

The concept of positioning is entirely strategic. It’s the first element to address in strategic marketing, and everything else is aligned to it.

Competitive positioning requires a clear understanding of the organization’s unique value proposal in terms of its supply chain. This consists of the requirements for being considered as a relevant option by customers, as well as the performance aspects that best differentiate the company from its competitors.

While the concept is simple – to be known for a single thing in the mind of the customer – the road to achieving it can be complex.

3. Supply chain processes

The performance of the organization’s supply chain processes should be monitored to ensure that they are as efficient as needed. Reference models, such as the SCOR model (Supply Chain Operations Reference), can be used to compare the organization’s supply chain performance to benchmark data and to design its supply chain processes according to best practices information.

4. Business strategies

For most organizations, business strategy means simply incorporating customer satisfaction surveys into a strategy formulation process. Anyway, current customer needs may not be enough. Organizations should try to anticipate future needs as well, to (re)design their supply chain accordingly.

In the near future, the way in which organizations implement supply chain strategies can mean the difference between success and failure.

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