Have you thought about what your supply chain strategy is? The disruption caused by the COVID-19 pandemic made many more people aware of the term “supply chain.” However, as an entrepreneur bringing a new product to market, you know that supply chain is so much more than what you hear about in the news. Supply chain strategies are integral to proper product development, just as critical as your research, design, and manufacturing strategies.
One thing the pandemic has shown us is how efficient supply chains can be very fragile. And it overshadowed the tariff battle with China. Picking the right strategy for your product will not only maximize your profit and make you more competitive, but it will also give you the competitive advantage of flexibility when something goes wrong.
That is why you should become familiar with supply chain management basics, the types of strategies, and how to plan for disruption. This article will cover those topics and make some suggestions on how to deal with global supply, manufacturing, and distribution in a post-pandemic world and find the right resources to help you on your journey.
The Basics of Supply Chain Management
There is no need to get a master’s degree in supply chain management (SCM). You can hire people who have that. Entrepreneurs need to know the basics of how all the pieces come together to produce and distribute a product. Every entity involved, from mining raw materials to when the customer receives the product on their front doorstep, is part of the supply chain.
The entities in your supply network that are linked together in the chain fit into one or more of the following categories:
- Vendors, consultants, and internal teams
The part of the supply chain people think about the most is purchasing and shipping, but every aspect of product development is a part of the chain. If a step provides resources or adds value, they are part of the chain. The most common functions in the supply chain are product development, marketing, operations, distribution, finance, procurement, and customer service.
Sometimes these entities are companies or consultants you hire. Sometimes they are people or teams within your own company. The important thing to remember is each of these links comes together to get your product produced and sold. Supply chain planning involves finding the proper entities, setting priorities for procurement, tracking their progress, and making improvements along the way.
Common Supply Chain Strategies
There are many different supply chain strategies out there, and each expert will have their own take on which are the best. So many strategies exist because every industry has different challenges, and every company has unique priorities. With a high-level understanding of your challenges and priorities, you can help your supply chain experts better pick the right one for your product.
Start by understanding the unique supply chain challenges in your industry. Research into the industry will tell you what your competitors are dealing with and what historical problems others have faced. Some questions you should ask are about your industry are:
- How quickly does technology change?
- How robust is the supplier network for materials and components?
- What is the capacity of the supplier network?
- What technology challenges does the industry face?
- Are there shipping and storage safety issues?
- How volatile is the demand?
- How important is implementing new technologies?
- What are external factors that you have no control over?
- What are customer expectations?
- How well can you forecast customer demand in the short and long term?
Combining those industry challenges with your business strategy gives you priorities. These are important because determining the best supply chain strategy for your product depends on your priorities. When it comes to producing and selling your product, you have to make tradeoffs between four supply chain factors:
- Customer value
6 Basic Strategies
With four top priorities and a long list of industry challenges, you can quickly understand why there are so many different strategies around. You never want only minimum cost or maximum robustness. You want a tradeoff between everything. The good news is that almost every one of the supply chain strategies out there fits into one of the six basic types:
1. Efficient Flow
For products with a steady and predictable demand, you want to use a strategy where everything is working together, and all pieces of the supply chain are working at the same speed to deliver product at the required time to the right place.
Inventory management and demand forecasting are critical and, if done right, you never have a lot of inventory. You communicate up and down the network constantly. Vendors are chosen because they collaborate well with everyone in the network, building partnerships up and down the chain. You make enough to stock what customers want.
This approach prioritizes customer value, especially availability.
2. Efficient Cost
This is where you maximize the price at every step. The bottom line is in charge. Go with the low-cost provider, manufacturing, and logistics. Change the design to lower the production cost. Price is number one in your market, so you focus on that at every point. You make as many products as you can at one time in order to keep costs down, so forecasting is critical.
This approach prioritizes cost savings.
3. Efficient Speed
Use this strategy when time to market and adding product variation are critical for your industry. Cost is less important, and the ability to quickly make changes to your product, manufacturing, and shipping dominates your decision on who to work with. You may work with multiple vendors so you can optimize scheduling.
This approach prioritizes schedule.
4. Responsive to Customization
If you have a product that requires customization or customer configuration, then this approach is the way to go. You pick your vendors by their ability to deal with unique, low-volume production. They should use automation and advanced manufacturing to efficiently integrate customization into the manufacturing process. The cost is higher, but customer value is high as well. Standard parts are kept in inventory, so customization is quick.
This approach maximizes the ability to customize your product.
5. Responsive to Demand Fluctuation
In industries with variability in demand, you want a strategy where you can speed up or slow down the entire supply chain quickly and efficiently. This strategy often carries more inventory at every step, so you can spool up fast. You vendors need to be able to work with short lead times.
This approach maximizes the ability to scale up and down with the market.
6. Responsive to Customer Problems
You use this last strategy when your customers look to your products to solve their problems. Customer satisfaction is about doing what other providers can not. Demand is unpredictable, but when customers need what you have, they need it now and they need it with unique features. You don’t make anything until you know exactly what they want. Design and manufacturing work hand-in-hand. You work with vendors who are fast, responsive, and communicate clearly. Instead of inventory, you build up capacity.
This approach maximizes value to specific customers.
Adapting to Supply Chain Disruptions
Before everyone learned the phrase “supply chain disruption,” product development experts used business planning to anticipate the unexpected. Natural disasters, labor unrest, political change, trade conflict, global economics, demand shifts, and technology disruption are just a few of the various types of monkey wrenches that fate can toss into the gears of your supply chain.
You never know which one will show up, so your supply chain strategies should include three basic adaptations, just in case. Each involves having multiple solutions for the three critical parts of your supply chain — manufacturing, logistics, and distribution.
The first is the simplest. Use multiple sources for raw materials and components. You may only purchase from one source, but always have one or more backups for every material or component.
The same goes for manufacturing and all the pieces that go into manufacturing. If you can afford it or disruption would be costly for your product, don’t just identify multiple sources. Use them as part of your supply chain every day. Spread the work around to build robustness.
Shipping deserves its own adaptation because it is the most difficult to predict. Having multiple logistics channels is not just having multiple trans-Pacific shippers. It is about having backup plans for other ways of transporting your goods — maybe rail or air? The options are very product-dependent but make sure you map what you will do if your primary shipping is literally blocked because a ship is stuck in the Suez Canal.
The last part is your distribution. You may have your Amazon or other e-commerce presence worked out, or space on shelves allocated by a big-box retailer. But what if something goes wrong with them? If your distributors can’t distribute, you are stuck. To be robust for the last part of your supply chain, build and nurture alternative ways to sell your product to your customers.
Post-Pandemic Supply Chain Strategies
One lesson everyone has learned from the COVID-19 pandemic is how foolish it is to predict when it will end. It is even more foolish to guess what the world will be like after. But that doesn’t mean you can’t plan for some post-pandemic strategies. In fact, you can learn a lot about systems when they are stressed, and there are plenty of lessons we have learned from the stresses the global supply chain has seen during the pandemic.
One of the most important lessons learned was that you should pay for the insurance. If you optimize your network assuming no disruptions, those who have flexibility and capacity built into the strategy will dominate when the disruptions happen. Toyota recently passed GM as the world’s largest auto manufacturer because their supply chain had inventory and capacity.
The second lesson we can take forward is the importance of having digital supply chain operations that provide real-time information about your product’s production and distribution. Those who have access to data and can communicate efficiently and accurately can detect problems, identify bottlenecks, and adapt their business processes quickly. Use modern Enterprise Resource Planning (ERP) tools as the foundation for a resilient supply chain.
Having a good understanding of your market was the last and most enduring lesson from the most recent disruption. By understanding what they want and when they want it, you can better provide them with the products they want. And, if you go back to the basics of supply chain management, that is why you have a supply chain.
Having a Supply Chain Strategy Is a Competitive Advantage
Most entrepreneurs who are bringing a new product to market are focused on other parts of the product design and development process. To be successful you have to pay just as much attention to the network — your supply chain. Then, develop a strategy. Begin by understanding your industry and clearly establishing your supply chain priorities. Finally, build your team — the companies, consultants, and employees who will work together to design, produce, ship, and distribute your product.
One way to make your success more certain is to leverage Gembah’s expertise and connections. We can evaluate your supply chain and help you pick the right approach for your industry, your product, and your business priorities. There is no reason for you to take this journey alone. Reach out to Gembah so our experts can assist with every aspect of your product development process, including setting and managing your supply chain strategy.