If you ask supply chain executives to name their most important targets, two themes likely would dominate: increasing flexibility and efficiently driving down costs.
While it’s possible — and likely obligatory — to have aspects of both integrated into overall supply chain processes and fine-tuned to meet specific channel or market needs, companies ought to be clearer on the goal most directly aligned with their executive agendas. What objective takes precedence ultimately influences which supply chain strategies are implemented, what initiatives are funded, and what results are delivered to the bottom line and the supply chain ecosystem, according to a joint study from the Massachusetts Institute of Technology (MIT) and Netherlands-based TruEconomy Consulting.
For example, the study found that companies aiming for flexible-response supply chains emphasize the fulfillment function; satisfying customer demand and reducing lead times rank as top priorities. Additionally, these companies often engage in postponement strategies, invest in planning-related IT tools, and encourage collaboration up and down the chain.
On the other hand, companies with an eye on cost efficiency generally steer their efforts towards operational visibility, with inventory management and lean supply chain practices being primary focus areas. They also put more attention on design for supply chain activities, total landed costs, and working capital reductions, the study indicates.
Back in the day, when companies started to definitively view supply chain as a core business operation, I don’t think these corporate-agenda disparities were considered in any significant way. Initiatives were randomly lumped together and collectively referred to as supply chain improvements.
In hindsight, it’s easy to see how distinctions have emerged and what kind of impact different models have on supply chain relationships. You just have to look at how OEMs and suppliers operate to get a sense of the disconnect in the system. OEMs, for instance, require a high degree of flexibility and responsiveness since they frequently introduce new products and services to fickle end-consumer markets.
Chipmakers and contract manufacturers, though, are hard-pressed to keep inventory and prices down, so their actions are filtered through the cost-sensitivity screen. While minimizing total supply chain costs is important to all companies, as the MIT-TruEconomy report notes, flexibility and cost efficiency don’t always work in parallel.
Even internally, companies are struggling with this crossover. The high-tech value chain is moving decisively towards a flexible-response strategy. However, many of the fundamental practices still being used are closely linked to cost-efficient business models.
How are companies reconciling these diverging goals; Where is the balance being struck between flexibility and cost efficiency and; How do supply chain organizations align senior management and customer priorities? These are the questions that never seem to go away.