As you’ll know, if you follow our blog regularly, Logistics Bureau does a great deal of work related to supply chain strategy development and alignment. As a result, and as we’ve mentioned in several previously published articles, we’ve discovered that many companies lack a defined and documented supply chain strategy.
A company without a supply chain strategy is at a competitive disadvantage. Still, happily, that’s a situation that can be remedied quite quickly, as long as the management team is prepared to put in the necessary effort.
All the same, it can be challenging to know where to start, what steps to take, and in what order to take them to establish a realistic and effective supply chain strategy. If that’s a challenge you’re facing, this step-by-step guide will help set you on the right path to developing a supply chain strategy from scratch.
Step 1: What do Your Customers Want?
Another thing we talk about quite often on our blog is how companies often misjudge the needs and preferences of their customers. They think they know what their customers want, but they never actually go to the customers and ask.
It’s a mistake under any circumstances, but certainly not one you want to make when developing your supply chain strategy. Hence, your first task will be to gather unequivocal facts about your customers’ requirements.
For example, you don’t want to assume that a single logistics strategy and service approach will meet all your customers’ needs. It may do, but how do you know?
Perhaps you will need to segment your customers into categories and apply a specific approach to each one. But the only way to find out is to speak with those customers directly.
What do You Need to Know?
Your fact-finding efforts should seek to determine what your customers want in the following aspects of supply chain service:
- Packaging and labelling requirements
- Delivery service levels
- Warehouse facilities and proximity
- Reverse logistics
- Delivery frequency and lead times
- Delivery time windows
- Inventory levels
Once you have gathered the data relating to your customers’ needs, you should be able to see if a single logistics strategy will work for your entire customer base, or whether you need to take a segmented approach.
Step 2: Gap Analysis – Customer Requirements and Supply Chain Trends
Now you know what your customers genuinely expect from your outbound and reverse supply chain, so it’s time to undertake a gap analysis. That will be an essential step to help you understand your current supply chain capabilities and where they may need improvement to meet those customer expectations—and address key trends in supply chain management.
Naturally, the first part of this task will be to research and clarify those key trends. Then, you can analyse your current supply chain capabilities using the research results and your data concerning customer needs. The objective of that analysis will be to determine the size of the gaps between what they are now and what they will need to be, once your new strategy is defined and implemented.
By now, it should be apparent that whatever supply chain strategy you employ, its primary objectives will be to address customers’ needs and align with supply chain trends. Still, there is one other element we haven’t yet mentioned—the need to do both things at least as well as your competitors, and preferably even better than them.
Step 3: External Benchmarking and Competitor Research
Before developing a supply chain strategy that supports performance superior to your competitors, you first need to know how your supply chain currently compares against theirs.
Therefore, at this point, it’s a great idea to carry out some external benchmarking, to determine which performance elements you would need to improve to compete successfully, and which ones, if any, are already at a best-in-class level.
Be aware that benchmarking against competitors is no easy task. You will need to find several companies against which yours directly competes and then somehow find a way to access their performance data. Even assuming you can manage that, you might find that they don’t use performance measures commensurate with those employed in your organisation.
For Effective External Benchmarking, Use an External Partner
To perform benchmarking successfully, without spending excessive time and money on the task, we recommend that you engage a consulting company specialising in the activity.
The added benefit of working with such a partner is that because they collect performance data from hundreds of companies, they can help you choose the most appropriate key performance indicators to use in your benchmarking exercise. They can also aid you in identifying and implementing best practices to further your performance objectives.
Ideally, though, evaluating your position against competitors should not solely be a KPI benchmarking exercise. You’ll learn a lot more if you can find and consult with:
- Mutual customers or suppliers prepared to discuss your competitors’ performance
- Former employees who can give you some inside information
- Other sources that can reveal details about your competitors’ supply chains
At Logistics Bureau, we can take care of your external benchmarking and other activities necessary to prepare a new supply chain strategy. Our services will save you time and money and provide all the benefits of assistance from experts who continuously perform work of this nature.
Step 4: Identify Enabling Technology Needs
By now, you will know what your customers need from your supply chain, how well your competitors can meet those needs, how they do it, and what supply chain capabilities your new strategy will need to exploit.
Now it’s time to start looking at how you will enable those capabilities. In the modern supply chain, what often differentiates best-in-class operators is their choice of technology and the talent to take advantage of it.
Start with the Software
As far as supply chain software goes, you and your team will need to evaluate potential needs relating to the following solutions:
- Enterprise resource planning systems (ERP)
- Warehouse management systems (WMS)
- Inventory optimization software
- Transportation management systems (TMS)
- Network modeling and optimisation software
- Forecasting systems
While you may already have some or all of these systems deployed, you should assess their suitability for supporting your new supply chain strategy. You might find that some of them will need to be customised, upgraded, or possibly even replaced.
The one mistake to avoid at all costs is trying to make your new strategy fit the capabilities and nuances of your technological solutions. Instead, it should always be the other way around.
Step 5: Consider Productivity and Visibility
Of course, software alone will not drive the improvements you need to meet productivity and visibility gaps, so you’ll need to look at overall solutions combining software, hardware, and physical processes. For example:
- How much automation will you need in your warehouse(s)? Will technology-assisted processes suffice, such as pick-to-light or voice picking, or will you need something much more comprehensive, such as automated picking with conveyor systems, or even automated storage and retrieval systems (ASRS)?
- How will you track inventory as it moves through your supply chain? Will barcode tracking prove satisfactory for the needs of your new strategy, or will you need to upgrade to RFID?
If it seems counterintuitive to consider software, hardware, and other technological solutions before drafting the strategy, please trust that there is a method driving this apparent madness.
Remember, you know at this point what your customers need and what performance gaps you need to fill. Your final strategy decisions will be much more astute when they can take your plans for software and solutions into account as well.
Step 6: Concepts, Doctrines, and Process-Based Solutions
Now you’re getting close to the stage at which you will define and prioritise new supply chain capabilities to support your future strategy. By now, however, you should have enough information to consider whether implementing any advanced supply chain concepts, doctrines, or processes will be beneficial.
For example, you might ask yourself and your team if any of the following solutions should become enablers for your strategy:
- Sales and operations planning (S&OP)
- Collaborative planning, forecasting, and replenishment (CPFR)
- Six Sigma
- Lean supply chain practices
- Vendor-managed inventory or replenishment
- Other concepts, doctrines, or advanced processes
As you start to prioritise the future supply chain capabilities that will power strategy execution, you might drop some of the solutions from the above list that you initially considered, but that’s OK.
If you think your team might struggle to evaluate these supply chain doctrines and disciplines, the supply chain strategy consultants at Logistics Bureau will be pleased to assist you.
In addition to strategy development and alignment, we even offer specific services to companies wishing to implement S&OP, CPFR, or other advanced supply chain management disciplines.
Step 7: Risk Assessment
Before defining the new supply chain strategy and its capabilities, there is one last task to perform because you need to be cognisant of the nature and levels of risk to consider.
A detailed foray into supply chain risk assessment would not be appropriate for a quick step-by-step guide like this. After all, even extensive articles dedicated to the topic can barely scratch the surface. Nevertheless, the need to assess risk can’t be omitted, as it is a vital step in strategy development.
Suffice to say that the risks to be evaluated should include those relating to the supply and demand sides of the supply chain—and the internal elements of your operation.
Step 8: Define and Document the New Supply Chain Strategy
As simple as this step’s heading may sound, don’t underestimate its significance. It is the coming together of everything you have done so far.
You will use the information you have gathered about your customers’ needs, supply chain trends, competitive performance, technology, and potential processes to define a list of new capabilities that your supply chain will need to achieve its objectives.
Begin by noting all possible supply chain capabilities relevant to your strategy. The next step will be to pare that list down and establish priorities.
How to Prioritise New Supply Chain Capabilities
You should prioritise the capabilities according to your assessment of their potential impact on service, costs, and ROI, the resources you’ll require to implement them, their complexity, and their associated risks. The result will be a shortlist of new capabilities that are realistic and feasible to implement.
Finally, you should be able to document your SMART supply chain objectives, the strategy you will apply to meet those goals, and the capabilities that will enable you to execute that strategy.
Voila! Your organisation is no longer bereft of a supply chain strategy. Still, lest you’re ready to rest prematurely on your laurels, there are a couple more tasks to complete if you wish to implement your new strategy successfully.
Final Step: Add Your Methods for Measurement
So you’ve set your new supply chain strategy out in writing. Is it straightforward and clear enough for every stakeholder to understand? Good!
Does it include objectives that are specific, measurable, achievable, realistic, and time-bound (SMART)? Fantastic—but what’s missing? How will you know if the execution of your strategy is yielding the results you expect?
It would not make sense, for example, to think you will push on with your strategy and see if you meet those objectives in three or five years—because you almost certainly will not.
The supply chain environment is in a perpetual state of flux. Consequently, a three to five-year period is likely to yield several significant shifts in the landscape—which your strategy will not cover, so your organisation must adapt to them as they occur.
No, you will need to monitor progress closely from the moment you implement your strategy, and throughout the journey towards your objectives—and to do that, you will need KPIs.
Include Your New KPIs in Your Strategy Document
Maybe you already have some supply chain KPIs, but are they aligned with your new strategy? Probably not. If that’s the case, you must implement a new suite of properly aligned metrics to monitor performance and progress towards your supply chain goals.
Once you have decided on the KPIs you will use, it will be advantageous to add them to your written-down strategy so that, like the strategy itself, and its objectives, they will be visible to everyone in your organisation.
The Strategy is in the Bag—What Now?
Naturally, there will be a lot more to do after you’ve completed the steps above and are all set up with your shiny new documented supply chain strategy. By all means, pause to celebrate this achievement; it is substantial.
Next, you will need to draft project plans to develop and implement the new capabilities, devise training and change management plans, and then translate all these plans into actions.
There’s still some way to go, but having a strategy set down is the first critical step on the path to a supply chain with a clear purpose—and a vast improvement if no such strategy existed previously.
Of course, we have simplified the steps outlined in this article for brevity because supply chain strategy development can be complex, especially for a large enterprise with global supply networks. For that reason, support from a company like ours, that exists specifically to help companies with complex supply chain challenges, can be a godsend.
How We Can Help You Develop Your Supply Chain Strategy
The Logistics Bureau team has a wealth of experience and expertise in supply chain strategy development and alignment. We’ve helped dozens of enterprises adjust their strategies or establish new ones from scratch, and we continue to do so regularly.
Our supply chain strategy service encompasses all the steps discussed in this article. In addition, we can integrate it with other specific services to help you through the necessary tasks, such as benchmarking and KPI development, technology selection, insourcing vs. outsourcing decisions, and, during strategy implementation, establishing programs and doctrines such as S&OP or CPFR.
We’d love to help your enterprise too, but perhaps you’d like to learn a little more about our approach and methods, so please check out our supply chain strategy services page for lots more detail and some case studies highlighting past projects we’ve completed for our clients.
Editor’s Note: The content of this post was originally published on Logistics Bureau’s website dated July 19, 2022, under the title “No Supply Chain Strategy? Here’s How to Develop One“.