SCC Joint Goal Planning: Align with Business Strategy

Customer Service and Corporate Strategy are key functional drivers of supply chain strategy. Collaboration efforts often do not succeed because vital long-term details are ignored. Therefore, short- and long-term business strategies should also be factored while evolving supply chain goals to achieve business objectives.  After deciding on the right  supply chain  capability for the business the supply chain performance vis-a-vis capabilities required for achieving the business goals  should also be determined and  incorporated into the  collaborative SCM goals. Business strategy in terms of the defined strategic focus areas should be mapped in strategic focus matrix to incorporate business objectivity in supply chain collaboration. For instance, if the business goal is to achieve cost leadership through improving cost structures, then strategic focus areas include: inventory cost (IC), production cost (PC) and logistics cost (LC). Applying this to the strategic focus matrix extended SCM Goals would be as shown below.

 

Strategic Focus Matrix: Aligning Business Strategy with SCM

Evolved objectives should be mapped to existing supply chain capabilities across the chain to determine the exact capability gap.  Level 1 Metrics of supply chain operation reference (SCOR) model offers a scientific approach to assess the current supply chain performance and hence the required capabilities for achieving SCM goals. 

Supply Chain Collaboration: Joint Goal Planning

One of the top-level reasons for poor strategic supply chain collaborations is --  joint strategic planning process is still not as robust as it should be.  Without appropriate planning and analysis from the outset there is a potential for failure. The 
supply
 chain
 strategy 
process 
in many
 businesses 
is
 still
 immature
 and
 fragmented. In fact, this is one of the areas where the leaders appeared to be just as deficient as followers and laggards. Partners pay limited attention in evolving true  collaboration goals in the strategic planning and hence supply chain collaborations often fail. The study by Cranfield University in 2010 states that “the most important of supply chain performance drivers are cost focus, customer lead-time and customer quality but these vary by sector.” Customer behaviours also differ from segment to segment. Hence the shared goals (whether cost-focused and/or lead-time focused and/or quality-focused) chosen for the supply chain collaboration should be relevant to the business/industry/market in which the firm operates.  It  involves  deciding right supply chain for the product. The study also found that Customer Service and Corporate Strategy are key functional drivers of supply chain strategy. Therefore, short- and long-term business strategies should also be incorporated  in  the supply chain goals to align with corporate objectives. Care should be taken so that rebuilding or reinvention of supply chain capabilities is prevented. The state of supply chain capabilities should be assessed for future performance to know the capability gap.

Researchers often claim that “collaboration ends up in failure when the start is all wrong and when compromises cover irreconcilable differences.” Because collaboration requires objective sharing between partners and lack of agreed objectives will lead the alliance to fail. So, adequate care should be taken to ensure that mutually agreed objectives are set for collaboration while addressing all possible differences among partners. Therefore, the joint strategic planning process should evolve mutually agreed objectives contemplating the strategic objectives and expectations of all partners with an outlook for inclusive growth and supply chain performance.  Shared objectives should comprise only those which are aligned with every partner’s business strategy.  This involves verifying and  ensuring strategic alignment with partners. If common agreed objectives cover existing supply chain capabilities, then shared goals of supply chain collaboration should be restricted to build required competencies from there. 

Collaboration efforts often do not succeed because vital long-term details are ignored. Besides, failure to identify and mitigate key risks (internal or external) proactively has been found to be one of the major reasons for supply chain collaboration failures. One of the findings of ‘Supply Chain Strategy in the Boardroom 2010” of Cranfield University is the supply chain strategy development process is generally undertaken internally, with little visibility outside the company. But, if external risks are not factored in, then collaboration may not be able to pursue the stated shared goals. For instance, if partner(s) are operating in an unstable economic conditions the high cost of credit and currency fluctuations limits the ability to improve cost structures. Similarly, if stringent labor laws prevail in their countries then partner(s) cannot contribute to efficient HR assets utilization. ‘Innovation’ cannot be the objective if partners have limited access to skilled labor and/or technology resources. ‘Delivery’ cannot be the game plan if logistics infrastructure is poor.  To preempt such external risks, it requires analyzing how friendly and/or hostile is the partners'  business environment. Hence, both micro and macro business environments of all the partners should be contemplated to evolve feasible supply chain collaboration goals.

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Supply Chain Collaboaration: Achieving Strategic Alignment

In today's competitive arena, cohesive supply chain teams compete against other supply chains. Such network-level competition is driving firms towards strategic partnerships with suppliers and partners. These partnerships aim at strengthening supply chain performance . To achieve this, strategic partners should develop one or more capabilities viz., agility, flexibility, reliability and efficiency across the chain and hence should focus on improving the right combination of (cost structures, asset utilization, quality,  service). Hence, strategic collaboration among supply chain partners is crucial.

Strategic collaboration among supply chain partners means strategic partnerships that should make the entire chain behave as a single system. Which means all partners in the collaboration should work together towards achieving the same set of objectives or goals (i.e.,developing right supply chain capabilities). However, business objectives and expectations of each partner in the chain may vary and hence strategic focus areas differ. In the absence of  strategic alignment collaborations are bound to fail. Therefore supply chain partners in the strategic alliance should work towards mutually-agreed objectives (or shared objective) where strategic alignment is possible.  Joint strategic planning process should evolve mutually agreed objectives contemplating the strategic objectives and expectations of all partners with a focus on inclusive growth and supply chain performance.  

Balanced scorecard approach can be leveraged to develop common objective(s) that align with business strategies of each supply chain collaboration partner. According to Balanced Scorecard (BSC) theory every commercial entity works towards customer and/or financial goals in pursuit of their business. . Each partner in the supply chain alliance, therefore views their partnership to maximize their own share-holder or customer value. However, enhancing shareholder or customer value variables like price, delivery and availability depends on improving cost structures(C), reliability(R), asset utilization (U), inbound or outbound speed (S) of (inventory, and production and logistics resources) of that partner in the chain. Variables like quality (Q), functionality {rapid feature innovation (RFI), rapid product innovation (RPI)) and brand image (B) are product related. Therefore, strategic focus elements in financial and customer perspectives can be reduced to four functions viz., Product, Materials, Production, and Logistics. Participating partners should be listed from upstream to downstream in the strategic focus matrix as shown below.

Strategic Focus Matrix

Supply Chain Network

Strategic Focus Areas (SFAs)

Product

Inventory

Production

Logistics

RFI

Q

RPI

B

C

R

U

S

C

R

U

S

C

R

U

S

Tier i     Supplier(s)

x

Tier i +1  Supplier(s)

x

My Organization (Business Strategy)

x

x

x

x

Channel Level n-1

x

Channel Level n

SCM Goals (Focus Areas) =

x

x

x

Strategic focus element(s) of the company and each partner along collaborative chain should be identified and marked (x) in respective cells as shown above in the strategic focus matrix. This help determine strategic focus areas  that are aligned with partners. Collaboration opportunities restrict to areas of alignment with collaboration partner(s). Supplier or channel collaboration opportunity is said to exist in any specific focus area under Material/Production/Logistics when at least two partners align. But product collaboration in quality or innovation is possible when all relevant partners in atleast two consecutive stages on supply side align. On demand side, collaboration opportunity exists in inventory and logistics areas if at least one distribution/channel partner's focus area(s) align.

Supplier Collaboration: A Strategic Imperative

Shorter lead times, shrinking product lifecycles, global outsourcing and increasing complex customer demands are making manufacturers more dependent on their suppliers to keep the costs down and to optimize quality and responsiveness. Supplier-facing business practices like supplier consolidation, strategic sourcing, collaboration, contract and performance management-enabled by Supplier Relationship Management (SRM)-reduce the overall spend, promote product development, minimize the risk of non-compliance and streamline the supply chain operations.

In addition to the growth in top line, it is the bottom line results that the stakeholders are interested in. Ultimately, that is the focal point of every company competing in today's tough economy. You can improve the bottom line in two ways: Increase revenues or decrease costs. In today's sluggish economy, revenue growth is the most challenging. Fortunately, the cost reduction side of the equation is more promising because by reducing the costs associated with the purchase of goods and services, an organization can boost profitability without generating more sales. Such bottom line performance pleases the shareholders and keep the organization competitive in the market.

Transformation of suppliers as key strategic partners of the business enterprise has become a mandate to gain cost and competitive advantage. As per the current estimates, sourcing accounts anywhere between 70-80% of the total opportunity for procurements savings within an enterprise. This requires a balancing between cost reduction against issues of quality, risk and innovation. Supplier Relationship Management (SRM) practices/solutions help strike this balance using a systematic approach for formulating and optimizing a global sourcing strategy, and help evaluate the capacity of supplier to deliver high-quality goods that may have specific corporate needs.

Five Phase Supply Chain Collaboration Evolution Process

Collaboration is to create value. Often, creating value requires significant change. A transformational change is usually driven by new constraint(s) or the need to achieve next level of performance.  John Kotter (1990) in his book “A force for change: How Leadership Differs from Management” advocates eight phase model for successful change. 1. Establish a sense of urgency, 2. Create a coalition, 3.  Develop a clear vision, 4.  Share the vision, 5. Empower people to clear obstacles, 6. Secure Short term wins, 7. Consolidate and Keep moving, and 8. Anchor the Change. Kotter’s model focuses on organizational change showing similarity to supply chain change through strategic collaboration. First three stages of Kotter  model describe how a change initiative begins at the top and with three separate actions by the leaders: (1) establish a sense of urgency; (2) create the guiding coalition; and (3) develop a clear vision.

 

As referred in Kotter’s model, supply chain transformational change initiatives also evolve by establishing a sense of urgency, creating the coalition and developing a shared objective among supply chain members. However, no successful transformational change occurs without proper leadership. “Or they must have been very lucky”, Kotter explains. Collaboration efforts often fail because right partners are not chosen priorly. Thus establishing supply chain leadership followed by selection of right partners should precede the three stages of Kotter’s model.