Discuss the relationship between a companys supply chain strategy and competitive strategy

It is important to distinguish the Business Strategy (BS) of a company from its Supply Chain Strategy (SCS), and to understand their connection.

The SCS defines how the Supply Chain should operate in order to compete. The BS involves leveraging the core competencies of the organization to achieve a defined high-level goal or objective. It also includes the analytic and decision-making process to define what to offer (products and services), when to offer (timing, business cycles), and where to offer (markets and segments) as a competitive plan.

While the Business Strategy constitutes the overall direction of an organization, the Supply Chain Strategy constitutes the actual operations of that organization and of the extended Supply Chain to meet specific SC objectives.

A SCS should always support the intent of the BS in order to avoid gaps between the two.

Most companies have a Business Strategy, but are unlikely to have a clearly designed Supply Chain Strategy. This is a weakness: the SCS is fundamental to operationalize and support the BS:

• Business Strategy must be executed and this is typically done through the operational components of a company.
• By providing a clear purpose, the organization keeps sight of the strategy and is able to plan tactical steps to achieve these goals.
• SCS is important to establish how to work with the Supply Chain partners, including suppliers, distributors, customers, and even the customers’ customers: as the marketplace becomes more competitive, it is critical to reinforce existing relationships and work together.

Therefore, a well executed Supply Chain Strategy results in value creation for the organization.

For Supply Chain executives the first step is to clearly understand how the enterprise chooses to compete. This is important not only for the obvious reason of working together in the same direction, but also because Supply Chain has to enable the Business Strategy; it is not merely an operational department.

SCS is not simply a linear derivative of the BS: most companies develop a SCS after the BS has been defined. While this approach could deliver some value, it does not support powerful Supply Chain model options, which could significantly improve the BS:

There are some additional risks associated with developing the two separately that we can read from S. Happek, Supply Chain Strategy, The Importance of Aligning Your Strategies:

• Developing a SCS without a true understanding of the business case and value propositions: the costs and benefits are not known.
• Utilizing different or new resources in the operational model development that weren’t exposed to the original BS thinking, thereby diluting and weakening the SCS.
• Confusing or conflicting communications to the organization whose objectives may be contradictory.

“As Supply Chains have moved from a cost focus to a customer focus and now currently to a strategic focus, the need to think strategically about the Supply Chain has never been more important. The success of a strategy is only as good as the company’s ability to fully and properly execute it. A great Supply Chain Strategy, linked with operational excellence, can provide success for not only the company in question but also its partners and customers.” (S. Happek)

In the article Six Steps to Align Supply Chain with Corporate Strategy, IndustryWeek (2011), Jeff Wallingford talks about six steps to align the Supply Chain with the BS:

1. Define and communicate a clear Business Strategy.

2. Identify the areas of the Business Strategy that are enabled by the Supply Chain.

3. Align Supply Chain performance metrics with the Business Strategy.

4. Structure the Supply Chain to optimize the strategic goals.

5. Align incentives end to end.

6. Keep refreshing the strategy and alignment process.

To conclude, a SCS should be designed by looking at the company’s Supply Chain competencies and by leveraging what it does well. Therefore, an important step is to conduct a detailed, realistic assessment of the capabilities that exist within the organization and even within the extended SC by closely scrutinizing the organization’s assets and evaluating how well they support the strategy.

If there is a disparity between the SCS and the operational assets, some investments may be necessary. The other alternative is to change assumptions and alter the strategy all together. The SCS includes outsourcing decision in areas that are not core competencies: if someone else can do it cheaper, it may be worth outsourcing, not only to drive down costs but also to focus more resources on the core competencies the organization does well.

On a periodic basis, a company should formally revisit its Supply Chain Strategy. Did the company meet the goals of the Business Strategy? Have the needs of the Supply Chain partners changed? How has the industry changed in terms of new competitors, business practices, products, technology? This analysis can lead to a reassessment of the Supply Chain organization, if the changes are significant enough to warrant it or if there are new opportunities.

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