Risk Management in Supply Chain

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore Risk Management Strategy adding some additional support as well.

Risk Management in Supply Chain

The very nature of business is undertaking acceptable risk. Thus, all investments have risk including investing in a supply chain design. There are many dangers or risk events that lie in wait for business enterprises that usually result in disruptions and legal actions. Redundancies and contingency plans could go a long way towards stabilizing the operations and reducing potential risk.

PMI's approach to risk is very methodological involving categories, risk registers and risk impact matrices. Like PMI, APICs approaches risk  in a similar manner having its own terminology, categories, and tradeoffs.  Like PMI, APICs views risk as having either positive or negative outcomes.

APICS defines risk management as the process of identifying risk, analyzing exposures to risk, and how to best handle those exposures.  In supply chains, risk management is a complex end-to-end concern having risk resulting from increased dependence on critical resources, transport capability, globalization, and other considerations.

The Supply-Chain Council (SCC) defines supply chain risk management as the systematic identification, assessment, and quantification of potential supply chain disruptions with the objective to control exposure to risk or reduce its negative impact on supply chains performance.

Like PMI, the APICS risk management strategy seeks to mitigate, reduce, or eliminate risk. Risk managers must examine the chain to map the entire chain understanding interdependencies; identify failure points; create risk awareness in the chain; and devise contingency solutions for risk events.

Supply risk categories factors according to APICS include external, environmental, technical, and organizational as the same with PMI and the Global Association of Risk Professionals. The risk profile is influenced by the risk factors and the organizations tolerance for risk.

Risk Level = Probability of Occurrence x Magnitude of Loss

Technically, there is a tradeoff between risk and gain. In some cases, the risk is so low or unlikely that the organization accepts the risk. In other cases, the organization may value the risk and seek compensation in the event of positive risk.  Risk avoidance is often difficult but APICS defines it as eliminating risk or to protect objectives from risks impacts. Organizations tend to characterize themselves as either risk-tolerant (usually commoditized goods) or risk-adverse (usually goods that have a probability of lawsuits, death, or monetary loss).   The SCC points out the risk must have a term and a  perspective that defines scope. 

Risk prevention involves a risk response plan and planning. The plan is a document that is similar to the PMI's risk register. Planning is the process of developing the plan. Overall risk prevention involves assessing, balancing costs, contingency plans, and risk sharing.

Risk Management best practices are approved by the SCC to mitigated cost and disruptions. Proactive efforts could offer a competitive edge and support the SCOR model.  There are four basic areas:

1. Formal risk management  
2. Visibility and quantification of risk
3. Coordinated risk management
4. Supply chain designed for risk 

Managing and mitigating risk in the supply chain is critical to the chains success which bear direct responsibility for supply chain success in a risk-laden global network. 

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Change, Futures, and Supply Chain Strategy

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore Operations and Supply Chain  Strategy adding some additional support as well.

Change, Futures, and Supply Chain Strategy

Operations generally avoid following sales too closely which tends to throw the organization into volatile production swings. Classically, operations hangs just under the sales volatility and makes upward and downward adjustments based on long term trending.  With that said there are events that cause changes to strategy:

• Change in market conditions.
• Change in business direction.
• Anticipated changes in the market.

Market Condition Changes can emerge with stunning rapidity. Supply chains must adapt to a bursting bubble or long term trending with precision and accuracy. Failure to adequately identify and adjust can leave the supply chain with either massive overstock or austere shortages. Adapting may mean creating redundancy in manufacturing versus economies of scale or stronger command and control of the supply chain by external management to remove self-interest concerns in the chain. This was accomplished at the Heathrow Airport project as discussed in Project Complexity Perplexes Procurements. The project manager establish external control of the supply chain marginalizing the dominant supplier control. This increased collaboration and problem solving in the supply chain while reducing self interest and legal claims.  Supply Chain managers must avoid becoming too lean and balance customer service, flexibility, and cost.

Business Direction Changes result when companies approach the uncharted territory of new markets and products with little data or information available. Once in the new market or the product is out there the new information results in an overhaul of the supply chain or organization. A well designed supply chain can redirect goods and services to where the demand is emerging. Overstock and services in one area may be moved to areas where demand is higher preventing stock outs in one area and price reductions in another.  Whether the supply chain has centralized or decentralized management is a decision that must be considered. Nonetheless, flexibility and adaptability is at the heart of the supply chain design.

Anticipated Market Changes result when the market is volatile and advance forecasting efforts are undertaken. This is risky since all forecasts are wrong. The forecast error must be very narrow and the supply chain proactive. Innovation is the key to strategic flexibility and must occur in product, supply chain, and organizational designs.  Supply Chain qualities such as trust among partners and efficiencies can become liabilities. A lean and efficient supply chain can run until it starves itself for lack of a market.  Partners in the chain may place unwarranted trust in the nucleus firm and produce product until  the inventories are burgeoning or may follow the demand so tightly that the chain runs into the ground. 

If supply chains are to adjust to market changes in advance then they will need a different set of rules:

• Pursue efficiencies and improve chain velocities but not at the expense of flexibility.
• Develop multiple supply chains that are right for each product line.
• Monitor the consumer demand at the end of each chain in which the firm is participating.
• Monitor global trending
• Design for maximum supply chain flexibility

Competitive Priorities and Future Direction

Winning customers is a challenge and companies have different approaches.  The post on the Art of Profitability details the ways companies attempt to make money in markets. some of the profit models map to the APICS thought.  Some of the commonly used approaches according to APICS follow:

• Differentiate the product or service
• Niche design of product or service
• Low pricing of the product or service
• Responsiveness to demand

Differentiation begins with competitive analysis which is defined by APICs as an analysis of the competitors that includes strategies, capabilities, pricing, and costs. Once the analysis is completed differentiation may occur on quality, diversity, reliability, and features.  Typical supply chain strategy involves modular design and customization capabilities, marginal inventory to avoid obsolescence, design collaboration within the supply chain.

Niche marketing is the ability to service a closely held specialized segment of the market. The market is often a luxury, age or gender specific, or geographic segment of the market. The same product may be marketed differently to the different markets and the supply chains may vary or be identical.

Low price products or services are not compatible with niche or differentiated markets. This approach is used mostly with mass marketing and commoditized products and services. Supply chains under this approach seek to reduce cost throughout the entire chain. Under this model, suppliers may have to relocate, redesign the organization, change employment practices, and adopt lean practices. APICS asserts that low price strategy should not be confused with target cost which is designing a product to meet a specific cost objective. Target cost = the planned selling price - profit margins - (market + distribution costs) = the cost to manufacture.

Responsiveness is meeting delivery expectations of the consumer. Responsiveness applies to service and goods both. Fast food patrons will become impatient in line after a few minutes while fine dining patrons expect to waiting 30 minutes or longer. Supply chains handle responsiveness several ways. Safety stock is one method to avoid outages or wait times. Multiple warehouses that serve smaller regions reduce logistical times. Third party transportation services that stratified speed of delivery services.

Overall, supply chains serve many purposes in the business by balancing all the various elements in the chain, business, and operations.  More over the supply chain operates with a temporal quality of the moment with an eye on the future. Forecasting is a primary tool used in supply chains and the entire chain needs to focus on the downstream customer demand in order to avoid the bull whip effect.  Additionally, the products and services establish the approaches that affect the supply chain design supporting the product or service. Supply chain managers need to monitor everything all the time and act whenever necessary to keep the supply chain effective and moving. 

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Aligning Supply Chain and Corporate Strategies

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore Supply Chain and Corporate Strategy adding some additional support as well.

Aligning Supply Chain and Corporate Strategies

Regardless of the supply chain design success depends on the supply chain's alignment with the corporate strategy. The  supply chain is constructed with resources such as organizations, people, processes, and information that must be aligned to the strategies.  After alignment other essential factors of the chain become a focus such as infrastructure which gives the resources the power to act synergistically in order to achieve competitive objectives under the strategies.

Strategic Planning is the process by which customer value and financial value is achieve in the following areas:

• Organizational design
• Supply Chain processes
• Systems and Technology
• People
• Supply chain metrics

APICS has developed a decision making process that goes into aligning the corporate and supply chain strategies, Figure 1.

Figure 1: Aligning Corporate and Supply Chain Strategies. 
Source: APICS Supply Chain Fundamentals,  Module 1, p 1-78

Organizational design refers to the structural relationships in an organization between the elements. Design includes the nature and arrangement of elements to include communications, authority and responsibilities, financial management, and job descriptions.  An effective supply chain necessitates development of the organization through design in order to support the supply chain's alignment to corporate strategy. NOTE: In the leadership process post, I discuss organizational design as a function of the leadership process. 

According to APICS, there is a four stage process to organizational design.  The first stage focuses on decisions and matters related to supply and distribution on an ad hoc basis. The second stage is centered on functional lines within the business acting as stove pipes or silos of self interest. The third stage expands to cross functional teams that measure and improve business wide processes usually emerging from second stage continuous improvement efforts within functional areas. The fourth stage begins integrative operations forming supply partnerships or customer alliances.

In short, organizational design integrates all the elements and progresses from a highly functional organization to a process orientation.

Supply Chain processes have transitioned away from functional operational processes like buying, planning, etc... towards business excellence or world class operations that involve complex information exchanges and a network of relationships. Effective supply chain management means mastery of the interconnected processes.  NOTE: Complex information exchanges in the information operations realm are known as Information Exchange Requirements, IERs. IERs can be either static or dynamic.  Static IERs usually relate to stable metadata needs that rarely change. Dynamic IERs occur when the metadata needs change regularly which is more common in emergent conditions and when uncertainty is high. The task of supply chain or business analyst and systems analyst is to know what metadata is available and how to source the information in short order.

In summary, key supply chain processes are emplaced and function at a competitive velocity.

Systems and Technologies points to the information systems and software technologies that makes complex supply chain operations possible. Technologies such as barcodes, RFID tags, GPS, and global networks track goods in motion and exchange information critical to corporate and supply chain strategies. However, the systems and technologies are not without challenges that stem from poor system designs, incompatible protocols and languages, and arcane technologies still in use. Even character sets can pose huge obstacles to overcome. Perhaps the greatest challenge are humans who erect barriers and reject new technologies or technology as a whole. Managing the human aspect requires patience and training. After all, processes are designed and managed by human beings. The purpose of systems and technologies is to facilitate the supply chain information exchanges at world class competitive velocities.

Supply chain excellence is reliant upon sage implementation of systems and technologies that not only promote world class operations but also strategic alignment. In reality, the network is very real. The supply chain's infrastructure is what is really virtual as a set of cooperating entities.  NOTE: Many companies tend to develop model financial performance statements, pro forma, then seek to force fit operations and systems to that financial model. While they have some level of success at this approach, the operations and systems seem to suffer often with processes out-of-control and/or a hodge-podge of systems. Under these conditions the organizational focus transitions to constant trimming, cutting, and reduction of costs to force fit the financial models. There is often a rush to market that also leaves the operations and systems in disarray. A tale-tale sign of this kind of activity is the presence of expeditors which are often labeled tiger teams, firefighters, and project managers. Not all tiger teams and project managers are expeditors. However, a vast majority of the expeditors, if not all, are seemingly project managers today. 

APICS alludes to this combination of operations and systems in their training. They discuss bringing processes under control and aligning systems in support of the strategies. This is putting strategy-to-task. With the right designs and tools, an organization can move and adapt swiftly to emergent conditions or adjust efficiently to new financial models; without major organizational redesigns or disruptions to processes and operations that are being forced fit into financial models; without expeditor-PMs pulling together the disparate mess of hodge-podge systems and poor processes. I have highlighted an approach in my posts on adaptive organizations that leverages systems and operations in favor of emergent conditions and adapts quickly reducing organizational latencies. Operations Management Series Posts.

In conclusion, technology is sufficiently advanced to tie all the processes together into a collaborative and transparent supply chain based on common information and data.

People are the ones who effect a supply chain despite the lack of a supply chain office or clear supply chain management structure.  Supply chain management requires training and education in supply chain thinking vice functional thinking.  Supply chain duties tend to be collateral duties rather than primary duties as it is an application of thought rather than supply chain tasks.  Supply chain means leadership through out the organization and chain by having the right people, in the right positions, throughout the chain. Supply Chain managers act as diplomats, go-betweens, and inspirational leaders keeping the supply chain together and effective. Supply chain managers must be holistically oriented.

One of the challenges in supply chain talent development, especially in large organizations, are misaligned human resources practices and policies. Supply chain management and responsibility must begin with executive leadership who champion the discipline.

A supply chain professional must:

• View the supply chain as a continuous linked process. 
• Manage relationships among team members and between teams to coordinate different temperaments and visions
• Understand the corporate business model and its alignment with the supply chain
• Manage cost skillfully throughout the entire chain
• Identify and buy or develop technologies that share information with the chain in real time.

The supply chain management is a flow that has supply chain professionals deployed having end-to-end visibility and has a velocity or tempo of operations.

Supply Chain Metrics are the ratios, generally speaking, that baseline then indicate out-of-limits performance of the objectives. There are many ways of measuring performance and since the supply chain is a flow and has a velocity many of the metrics are temporally based. ie  items per unit of time. A checklist can also provide performance information such as a T1 line is installed since a T1 transmits so many bytes per second verses a frame relay that transmits at a lower level of performance.

In short, measures are based on a relevant standard and strengths in order to assess performance then amend weaknesses.

Overall, the supply chain and corporate strategies all conform to ethics, regulations, taxes, and laws. As well as licensing and security policies.

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Building Supply Chain Collaboration

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world-class contracting. The Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore Supply Chain collaboration adding some additional support as well.

Building Supply Chain Collaboration

Part of designing a supply chain is developing the relationships up and down the chain.  There is little hope of strategic alignment without well-developed collaboration. Partnerships depend on:

• Auditable information and connectivity
• Formal agreements on proper behavior as a matter of self-interest ie contracts
• Incentive-based activity such as aligning organizational goals with collaborative objectives
• Process-based activities that build trust based on constant communications and feedback that open up to broader trust over time
• Leadership that has the authority to enforce/embrace relationships
• Each organization has a focus on the entire supply chain
• Network-wide visibility/transparency monitoring for the bullwhip effect and its impacts.
• Sharing of knowledge and not mere data.
• Transparency in sharing benefits and burdens of the relationships
• The amount of value-added and commitment type by each potential partner

The Illusion of Transparency is a particularly dangerous phenomenon in relationships which causes one, the other, or both parties to assume the other party has more information than they actually do. This creates a circumstance of distrust and can be exploited for wrongful gain in negotiations. The benefits of collaboration include but are not limited to:

• Lower costs
• Improved quality
• Better customer service
• Reduced inventories
• Rapid project results 
• Reduced cycle and lead times
• More effective relationships
• Enhanced commitment to one another

Actions govern intent in building relationships and share information. Actions send the signals the undergird trust, enforcement agreements, stabilize operations, and match collaborative goals.  Division managers must place the interests of the whole above the division by making major changes in how they operate.  Those major changes are guided by a few overarching tasks that management must undertake;

1. Designate relationship goals and assemble a plan of action to achieve them. 
2. Define the roles of every party avoiding redundancy.  Sequential interdependence should be avoided in favor of reciprocal interdependence. The exchange of information and efforts is mutual and bidirectional for each task resulting in greater rewards. 
3. Create policies or methods for resolving conflicts. Avoiding stiff contract negotiations is desirable for most companies who opt for relationship dialogue which is not too informal but has some guidelines. The guidelines must be sensitive to cultural differences. 
4. Managers must remain involved following the design of the relationships as without constant attention the design will part apart. 

Barriers to Collaboration

The following constraints are predictable obstacles to achieving successful collaborations.

• Sub-optimization: This originates when supply chains are not interconnected and results in individual chains optimizing measures not common to the overall collaboration.
• Individual incentives that conflict with organizational goals: This is an outcome of incentives not aligned with the activities of the chain which can become counterproductive. For example, channel stuffing results from sales incentives that create too much demand which is the opposite of the bullwhip effect which creates unexpected inventory levels. 
• Working with competitors: Treat the competition warily and at an arm's length. Collaboration among competitors is often wrought with distrust and ulterior motives. 
• Bottlenecks caused by weak partners: Capability and capacity drive this factor.  The weakest or slowest link in the chain will limit performance. Managers must identify that link/partner and work to improve performance. This may mean wise investment in process and technology or seeking another partner who has the capability or capacity. 
• Technology Barriers: Incompatible systems decrease the sharing of data, knowledge, and communications.  Managers must identify the incompatibility seeking to improve performance. This may mean wise investment in process and technology or seeking another partner who has the capability or capacity. 
• Power-based relationships: Nucleus firms tend to leverage their power in a supply chain. This can result in inequitable profits/losses in the chain resulting in rebellion within the chain. This resistance can result is power shifts and retaliation throughout the chain. 
• Underestimated Benefits: Firms in the chain can incorrectly view the collaboration as a business process re-engineering missing or rejecting the overall value of collaboration.
• Culture Conflicts: Most often people and firms in the supply chain will view their way as the best way of rejecting out of hand the collaborative way. This is an outcome of a lack of information or information not in the supply chain. Managers must assure that alignment is being achieved through information sharing.  Many other cultural issues persist and may be difficult to overcome. 

Communication Levels and Intensity

Collaboration is almost wholly dependent on communications with various intensities of which there are four levels.

1. Transactional with Information sharing: Medium-term contracts with single sourcing of information.
2. Shared processes and partnerships: Longer-term contracts that share design knowledge across the network. 
3. Linked competitive visions and strategic alliance: This is a virtual entity that works out even the highest level of strategy collaboratively. Very long term relationships. 
4. Backward Integration (mergers and acquisitions):  This is the deepest level of trust but not without issues.  These mergers and acquisitions take a long time to meld cultures and processes. Often there is resistance and labor churn as an outcome. 

Once the level of communication is established, the collaborative intensity must be formed based on cost, quality, reliability, precision, and flexibility. These all must be balanced for each participant and are strongly influenced by four factors.

• Strategic importance: This is the primary sourcing consideration. There are two genres of these products or services; premium or commoditized. Premium goods are of high strategic importance, internalized or closely held, and cost more. Often there are multiple sources as a backup. Whereas, commoditized goods are widely available having low strategic importance.
• Complexity:  These are often large scale goods or services that are highly detailed requiring strategic alliances to ensure quality levels and timing of delivery. 
• Number of Suppliers: This affects the availability of goods and services. The fewer suppliers the greater the need for strategic alliances. 
• Uncertainty: Risk. The higher the risk the greater the need for building relationships to ensure delivery, quality, and pricing. In many markets, there is high volatility in pricing or availability. Environmental conditions can cause an entire crop to be lost or precision to be affected in the case of chip manufacturing. For example, an earthquake, flood, or volcano can bring all chip manufacturing to a halt.    

As the factors combine such as uncertainty and the number of suppliers, then the need to collaborate increases exponentially. Sometimes firms choose not to heed these factors and act at an arm's length to achieve their strategic goals and objectives. Firms make decisions about trade-offs. For example, quality checks may not yield the level of value they cost. Additionally, there may be some damage to reputation that is irrevocable and unmeasurable. As a result, companies take a swag at the issue and roll estimated cost into the pricing.

Overall, supply chain collaboration is more of an art than a science.  Supply chain managers must learn the art of balancing all the elements affecting the performance of the supply chain.  The challenge is founding the fact that the factors and elements are all dynamic and in constant flux.

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Supply Chain Strategy

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world-class contracting. The Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore Supply Chain Strategy adding some additional support as well.

Supply Chain Strategy

Adding strategy to anything suddenly increases the importance and sound grander than mere management. Strategic planning sounds considerably more sophisticated and powerful than mere planning. In the military, strategy alludes to the marshaling of resources in order to achieve an end state. One approach is effects-based operations to implementing strategy. If a corporate strategy is smartly conceived then implemented wisely, then strategy results in successful local, domestic, and global markets. 

Expeditionary warfare refers to autonomous organic units that operate globally and make use of supply chains to support operations. If the corporate strategy is similar to military strategy then the corporate supply chain becomes essential as a potent resource to success. Designing and implementing the supply chain correctly could be the edge to become more adaptive, flexible, agile, and deliver value against the competition. 

Strategy as an adjective is more exciting than a strategy as a noun. The strategic thinker stands ready to grab whatever circumstance emerges and exploit it for profit. Underperforming strategies will be dropped in a heartbeat for a higher-performing strategy. Strategic thinkers look into the future exploiting temporal elements of the market either seizing future opportunities or creating the opportunity. 

Corporate Strategy 

APICS defines strategy as the ‘How To...’ Strategy tells an organization how to function in its environment. Regardless of the strategy adopted, the supply chain must adapt and operate to further the strategic goals. Most supply chains include multiple independent companies with their own strategies and goals. This discussion is about the nucleus firm or master firm in the supply chain. All the strategies have to do two things: 

• Serve the customer. 
• Be Profitable for all participants in the supply chain. 

Supply strategy centers on delivering the 4P’s; The Right Product to the Right Place at the Right Price and Right Promotion. A supply chain is not about fast and cheap despite being one of the models. Instead, supply chains are about timing and place for the customer. Many stakeholders are involved in the process to include market researchers, design engineers, logisticians, and many others. The challenges increase as there are multiple customers in the supply chains as well who are both internal and external to the chain. All the strategies of the supply chain require constant attention, leadership, and according to APICS a little magic. 

Sustainability in the supply chain requires widespread cooperation internal and external to the chain achieving the "triple bottom line" as no one is an island.

Forecast Driven Strategy 

A long-standing challenge in supply chains is identifying demand which is even difficult for even the most stable demand. Demand works its way back to the raw resources used in making the product. Traditionally, forecasting is the method of determining future demand and making to stock. This approach is a push strategy having three meanings: 

• Production: The production of goods based on a schedule planned in advance. 
• Material Control: The issuing of materials according to a schedule or job order. 
• Distribution: Centralized warehouse replenishment decision making at manufacturing or supply office site based on forecasts. 

Everything in the system is pushed downstream based on forecasts and the resulting schedules. As each participant in the chain makes their forecasts, errors in the forecast become amplified. This amplification of variability or demand uncertainty is called the bullwhip effect. Forecasts are deemed to be 100% incorrect being either too conservative or too liberal. The greatest risk in a push strategy is overstocking goods resulting in high inventory carrying costs or losses due to price reductions to move the excess inventory. 

Demand-Driven Strategy 

Demand-driven approaches are 'make to order' and considered a pull strategy having three meanings similar to the push strategy. 

• Production: The production of goods based on demand or to replenish stock levels following use. 
• Material Control: The issuing of materials according to or based on user demand or signaling. 
• Distribution: Centralized warehouse replenishment decision making local to the warehouse or supply point. 

In a strict demand-driven supply chain there is no production schedule. Goods are produced based on demand signals. Upstream forecasting remains necessary in a demand-driven chain. The primary challenge in switching from a push to a pull strategy is reducing inventory without impacting downstream performance. The greatest risk is a stock out which is often spun by marketing as overwhelming demand due to products appeals to the end customer. Demand-driven enterprises require some major considerations: 

• Access to demand data actuals in the entire chain. 
• Trust and collaboration among the supply chain partners 
• Agility

The Multiple Chain Strategy

An organization can have more than one supply chain. In fact, the supply chain can be a complex web or network of relationships. The more complex the Bill of Materials the more complex the network or supply chain.  Suppliers can range from small highly specialized service firms to giant material suppliers upstream or giant retailers downstream to individuals. Downstream goods may be sold through multiple channels; e-commerce, printed catalog, commercial wholesalers, and retailers. Regardless of the complexity and structure of the supply chain, there are two characters; Functional and Innovative products. 

Functional products have low contributions to the margin and change very little having very long life cycles with stable demand. Forecasts are generally simple and have less than 10 percent error.  These goods have long lead times and typically are made to order. These products are predictable and low cost having the performance indicators:

• High average utilization rate in manufacturing
• Minimal inventory with high inventory turns
• Short lead times
• Supplies selected for cost and quality
• Maximum performance at a minimal cost

Innovative products have unpredictable demand, short life cycles, and a high contribution to margins in excess of 20 percent. They also have high stockout rates in excess of 10 percent and out of season markdowns above 10 percent. Forecast errors exceed 40 percent. Lead times are often low to meet market responsiveness.  Innovative products have indicators that promote responsiveness over physical efficiencies:

• Excess or significant buffer capacities or safety stock of both stock and finished goods
• Aggressive reduction in leads times
• Suppliers selected for speed, flexibility, and quality
• Modular design that postpones differentiation as long as possible

A product can have both functional and innovative solutions but the variations would have different supply chains as one size does not fit all. Information technology makes it possible to have multiple or dynamic chains accommodating the different information flows and products.

Competition with Supply Chains

The point of having a strategy is to compete in the marketplace on the terms of the market share being sought.  Competing supply chains involve the following situations:

1. Groups of Companies allied as partners in supply networks competing against other networks that are also allied.

2. Competition that is carried out between or among individual companies on the basis of the supply chain. 

3. Competition that is dominated by a channel master whose policies dominate the entire channel. 

Supply Chain Strategy can be complex with multiple chains and competition factors that could change quickly. Therefore, the supply chain must be flexible and responsive in design.  Seeking win-win scenarios may be a challenge based on the tempo of the supply chain and change.  Therefore, it is possible that suppliers, wholesalers, distributors, and others in the supply chain may need to revolve.  A channel master may need to be outside the chain rather than a dominant member in the chain. This is to facilitate cooperation. If a member inside the supply chain controls the chain then flexibility and costs controls can be thwarted or non-perform for the chain.  For example, in complex projects typically performed by governments or major corporations, the project manager may need to become the channel master setting the expectations.  I discussed this in the post Project Complexity Perplexes Procurement.

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.