Supply Chain Management and Strategy

Supply chain management is a very involved topic, and the selection of a supply chain strategy can significantly impact a company. The strategy varies depending on the type of products a company produces. For instance. a computer manufacturer and an oral hygiene product manufacturer would have two completely different strategies. The first step in selecting the right supply chain is determining the nature of the demand, and whether the product is primarily functional or innovative. For the oral hygiene product manufacturer, this is pretty clear; the products are primarily functional.

In this case, the demand is stable and predictable. Because these products simply serve a function, consumers tend to search for the best prices. therefore the profit margins are low and companies do not have the flexibility to charge what they would like.

With a set selling price, the oral hygiene manufacturer must look for methods within its own processes in order to preserve the already small profit margin.

I would recommend that the company selects an efficient supply chain strategy. The focus of this strategy is achieving the highest cost efficiency. Suppliers will be chosen based on low costs, and efforts will be geared toward establishing a physically efficient process. In order to achieve this, many companies create a finished goods schedule for the next month and then freeze that schedule. This way, there is no time or effort involved in adjusting the schedule. A good tool for improving the accuracy and efficiency of this process is Manufacturing Resource Planning software.

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Another strategy would be to follow Campbell’s strategy of continuous replenishment it would be very useful for the oral hygiene manufacturer to look into both of these possibilities. Determining the proper strategy for the computer manufacturer is not as straightforward.

The type of demand and the nature of the product may vary with each computer. Although in comparison to oral hygiene products, it would seem that computers would be classified as an innovative product, however, it has been proven that there are many models that follow a primarily functional role; in the sense that demand is actually very stable and predictable. In this case, the best strategy for the manufacturer is to identify which computers may specifically be innovative, and use a responsive supply chain strategy for those; while maintaining an efficient strategy for the rest. The reason behind this is that a responsive strategy is much more expensive than an efficient one If the computer does not generate high enough margins to cover this expense the manufacturer will not generate the maximum revenue possible.

The manufacturer must keep in mind that products with stable, predictable demands tend to generate smaller margins. They may also identify the computers as ‘functional’ if they have a product life cycle of more than two years, or have only 10 to 20 product variations. For the computers classified as innovative, suppliers will be selected based on speed and flexibility. With a responsive strategy, the manufacturer must read early sales and other market signals and react quickly. The company must have suppliers that they can trust to deliver the necessary materials with shorter notice. Additionally, the manufacturer must carefully analyze where to position themselves in the supply chain to hedge against uncertain demand. If supply uncertainty happens to be high as well, then the company should follow an agile supply chain strategy.

This is the case for many highrend computers although demand and supply uncertainty may be inevitable, it is important that part of the company’s supply chain strategies, involves managing this uncertainty. Some methods used to do this include, research; cutting lead time; increasing flexibility, and using buffers to hedge against the remaining uncertainty. It is very important to manage uncertainty because, with innovative products, there is a high stock-out cost due to the high margins they produce. Also, there is a significant cost to overstocking. due to the fact that these products must then be marked down in order to sell them which decreases the margins they are capable of producing.