What to Consider When Structuring Your Supply Chain
Nick Ostdick - March 16, 2017
We’ve discussed in great deal on this blog the elements that comprise effective supply chain management and how automotive manufacturers can leverage technology and strategy for lean management of their supply stream across the entire value chain. But what hasn’t discussed in much detail is how manufacturers starting from square one can best structure their supply networks and the decisions and considerations involved in such an enterprise.
The modern automotive supply stream is a variant-rich network of players with inherent risks and volatilities. However, the right supply chain architecture can provide a significant for value proposition for companies in cutting through the complexities of global supply and manufacturing and reducing the risk involved with doing business on such a grand stage. While technological advancements such as Industry 4.0, The Internet of Things, postmodern ERP, and advanced analytics can streamline supply chain management, the right structure for a company’s goal, outcomes, and objectives is a crucial first step in engineering supply efficiency and productivity.
Simply put: Without the capability to use the tools, the tools themselves don’t really matter.
With this in mind, let’s examine what to consider when structuring your supply chain and how these decisions can have a significant impact on how companies administer and oversee their global supply networks.
Why the right supply chain structure is important
While it may seem elementary, a fundamental understanding why the right supply chain structure is important for your company is key in understanding the decisions and considerations with choosing the appropriate architecture. Yet, despite advances in supply chain theory and strategy, many supply chain managers still do not pay enough attention to the connections between core drivers across the value chain in conjunction with each company’s unique value propositions. As a result, companies often experience poor alignment between sales and business goals and the reality of managing numerous planned production programs across multiple facilities.
To better understand what is meant by supply chain structure or architecture, let’s briefly examine three examples of common supply chain landscapes:
The efficient supply chain: Best suited for industries with intense competition or crowded fields, the efficient supply chain model is often driven by production programs based on sales forecasts and expectations relative to the length of the production cycle. In this model, managers should focus on end-to-end (E2E) efficiency and enhanced levels of forecasting in order to ensure consistent order fulfillment and delivery.
The agile supply chain: The agile supply chain is most effective with companies or industries that manufacture products under very specific parameters or criteria for a wide variety of customers. This is most typically seen in industries where demand can be hard to predict and there is the potential for much uncertainty across the value chain. As a result, the main driver of this model is agility — the ability to meet variant-rich demand with shorter than usual lead times.
The flexible supply chain: Usually defined as a supply chain model best suited for companies that must meet unexpected or varying production quotas with high demand peaks and long periods of reduced workloads, the flexible supply chain model hinges on adaptability and the capacity to retool internal processes to meet specific customer needs or solve unique customer problems.
While these are just a handful of examples of supply chain models, it’s easy to see the importance of understanding which model is best suited for the needs of a specific industry. Given the unpredictable nature of the automotive supply stream, automotive manufacturers and suppliers have often deployed hybrid models in order to leverage the most effective practices for lean manufacturing.
4 elements to consider when deploying a supply structure
Now that we understand more clearly a few examples of supply chain models, we can briefly examine the questions and considerations supply chain managers must address when evaluating which supply model best fits their needs. Remember: Supply chain efficiency is all about visibility and transparency, and managers who strive for the best in these two areas are likely to see their supply streams operate as optimally as possible. To achieve this, supply chain managers must consider:
Industry framework: Referring to the interactions between manufacturers, suppliers, customers, and even technological developments, the concept of industry framework is driven by factors that impact supply design. Some of these factors include: Demand variation, which influences production efficiency and cost; product lifecycles, which have become increasingly shorter with technological advances, thus forcing manufacturers to increase production timelines; and market mediation costs, which stem from the imbalance of supply and demand and.
Unique value proposition: This comes from an in-depth understanding of a company’s goal and attributes in creating and administering its supply chain. Essentially, planners and managers have to understand what makes their company’s attributes and assets unique and how they can leverage these assets as a competitive advantage for growth and profitability. This may sound simple, but many companies in today’s automotive supply network lack a fundamental understanding of what makes their products, services, processes, and goals unique and specific to the landscape in which they operate
Managerial focus and internal processes: Simply put, what is the link between a company’s industry positioning and its supply chain process or structure? What are the best practices for decision-making and which parties, departments, or entities in the supply stream are responsible for fostering these decisions? The focus here is on the connection between planning and execution across the value chain and promoting the company’s unique value proposition both internally and to partners or customers. Once a managerial focus has been established and adopted, companies can then use this focus to define and implement the best internal processes for their managerial strategy. This is where technology such as Industry 4.0, The Internet of Things, and other automation platforms become increasingly valuable as companies look to streamline their internal processes and enhance certain operational practices based on the structure of their supply chain.
As we said at the beginning of this entry: Without an understanding of how to use the tools, the tools themselves don’t matter. In today’s global, interconnected automotive supply chain, understanding the structure of your supply network is much like understanding how to use the tools. Without this knowledge, companies will simply be unable to realize their business and production goals and create a sustainable model for productivity and profitability in both the short and long-term.