When a new business is launched, it’s critical to plan and build a supply chain that can not only meet the immediate customer requirements but can flex to respond to future demand and market conditions.

Plan your supply chain before launching your business 

Before launching your business, map out your supply chain and go beyond determining where you will get your supplies from and how you get them to your customers. Consider lead times and alternate supply strategies if necessary.

Evaluate risks that your supplier’s supplier might have, or whether your goods will be subject to cost, environmental, regulatory, infrastructure and geopolitical factors. Determine if warehouse space is needed. Consider the number of items needed to meet demand and whether an internal facility can be used for storage. Location matters and may impact cost, accessibility and speed to market.

Do your research

Suppliers

Identify potential suppliers; consider their location and how it will impact the way you receive orders, and inquire about their processes, capabilities and financial health. Find a supplier that aligns with your values and not just your price point.

Customers

Get to know your customer base so you can manage expectations for shipping costs and delivery times. This will help you determine which delivery method will work best for your business — slower but more cost effective, or quicker but higher cost.

Software

The beauty of a new venture means you collect important data from the very beginning. Finding software that can help you track demand, inventory levels, lead times, price and costs will provide better forecasting (and cost savings!) in the future. Linking purchase orders to finance systems will increase order to pay efficiencies. Capturing real time order and shipment status will improve customer service.

Sourcing and contracts

Let your suppliers and shippers know your needs ahead of time to avoid questions, delays or inaccurate pricing. This lays the foundation for a strong relationship. Pick the best supplier(s) for your organization, but also consider contingent solutions. Share contractual terms and conditions in your request for proposal to streamline contract negotiations. Protect your company’s strategies and data with confidentiality agreements.

Processes and people

Once you’ve determined which supplier and logistical links to include in your supply chain, put processes in place and hire supply chain professionals to work with suppliers, order materials and supplies and forecast customer requirements. Organize to allow for category and product expertise to develop. This function should also manage risk mitigation for suppliers and goods and services critical for the business.

Tracking and measurement

Now that your supply chain is up and running, identify critical metrics and track key process elements. Analyze how long it takes to receive materials, ship to customers, turn over inventory, find supplier performance defects, etc. Use data to identify root causes, fine-tune processes, eliminate redundancies and improve relationships.

Evaluate and re-evaluate

Knowing how external and internal factors impact your supply chain will help you make efficient and effective improvements. Be aware of what risks could affect your organization and suppliers; develop mitigation plans for those that are most likely to result in significant impact. Listen to your supply chain team and encourage innovation from suppliers for the next great idea.

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Planning any supply chain should start with knowledge of the company’s business plan and objectives. These business objectives must be refined to consider external and competitive factors. In order to do this successfully, the initial phase of planning a supply chain should include a review of each of the external environments (foreign markets) within which the company is operating or considering operating.

This includes the following factors:

• The economic environment
• Current regulations in the market
• Technological developments
• Cultural, demographic and infrastructural issues
• Competing organizations in the international marketplace

These factors can vary widely between the different foreign markets that companies might be operating within, and it is essential that all potential issues and conflicts are identified. A very effective method of reviewing and evaluating the impact of external environments is to perform a PEST analysis.

PEST is an acronym for political, economic, social and technological factors of the external environment. These factors are usually those beyond the control of the company, and might be threats to company operations.

Political: Political stability, risk of military invasion, trade regulations and tariffs, preferential treatment given to trading partners, wage legislation, industrial safety regulations and product labelling requirements.

Economic: Form of economic system in international markets, exchange rates and economic stability, labour costs, inflation rate, unemployment rate, inflation rate and interest rates.

Social: Demographics, class structure, education levels, cultural issues such as gender issues and leisure interests.

Technological: Technological developments, rate of technological diffusion and impact of common technologies on costs.

The PEST factors that are identified can be further classified as opportunities or risks (threats) by conducting a SWOT analysis. A SWOT analysis divides factors into strengths, weaknesses, opportunities and threats. In a SWOT analysis, strengths and weaknesses are often internal factors, while opportunities and threats are external factors.

By reviewing the external and internal factors facing it, a company can review its strategic objectives to take its product or service offerings and the position of its competitors into account. It can also identify potential supply chain markets that might pose a risk to the company’s business objectives and those that pose opportunities for productivity enhancement. By reviewing and refining its strategic business objectives in response to its findings, the company will be better able to map its supply chain strategy.

Don’t forget to review your product’s characteristics

A major consideration that companies sometimes miss in the early stages of planning a supply chain strategy is their product or service offering.

The characteristics of a product or service can have major and unforeseen impacts on the required structure of a supply chain, and they should be identified at the start of the planning process.

There are four main categories of product characteristic that have an impact on supply chain planning:

• Volume to weight ratio
• Value
• Uniqueness of the product
• Level of risk or danger associated with the product

The volume and weight of a product have a large influence on supply chain costs.

Products that have a high volume in relation to their weight, such as tissue products, use up a lot of transportation and warehouse space. They are usually costly to transport and store because most transport and warehouse companies measure costs on a volume basis.

The value of a product is also very important. When companies must transport highvalue products over long distances, they are more capable of recouping the transport costs in sales. If a company is distributing low-value products, it is usually essential to plan for an inexpensive distribution system.

The uniqueness of a product will also affect the choice of distribution system and inventory storage locations. When customers cannot obtain a company’s product but can readily substitute it for a competing product, it is essential to design the distribution system to keep inventory levels high or to replenish stocks rapidly.

Unfortunately, both of these solutions involve substantial costs, through either having to pay for storing high stock levels or paying for more advanced transportation. The level of risk associated with distributing a product also affects the supply chain design.

For some products, such as hazardous chemicals, legal obligations to minimize risks associated with transportation mean that a special distribution system must be used. Dangerous goods might require special packaging or might have limits applied to how much can be transported at any one time. They might also need to be isolated from other products during transportation and storage.

Some high-value goods also carry the risk of attempted theft, which can make additional security measures necessary. Even fragile and perishable products have considerable risks associated with their transportation and storage; fragile products, such as glass, must be packaged specially, and perishable goods, such as food products, require refrigerated storage. High-value products require additional security.

It’s equally important to review your service’s characteristics

Providing services through the use of a global supply chain network requires that companies take a consistent approach across all international markets. Many service providers are now outsourcing aspects of their service to companies in lower-cost regions of the world, such as India. Factors that companies must take into account when planning a global supply chain network for services include:

Level of interaction required: A global supply chain requires that the different component organizations be able to communicate effectively and regularly. Many supply chain functions are now conducted and monitored using shared IT systems or using the Internet. In some markets, the required level of interaction and monitoring might not be available.

The need for customization: Different regions of the world have different technological, cultural and social conditions. If a company is considering providing a service to an international market, it must determine which markets will require the least expenditure for customization.

Quality: Developing partnerships or establishing contracts with overseas service providers can be a very cost-effective strategy for companies. However, a company must ensure that it establishes clear guidelines for consistent levels of quality for the service provided by international partners.

Customer service: One of the major challenges with global service provision is understanding the customer. Many companies address this challenge by establishing a first line of service that speaks the language in an international market and understands the local customs. This might involve an investment in hiring and training personnel in various international markets or setting up a facility in a foreign country. Companies also need to consider how they will provide rapid customer service support.

Operational strategy

A major component of planning a supply chain strategy depends on a company’s operational strategy.

A key aspect of a company’s operational strategy is whether it will make a product, purchase a product to sell on to customers or supply a service.

With a global supply chain strategy, decisions must also be made as to where and when these actions will take place.

For example, a company can choose to make a product in the following ways:

Make to stock: In this production method, companies manufacture a product in anticipation of customer orders.

Make to order: In this production method, companies only manufacture a product when they have received a firm order from a customer. Companies can pass orders on to a partnering manufacturer in a foreign market or a manufacturer in a domestic market, or produce the goods at a company manufacturing location.

Configure to order: In this production method, companies partially manufacture the product and complete it after a firm customer order is received.

Engineer to order: In this production method, companies manufacture a product to unique specifications provided by a customer.

In the make-to-stock category, a company’s global supply chain strategy might involve them producing the product at a company-owned manufacturing site, contracting a domestic manufacturing company to produce goods or contracting manufacturers in one or more foreign countries. Companies could also use a combination of these strategies, perhaps when domestic manufacturing cannot keep up with demand. The strategy chosen will depend on many factors, including:

• manufacturing costs;
• quality issues;
• delivery timeframes;
• transportation costs;
• availability of suppliers and manufacturers;
• inventory and warehousing costs and issues;
• foreign market conditions; and
• import and export regulations.

The firm will also need to decide whether to manufacture the product domestically or to make the product in a foreign market to serve foreign customers directly. If the firm decides to manufacture the product in another country, investment abroad may be required. There are a number of options available when a company decides to pursue a foreign investment. These include:

• establishing a subsidiary in the foreign market;
• establishing a joint venture with a foreign firm; or
• establishing a partnership with a foreign firm.

Prepare to take on the competition

As well as a corporate and business strategy, a company needs to define its competitive strategy for planning the supply chain. Key elements in competitive strategy include the following:

• The extent of the company’s globalization
• The type of competitive positioning the company has adopted
• The degree to which the supply chain is an integrated one

Companies often adopt a competitive strategy of becoming a service leader in an industry (offering a number of key customer service elements to distinguish it) or becoming a cost leader (offering a product or service at the lowest possible price). Occasionally, a company will adopt both these strategies.

Competitive strategy has a major impact on a company’s supply chain strategy and in the way the organization is structured. Designing a supply chain for a company that aims to be a service leader might involve implementing strategies, such as providing online tracking of shipments to customers, or by selecting distribution sites very close to key customer locations. Customers also might be able to choose their preferred delivery method and shop online. For a company aiming to be a cost leader, the supply chain might include features such as standardized production processes and integrated manufacturing schedules.

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Customer value is the measure of a company’s contribution to its customer based on the company’s entire range of products, services offered and intangibles. Effective supply chain management aims to provide optimal customer service for minimal cost. However, companies cannot fulfill customer needs if they do not have a clear understanding of customer requirements.

The most successful international companies are those that know how to assess customer needs effectively and apply the findings to their strategies for supply chain management. They must ensure that their offerings are adapted to suit local tastes and preferences and must have their products available when customers want them. Companies must also offer a price for their goods or services that is both competitive and profitable.

Before mapping out global supply chain management strategies, companies need to have a thorough understanding of customer requirements in all targeted international markets.

This information will be critical in mapping out networks and supply chain strategies.

Selecting where to make profitable improvements

Providing optimal customer service is different than providing a maximum level of service. Sometimes the cost of providing additional services is prohibitive and the competitive environment does not require it. There is no need to plan a supply chain that will result in a faster delivery time if it does not result in happier customers or an increase in sales, profit and market share.

Although satisfying clients’ needs is a primary objective of the global supply chain management process, companies must ensure that their operations are viable and are conducted in a manner that does not exceed their capabilities.

For example, companies must evaluate their distribution options based on:

• the size of the target market for a product; and
• the service requirements of potential customers.

Required levels of customer service are closely linked with distribution options. For example, if customers expect a product to be delivered in twelve weeks and the supplier’s lead time is five weeks, the company can be confident that there is no need to maintain a distribution facility close to the customer base.

However, if customers seem to demand a product on an irregular basis, and they can readily obtain a competitor’s product, companies will have to decide how they can adapt their supply chain to accommodate this need. For example, they might have to consider opening a local distribution facility, using a local distributor or shipping the product by air freight to the customers. Which choice they make will depend on costs and the level of customer satisfaction afforded by each choice.

Providing optimal service to global markets

It is usually more complex for a company to provide high levels of service to international clients than to domestic clients. This is often due to factors such as the distances to reach foreign markets, the variety of transportation modes that might have to be used, multiple transfers and handling procedures, and regulations involved with transporting goods or service personnel across international borders.

Companies selling their products in international markets must develop strategies that provide the same high level of customer service offered in domestic markets. This might require opening and operating facilities in foreign markets.

The facilities should then be staffed with personnel that are familiar with customer needs and with the degree of customer service required in those markets. An adequate level of inventory and a number of replacement or repair parts would also need to be maintained at the facility.

In the modern global marketplace, companies that trade internationally must manage their supply chain in order to keep costs to a minimum and ensure they can meet the challenges associated with international trade and enhanced competition. Global supply chain management treats the entire supply chain as an integrated whole and works to integrate processes efficiently.

In this way, companies can ensure optimum customer service while cutting costs and avoiding problems associated with slow delivery or overproduction of inventory.

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1. Flexibility

Agility has always been important in supply chains. This trait has to trickle down to next generation supply chains, as they should be able to react to sudden changing circumstances in the operating environment. Any kind of unpredictable and devastating incident, such as a natural disaster, medical epidemic, political or economic instability, has the potential to overthrow supply chains.

However, when they are flexible, have a strong risk assessment program, intelligent decision support systems and are demand driven, next gen supply chains can thrive in even the most challenging and competitive environments.

2. Speed of Delivery

Speed is of the essence of the next generation of supply chains. It will be more and more critical for supply chains to be able to respond to demands as quickly as they can, in order to ensure quick delivery for retailers and other key members of the supply chain.

Companies will want to have a stock of products as soon as they are needed and they will also want to move more stock in a shorter period of time.

3. Global Reach

Long gone are the days when companies could locally limit the delivery of their products. Thanks to the Internet, you can expand supply chains on a global scale. At the same time, it is possible for global supply chains to react at a local level.

Next gen supply chains must know how to create global hubs that are not only effective, but can also supply products locally without needing to transport them across the world for just a few orders.

4. Optimized Inventory

The trick with efficient inventory management is that you should have just the right amount of stock in the warehouse. Having too much will result in expired and unsold stock, while too little will almost always assure that you don’t have enough stock when it is urgently needed.

This calls for optimizing inventory so that your supply can always meet the demand. The quantity of stock must be dictated by the current consumer behavior, buying trends, and local demand for the product.

One way you can optimize inventory in any supply chain is by incorporating various tools, such as industrial weighing scales and truck scales. Innovative shipping techniques must also be employed to speed up the delivery process.

5. Go Green and Sustainable

Try to have a green supply chain which does not impact the environment negatively. Ensure that you don’t put any kind of pressure on the environment during any stage of the supply chain.

At the same time, make sure that the supply chain is sustainable as well. Practices like utilizing raw materials in a sustainable manner, making eco-friendly packaging and using alternative energy sources to run the manufacturing plant and supply chain will go a long way in ensuring that next gen supply chains are sustainable.

6. Proactive Strategy

Supply chains should be proactive in case of disruption, sudden changes or potential disasters. Utilizing data modeling and research, you can gain insights and knowledge into how you should be prepared for such events.

By being proactive, you can ensure that you offer great services at all times. This also helps to ensure you don’t get tangled with excuses that hinder your ability to deliver when needed.

7. Innovativeness

Every supply chain should embrace innovation and technology. By incorporating the latest technology in your supply chains, you can ensure that you stay competitive and offer excellent services at all stages. Modifications can be small or large, but you must constantly try to incorporate innovative approaches across various functions and supply chain processes.

Supply chains must not remain stagnant. When you don’t employ strategies to transform the supply chains of the next generation, it is equivalent to losing revenue and business.

There must be an urgency to give your supply chain management a facelift so that it can unequivocally strive in the competitive business world.

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While no definitive guide can be provided for all business circumstances, the following framework is provided as an example to assist those who are planning to develop a written supply chain plan:

• Cover page
• Executive summary
• Supply chain maps
• Supply chain strategies
• Human resources required for implementation of the strategy

Developing a supply chain strategy will require human resources for planning and implementation tasks. This section of the plan should detail how this effort should be staffed. The availability of competent and trained staff within a company or the possibility of hiring qualified professionals is essential for the implementation effort.

• Sourcing
• Production
• Materials management and handling
• Product modifications (if required)
• Inventory management
• Storage and warehouse space
• Order processing
• Shipping and transportation
• Delivery
• Quality control
• After-sales service and customer satisfaction
• Risk management
• External support partners

This section should provide details of any required external support for this effort from partners such as freight forwarders and customs brokers.

• Financial requirements

The financial goals of a company, and how a company hopes to achieve these goals, will influence all aspects of the supply chain strategy.

For example, finance must provide the capital to carry the inventory.

High-profitability target markets may dictate using low-cost transportation, while for other target markets, profits may be enhanced using high-cost transportation and by introducing premium pricing.

However, even if an exporter can sell profitably and in viable markets, some external financial support may be essential to support the company’s overall business operations and, in particular, its investments in logistics, distribution, marketing and promotion. These details should be included here.

• Implementation schedule

The plan should include an implementation schedule that highlights key challenges, milestones for review and specific objectives tied to forecast dates.

Turn words into actions by implementing your plan

Developing and implementing an integrated supply chain system is bound to be a challenge. There will be objections raised by members of the supply chain and a natural resistance to change.

It is important to expect resistance and to be prepared to deal with it, while considering the needs and preoccupations of all concerned.

Having developed a supply chain strategy, the planning team must now determine how the strategy will be implemented. The following steps should be taken:

• To implement a main strategy or related strategies (sub-strategies), programs must be developed. Programs are concrete actions that normally require human and capital resources.
• For each program, a company must determine who will be responsible for its implementation, timelines and capital requirements. This information will help a company develop its yearly budget.
• Following the identification of the strategies and the definition of programs, the planning team must develop the necessary action plan to implement the strategies. The planning team will decide on a number of projects. The team will need to prioritize these projects, identify an individual and establish a timeframe for the implementation and completion of the project.
• The company must define the performance indicators that will mark success for each function or area of the supply chain system. Indicators of requisite service levels will provide an excellent method for ranking service and product performance.

Sometimes making big changes takes time

Putting change into effect must be managed carefully. This means making changes in small, manageable amounts that show clear results. It is important to generate benefits quickly to maintain momentum, to motivate supply chain members and to establish credibility within the participating organizations.

To ensure that changes are completed successfully, a company should:

• Have all parties involved in the supply chain define the benefits and disadvantages of the current supply chain and determine exactly how change will improve it. All participants in the supply chain functions should be kept informed of, and motivated by, the expected benefits. The support and vision of senior management is paramount.
• Review the company’s and the customers’ requirements. A cost model of the completed supply chain should be generated to help determine the overall cost for each part of the chain. Other parties should be consulted for their input on opportunities, risks and costs.
• Identify any limitations in providing information, products and resources, so that adjustments can be made. Hold regular meetings to review opportunities and implementation issues such as information systems integration and compatibility.
• Forge new partnerships and conclude agreements.
• Schedule follow-up measures.

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Organizations worldwide rely on their customers, so responding quickly and efficiently to the needs of those customers is the only way to continue growing and increasing profitability.

Without an efficient supply chain strategy in place, customers cannot be serviced properly and maximum profits cannot be achieved.

Putting a global supply chain strategy into place

Many global companies should operate by focusing on their core competencies. I formerly worked in the auto parts manufacturing industry for a company that focused on the production and engineering of brake parts and related accessories. Focusing on this core business was not only key for us as a supplier, but also benefited our clients. We were able to provide an array of products, and our customers were able to complete their procurement from a single source. This provided us an advantage over our competitors.

One way to establish a strategy to improve the way a company operates globally is by transforming the fundamental internal and external players in their supply chain.

Your internal players are the departments that are tightly linked to the logistics of your organization and your sales department, such as purchasing and procurement, production, quality and operations. External players include your clients, but also the suppliers of raw materials, transportation services and any other player in between your company and your end clients.

Altering process workflows of your internal and external players as a strategy can take a toll on a company, so it is important to implement these changes gradually to maximize their potential and avoid any delays in the global supply to customers.

Transformative strategies can be implemented by having a detailed and well-defined plan. It is important to prioritize activities and resources, as well as hiring and developing a strong supply chain team.

Why transform my supply chain?

Companies reformulate and transform their supply chain strategies to reinvent themselves, or to address a specific change in the industry for which the organization is unprepared.

During one of my international assignments, I organized a team of employees that was involved in the different aspects of the organization’s supply chain to introduce a new strategy that helped streamline many of the operations within the different departments. As this was happening in the Mexico facility, a team in Canada was also integrating these changes to better manage the processes across global locations.

The results of the project included the visibility of in-transit inventory, accountability of shippers and receivers, as well as the tracing of shipments from within the system.

Outside factors that can affect your supply chain

Nowadays, when companies commit to a major transformation, several different issues can affect their supply chain strategy, such as globalization, target markets, technology innovation and manufacturing processes.

It’s important to understand that each customer is different and a supply chain can’t always be defined in the same way.

One way to put this into perspective is to think of an international trade transaction between an American supplier shipping finished goods to Walmart Canada and Walmart China. These are two delivery destinations, even though they are the same client.

It is important to understand that making these changes doesn’t have to create a temporary slow-down in business activity.

Many international businesses implement new strategies while continuing to service their customers.

Incorporating new ideas or technologies, such as updating to a more robust WMS (warehouse management system) or implementing a new ERP (enterprise resource planning system) could potentially complicate a supply chain in the short term, but maintaining an agile environment and quickly responding to customers’ needs can lessen the impact overall.

Embarking on such changes enables companies to become pioneers in their industries and leading suppliers in their field, making their organization a front-runner when it comes to innovation in their supply chains.

Sometimes less is more when it comes to supply chain efficiency

One of the most important changes implemented to streamline the company I previously worked for was the reduction of freight forwarding service providers.

Looking at the different trade lanes, customers and suppliers, as well as our different distribution centres, the team was able to link and join routes that saved the organization time, and reduced the corporate freight bill.

Additionally, the freight forwarders that were chosen had to provide tools that helped improve customer service. Such tools included truck tracing software, and GPS accessibility via the web, which customer service representatives used to follow shipments during transit.

An effective development of supply chain strategy must answer a question: How will this new supply chain strategy benefit our processes and our customers’ experience once implemented?

Before answering this question, let’s review from the FITTskills Global Supply Chain Management textbook.

Supply Chain Strategy Development

Although methods for planning a supply chain strategy are not written in stone, there are three levels of analysis that should be considered when developing such strategies.

Level 1: Refine and confirm the business objectives that the supply chain must support. In order to plan for these objectives, it is important to consider:

• The economic environment
• Current regulations in the market
• Technological developments
• Cultural, demographic and infrastructural issues
• Competing organizations in the international marketplace

One of the best methods to address these factors is to perform a PEST analysis. PEST is an acronym for political, economic, social and technological factors of the external environment.

These issues are categorized as external factors beyond the control of the company, and might be pressures to the organization operations. To exemplify think how your supply chain strategy would be if you were to organize your international business with a politically unstable country.

Consider what type of supply chain would you have to implement when dealing with an area where there is a war going on. Performing a PEST analysis will one of the ways to come up with a strategy that can properly fit with your operation.

Level 2: Revision of current supply chain processes and assessments of how they match up to business requirements. In this level it is important to develop and evaluate the basic, high-level options for the supply chain implementation.

Organizations should scrutinize their supply chain and develop a high-level plan of how it operates.

The following are important areas to consider when preparing the plan:

• Network
• Processes
• Information systems
• Organization
• Risk management

Level 3: Include operational details to the basic supply chain design.

This is the last level and the most advanced in the planning and operational cycle. These details should include specific business practices and metrics such as lead times.

Many companies utilize the SCOR categories, which include source, make, deliver and return. These are important categories that will help identify all critical features of a supply chain. How will this new supply chain strategy benefit your processes and your customer experience once implemented?

Always take time to review your supply chain strategy

Although I won’t be able to answer specifically for each company, since there are many different strategies and each supply chain is unique, it is important that your team comes back to this question.

Ideally, come back to the above question each time a new customer is about to become a client. It’s important that your organization answers this question, and makes sure that the strategy implemented will work well for the company and its clients.

In today’s global market place, being aggressively competitive is key, and businesses with an international supply chain must improve their processes and efficiencies in order to maintain their market share and profits.

An efficient and highly strategic global supply chain is a major contributor to a business’ profitability, so implementing a supply chain transformation that will improve efficiency can set an organization apart from its industry competitors.

How do you make sure your company’s supply chain is working efficiently for you and your customers? Share your own experience!

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