A strategy compass for companies

Research by McKinsey in 2011 revealed that just 35 percent of companies have a successful strategy which enables them to beat the competition. And only 20 percent of companies explicitly interconnect their strategy, product portfolio and the resources required, i.e. supply chain management. Supply Chain Media has developed a compass that visualises the correct links between company strategy and supply chain design.

By Martijn Lofvers

A healthy company strategy always starts with customer needs – be they explicit or implicit ones. Those needs translate into a broad spectrum of customer buying behaviour. Whereas one customer makes price-driven purchasing decisions, another is motivated by convenience. A successful company has clearly formulated its mission or driving force – its raison d’être and how it wants to add value for customers.

According to well-known academics Michael Treacy and Fred Wiersema, the mission can be distilled into one of just three business strategies: Product Leadership (best product), Operational Excellence (best overall costs) or Customer Intimacy (best total solution). The relevant strategy means that a company chooses innovation, efficiency or flexibility (respectively), while at the same time maintaining an acceptable minimum standard for the other two aspects. This strategy can differ per product group (category), customer segment or productmarket combination, especially in the case of large companies. Each of these three strategies has its own ‘order qualifiers’ (in order to be competitive) and ‘order winners’ (in order to secure the business). For example, a low price is decisive in the case of Operational Excellence, product quality in the case of Product Leadership and service in the case of Customer Intimacy.

Not ‘one size fits all’

A study by PwC in 2013 revealed that over 85 percent of leading companies configure their supply chain in line with various customer segments. In other words, ‘one supply chain does not fit all’. In practice, there are six different types of supply chains. These types can only be identified when a product is kept in stock or manufactured specifically to order for a customer, and also depending on which company department (R&D, sales, service, production, purchasing & logistics or marketing) is dominant.

A groundbreaking new product or group of products often fits in the Product Leadership strategy. But a product at the end of its life cycle has become a commodity and the Operational Excellence strategy, based on low costs, is the most apt. The type of supply chain to be used is also largely determined by the volatility of customer demand and the availability of raw materials and components.

The decision for a supply chain type affects the company structure in terms of the degree of (de) centralisation and employee autonomy. Furthermore, each type of supply chain should have its own processes and systems. Last but not least, the key performance indicators (KPIs) should be aligned with the business strategy companywide to ensure the desired employee behaviour.

Download: Strategy Compass