Supply Chain - How to determine your supply chain strategy

Many businesses are managed or run on the primary thought of getting the sales and deliver the orders and one wonder is this all?

Managing a grocery shop supply chain or managing a small cafe  supply chain one may thought it is easy because the key element of running these businesses are:-

a) stock the shop with goods which people will want to buy from a grocery shop, for example a packet of salt or a can of milk

OR

b) for a cafe, you just need to purchase your coffee beans and tea or beers and get a fairly good cook or the owner cook can cook themselves provided he or she purchase all the ingredients as per the menu listed in the menu displayed on the front of the cafe.

Easy right?

Well, not so i guess.

The owner of the grocery shop has to decided how much sales he can do in a day or in a week or month and how much he need to stock up, right? Well his or her job could be easier because sundry items will have longer shelf life and he will purchase enough quantity to stock up based on how much the business venture willing to fork up as working capital. For the cafe, it is very similar one may think, but he will have also have to come up with the strategy what food he will like to sell to his potential customers or which foods or drinks type he will offer and most of all, the owner may also have to think about how long he can keep his vegetable or meat in the freezer and how many plates of food he will sell in a day......


OK, wait, a while....will the owners of these businesses have to think who will be his best source of supplies? His best source of discounted price and as he already think of these two, he will also need to know when they can deliver the materials and also will the groceries or food or meat will be in fresh and mint condition?

That supply chain, i.e the art of managing the supplies in order to have the best deal for the business.

Let now review how will be a larger organization deal with this matter......

Most business owner or CEO or top management managers will like to think and think very alike the cafe or grocery shop owner. However, before thinking it will be as easy as the above, think again if these are as simple as ABC.

Well i would expect some of them to think along those line and even though this is very true because the art of doing business is to make profit and the way to make profit is to have sales and purchase raw material cheaper then your product and overhead cost. That is true.

How about thinking how to handle it more efficiently?


Let now consider what CEO or top management managers has to think about.

a) How to manage the customer order is important. Do the business have to wait for the order to comes in after all the promotion and sales activities?
b) What type of product the business is dealing with? High tech expensive products? Daily consumer product in the super market? Product with fast changing technological advances?
c) Who will be the businesses customers?
d) What volume expected of the product been sold?
e) What the value of the product?
f) What the profit margin?
g) Where are the suppliers or sub contractor located? Is this nearby or few days or weeks by sea freight or hours by flights?
h) Output unit of production compare to budgeted forecasted sales?
i) What the business capacity?

This is what i consider strategic thought and these strategic thought will be transformed downward to tactical or operational strategy.


From this strategic thought, top management will decide if:-

a) Outsourcing of certain material is necessary when compare external and internal cost
b) Build the product complete to stock or build the product complete to order to be received
c) How much to produce for stock?
d) What type of lead time to be provided to customers based on capacity?
e) Does the business need to build semi finished product and stored it ready for assembly?
f) How about proposing to large account to agreed on a number of strategy, for example offering to managed customer stock with VMI plan?
g) How to managed the logistics side of the businesses?


These decision will then be transferred down to line managers or operational staff to carry out the strategy with tactical approach.

Without this kind of brain storming on the higher level, businesses very often will find themselves in a quandary on what to do and handle when come to the real crunch of handling businesses expansion and change.

Businesses sometimes grow in a pace too fast that owners of businesses are suck into the promise of profitability and this make sense as all businesses are meant to make a nice income for its owners. But a fast growth in sales need to be strengthened with supply chain strategy rethinking how to manage it right.