Distribution – supply chain strategies

Peter Drucker (1998) talks about the supply chains as a differentiator, competition advantage due to the well coordination between provider (Tier1, Tier2 etc), company and customer. We are moving towards a competition between chains instead of company-competitors.

The supply chain is an important factor in the operation of the product or services. The planning of the full supply chain has to be aligned with the marketing plan and the financial plan. A badly organized supply chain can impact on the total experience of the product of services. Example, McDonalds works only with local providers, has a process on how long you wait for a hamburger etc. The supply chain is based on the what the product is expected to do. Ferrari works with quality, exclusivity.

If you work with a product that is low-cost, your supply chain has to work with those parameters (e.g. IKEA, their products are innovated taking into consideration the space they take in the packages for transportation – weight and volume).

You must find a balance between cost and service level. You need to measure this in order to know if you have lived up to what you promised.

Characteristics of Supply Chain Management

  1. production (what, how, when produce)
  2. Stock (how much)
  3. Transport (how to do it. Depending on what you are looking for, you need to identify what transportation you need)
  4. Location (where will you locate yourself)
  5. System (that handle the management of the supply chain)

The buying department is very important in the decision-making of the development of a product and cost of transportation. Therefore, the relationship with providers is very important. It is a mirror of your relationship with your customers.

  • Combat-relationship (fight for price)
  • Cooperative-relationship (looks for good cooperation)
  • Associated relationship (partnership. A win-win situation where you go as a block towards the market)

For a successful operations (supply chain management) the most important factor is to work in a team.

bullwhip effect

A “small” demand has the impact of generating a psychological expectation that results in┬ástock”back in the chain”, based on estimation of the supply chain of how much the actual sales is. If you inform about the “real” demand and sales in order to reduce the speculation and generate supply back in the chain a correct production, reducing stock of products. WallMart discovered this effect and worked on generating the correct information about the demand in order to reduce unnecessary stock.