As companies grow and expand their products and market penetration, supply chain network reconfigurations don't keep pace with the proliferation of products, customers, and channels. As a result, companies find themselves servicing different customer segments with the same supply chain strategies, making their performance less than competitive.
For example, an electronic Original Equipment Manufacturer (OEM) selling through multiple channels, from direct to retail, has the same supply chain network for all products, making its supply chain delivery performance unacceptable in one channel segment and not cost competitive in another. A company must create a mixed supply chain strategy to monitor and improve the performance for different customer segments.
Management vs. fulfillment strategies
The Point of Postponement (POP) separates supply management and customer fulfillment processes and strategies.
AMR Research's Performance-Driven Enterprise framework separates the supply management and customer fulfillment areas. While a supply management process covers how supply is readied and positioned for order fulfillment--from raw material to work in process to finished goods--a customer fulfillment process determines how the supply is aligned with specific demand and delivered to the customer. Both are separated by the POP, which is a process point triggered by a customer demand signal (either an order or a replenishment signal from the customer). In a mixed supply chain strategy, the POP is not a fixed point but floating, separating the supply management and customer fulfillment processes from which companies can develop processes to meet mixed supply chain delivery models. Consider the following examples:
- In a Make-to-Stock (MTS) strategy, the supply management process stretches from the acquisition of raw materials to deployment of finished goods inventories into the channel, while the customer fulfillment process involves taking an order and delivering it to the customer.
- In a Make-to-Order (MTO) or Assemble-to-Order (ATO) strategy, the supply management covers staging the raw materials or semi-finished sub-assemblies throughout the supply network, while the customer fulfillment includes taking an order, doing final assembly, and delivering the product to the customer.
- In an Engineer-to-Order (ETO) strategy, the customer fulfillment will include all the steps in the MTO and ATO strategy as well as product development, engineering or configuration, and some sourcing steps.
Aligning POP strategies
Competitive metrics must align with POP to support mixed supply chain strategies.
A company must define its mixed operational strategies, such as MTS, MTO, and ETO, for different customer and product segments and align its performance management scheme to each strategy. To do so, companies must understand the operational process outlines and align the metrics to each established POP strategy. For example, order fulfillment cycle time in a MTS environment will include the order acknowledgement, pick, pack, ship, and delivery times. But in a MTO environment, it will incorporate manufacturing assembly time as well. A company can measure and manage these differently while using the same supply chain network.
Viewed in this continuum, multiple supply chain strategies can share business processes, and yet a company can monitor the performance of and enable competitive strategies for each customer segment.
Recommendations
Companies must create and implement mixed supply chain strategies and manage the supply chain process framework based on POP strategies that are supported by corresponding supply management and customer management processes to create performance-driven supply chains. Companies should also do the following:
- Segregate product lines by characteristics of the products, channels, and customer segments to clearly understand what is leading supply chain strategies.
- Outline the process maps, define the POP strategies, and align a measurement scheme in the supporting applications to measure, monitor, and manage the processes based on the POP strategies.
- Determine a basis of competition for each group, and then define and implement appropriate supply management and customer fulfillment processes that are aligned with the POPs. For example, a company may set different response time and quality requirements from the same manufacturing partner and align inventories differently for different products based on the POP alignments for the products and channels.
- As the market pressures and product categories change or evolve, revise the POPs and readjust the measurement to reflect new objectives.
Performance-Driven Enterprises Need Customer-Aligned Supply Chain Strategies
First Published, October 15, 2002
By Vinay Asgekar
Are your supply chain strategies working? TalkBack below or e-mail us.
