Even Good Times Call For Lean Supply Chain Strategies

A recent article over on the Harvard Business Review blogs told us that we should stand by for the same old strategy mistakes, because you see the same ones over and over again every time a downturn starts to trend up again. Moreover, similar fundamental strategy mistakes are often made by supply chain organizations when the economy starts to improve. As a result, there are lessons to be learned. Three easy ones are:

  • Too many supply chains.

    Many companies think they should have multiple supply chains — one for commodity electronics, one for custom parts, one for chemicals, etc. — as this will allow for a razor-sharp focus on streamlining operations around a category. The reality is that you should have only one supply chain (from a planning and management perspective), because every (distinct) supply chain costs money to manage and operate. Just like a business loses when it splits its focus (as 20% of operations will end up accounting for 80% of profit), a supply chain loses when it splits its operations.

  • Throttling back on cost reduction.

    When times improve and profits start to increase, supply chain often starts to think it can ease up on the push for ever lower prices, give suppliers a break, focus on quality, and / or focus on collaborative initiatives that will take cost out in the future. While it is important to focus on (these) other initiatives, you can never cease your cost reduction quest.

  • Pushing too hard for supplier consolidation.

    While it is true that most companies have too many suppliers in the supplier master, with 20% of active suppliers accounting for 80% of spend, and while it is true that a smaller supply base can enable greater spend leverage, too much consolidation too fast can greatly disrupt your supply chain.

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