Wednesday, January 25, 2012

How a Supply Chain Affects the Profitability of a Major Company

The primary objective of a supply chain is to satisfy customer needs while also generating profit for itself.  There is only one source of revenue for any supply chain:  the customer.  The key to success of a supply chain is achieving strategic fit between a firm’s competitive and supply chain strategies.  A company may fail if the supply chain design and all of the core functional strategies are not aligned with the firm’s overall competitive strategy to achieve strategic fit.  A lack of strategic fit can result in conflicts regarding different customer needs and priorities within the firm or across the supply chain, which leads to reducing supply chain surplus and decreasing supply chain profitability.  As stated in the text, in today’s world a company is intimately linked to its supply chain, and “a company’s partners in the supply chain may well determine the company’s success.”  

A company needs to find a balance between having a responsive supply chain and an efficient one.  This balance ultimately comes from the customers’ needs. An efficient supply chain lowers cost by eliminating some of its responsive capabilities.  For example, an efficient supply chain may carry less inventory and maintain a level load on the warehouse to lower picking and packing costs.  The responsive supply chain responds quickly to customers, and offers higher margins because price is not a primary concern.  The failure to achieve a strategic fit by finding the right balance between efficiency and responsiveness of a supply chain is a main reason companies fail to succeed.

Copyright 2012 James L. Alyea. All Rights Reserved.