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 / Spring 2013 / Issue 70(originally published by Booz & Company)


Designing the Right Supply Chain

Companies that align their operations to their strategy unleash superior performance.

When a company’s supply chain capabilities are directly aligned with its enterprise strategy, the results tend to be superior performance and a strong market position. Among the organizations that have demonstrated this is the Girl Scouts of the USA, which annually funds about two-thirds of its operating costs by enlisting its members, mostly girls age 9 to 14, to sell its well-known cookies. In 2011, the organization simplified its product line from 28 varieties to 11, with special emphasis on the six most popular items (Thin Mints, Samoas, Tagalongs, Trefoils, Do-Si-Dos, and Lemon Chalet Crèmes). Variety beyond a handful of perennial favorites did not matter to customers who were primarily looking to support their community Girl Scout organization. Simplicity enabled the Girl Scouts to improve the effectiveness of a supply chain strategy that depends on a distributed, young volunteer “workforce” that comes together for only a few months annually. Suddenly, the tasks involved in this once-a-year capability—allocating product among troops and individual Girl Scouts, tracking sales to replenish the troop’s inventory, and getting the right varieties of cookies to each participant—were all much easier. Not only did the change allow the Girl Scouts to be more effective, focusing their efforts on sales techniques rather than balancing inventory, but it also taught the young sales force “about supply chain issues and the need for efficiencies,” as Denise Pesich, Girl Scouts vice president for communications, said in an article on the Atlantic website.

The Girl Scouts concentrated on simplifying their supply chain to better support their mission, but leaders at companies such as Procter & Gamble (P&G), Coca-Cola, Amazon, or Walmart face a different form of the same problem: the sheer complexity of supply chain management for multi-category, multi-market enterprises. Their need to align supply chain solutions to more effectively support their company’s strategies is even more critical. And yet, a true strategic fit between enterprise and supply chain strategy is all too rare in the business world. Few companies have been able to marry their strategic goals with their operational capabilities. Their supply chain leaders struggle with a myriad of often conflicting demands from marketing, sales, engineering, manufacturing, and procurement. With little agreement across the organization—and no way to make or manage trade-offs—issues like cost, customization, speed, and price are rarely addressed in an effective cross-functional way.

Conversely, when a company is strategically coherent, its supply chain can be a linchpin of superior performance. For example, clothing retailer Nordstrom uses extremely sophisticated inventory and product life-cycle management capabilities to move products through its channels in half the time of Macy’s or Saks Fifth Avenue, cycling through each season’s new fashions more efficiently and effectively than its competitors. This is a major factor in Nordstrom’s consistent ability to outpace its rivals in profit margins and EBIT as a percentage of sales.

Would Nordstrom’s supply chain model work for your company? Probably not. Every successful company should have an operational design and management style tailored to its own purpose and strategy. At Booz & Company, we often divide strategies into categories based on archetypal approaches to the market, which we call puretones. These are some of the most commonly found puretones in global enterprises.

• Innovators are known for introducing new and creative products and services to the market; they need to balance their forward-looking creativity with practicality and user acceptance. Apple, 3M, P&G, and Honeywell are noteworthy examples.

• Premium players offer high-end products or services and superior customer service. Their differentiated position allows them to demand a higher price. Success as a premium player is not as easy as it might seem; it requires discerning and managing the costs of increased quality and attentiveness. Nordstrom, Herman Miller, and BMW are successful premium players.

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