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


Designing the Right Supply Chain

• Customizers make use of customer intelligence to offer tailored products or services to particular segments of their market. They can flexibly adapt to changing demand. The challenge they face is balancing this flexibility with profitability. Well-known customizers include Dell, Burger King (“Have it your way”), and direct-sale cosmetics firms like Avon and Natura.

• Green companies are an increasingly common form of reputation player—building on the principle that sustainability is good business. They stake out a customer base by addressing the supply chain needs of low-carbon-emissions and toxin-free products; they are ready to invest in differentiated technologies. They must learn to manage a green supply chain at competitively low costs. Some differentiated green companies are GE, Seventh Generation, and automakers such as Toyota and GM (those building businesses around hybrid or electric cars).

• Aggregators combine offerings from a variety of sources, providing people the convenience of a one-stop solution. They may manufacture some products and outsource or subcontract for others. Their concerns are related to differentiation: They must ensure that the value of their own contribution is recognized. Some examples of aggregators are Amazon, eBay, and W.W. Grainger.

• Value players develop low-cost supply chains and pass savings on to customers. They may also leverage savings to make additional investments elsewhere. They soon discover that to avoid being commoditized, they cannot let low cost affect quality or service. Ikea, Walmart, Southwest Airlines, Tata Motors (maker of the Nano), and McDonald’s are all value players.

In real life, of course, every successful company is unique. The most successful strategies tend to be combinations of puretones, representing highly distinctive ways to play in the market. Amazon’s value proposition, for example, involves being an aggregator, a value player, and an innovator. It sells products from extremely varied sources at very low prices, using its own form of online marketing and innovative logistics. Elements of all three puretones are essential to its strategy, and are reflected in its value chain.

For each of the puretone archetypes, a different mix of supply chain characteristics is required. Thus, in designing your supply chain, it’s helpful to know which puretones represent significant elements of your company’s way to play. Typically, a company can focus investment on only three to five ways to improve its supply chain at one time. Exhibit 1 shows 12 of these opportunities for leverage, and the puretone value propositions best matched to them. Companies don’t have to excel at everything; they can determine the kind of organization they want to be and then develop a supply chain agenda that matches this aspiration.

If your company is a value player, you will benefit from supply chains that emphasize complexity management; make sure every new product conforms to existing manufacturing processes and, thus, can be offered at a relatively low price. Manufacturing footprints should also be a priority. Place factories in developing nations, and adopt less-expensive logistics approaches, such as railroads and container shipping. Under the rubric of strategic sourcing, cultivate long-lasting supplier relationships, with high levels of cooperation, so all stages of the supply chain can be constantly improved. Indeed, continuous improvement should be an overall area of emphasis: Implement lean manufacturing techniques in all your facilities. Unfortunately, many value players have organized their supply chains in other ways (see Exhibit 2).

Alignment between your strategy and your supply chain has one final benefit. Because each form of leverage is associated with different metrics, it gives you an effective way to measure the ongoing health of your supply chain. Keeping track of the right metrics is crucial, helping to differentiate you from competitors on a daily basis. As an enterprise with an eye on its value proposition, you can reap substantial rewards from having this sort of very capable supply chain. 

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