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One of the most inconsistently executed elements of cor-porate strategic planning today involves the supply chain. The ability of the end-to-end supply chain to consistently deliver products and services at a competitive cost is fundamental to business success—as companies such as Walmart, Zara, Whirlpool, and AstraZeneca have ably demonstrated. Each of these companies owes a large part of its success to building the supply chain capabilities that fully support the enterprise’s overall business strategy—whether it’s providing consumers with the lowest-priced goods, quickly identifying and capitalizing on new fash-ion trends, delighting customers with superior service, or most effectively supporting a product’s life cycle from conception through retirement.

Yet, in many companies, the supply chain receives little consideration in the strategic planning process, grossly overshadowed by business unit leaders’ attention to the sales portfolio (competitive issues, market price trends, growth opportunities, market share risk, and new product rollouts). While clearly growth and revenue planning are crucial segments of a well structured business strategy, supply chain strategic planning also requires thoughtful assessment and creativity.

This article outlines a framework for addressing supply chain strategic planning as an integral component of the overall corporate strategic planning process. (For pur-poses of this article, supply chain is defined as including material planning and sourcing, production, demand plan-ning and forecasting, distribution, warehousing, transpor-tation, and customer service). For many organizations the optimal timeframe for supply chain strategic planning is the second quarter of the fiscal year. This provides ample lead time to enable the supply chain plan to fully contrib-ute to the business’s annual operating plan development.

There are five key steps in the supply chain strategic plan-ning process to gather and analyze critical data, identify strategic supply chain initiatives and create the financial plans to reflect the strategy. The key components of a sup-ply chain strategic planning process include:

• A supply chain profile to document the contribution of each supply chain segment

• An analysis of key trends (industry, markets served, customer requirements, supplier capabilities) and potential customer segmentation

• A review of competitor capabilities and an analysis of the company’s own supply chain strengths, weak- nesses, opportunities, threats (SWOT) and capacity

• Definition of key initiatives to be undertaken by the supply chain organization to deliver the strategic capabilities the business requires

• Creation of the supply chain financial plan that reflects the strategy, rolls into the business unit financials and forms the foundation for the supply chain’s annual operating plan

Supply Chain Profile

The supply chain profile should define the supply chain structure and document the functional contribution of each supply chain segment (e.g., material sourcing, cus-tomer service, etc.). Describing the end-to-end supply chain linkages gives the business and functional part-ners a clear understanding of the service of each func-tion, the supporting financials, supply chain risks and risk management strategies, internal integration require-ments and the supply chain’s strategic fit within the over-arching business strategy.

The Supply Chain: A Critical (and Often Overlooked) Dimension of Strategic Planning by Mike Edie

POINT OF VIEW

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Additionally the profile should address the impact of the recession on supply chain operations. The global eco-nomic recession has put massive pressure on companies to become more efficient and to sustain such efficiency as the “new normal” in a post-recession environment. In many businesses, supply chain executives must find ways to bolster year-over-year productivity by as much as five percent to six percent to remain competitive and aligned with business strategy and annual operating plans. Some are in a position to take advantage of the low cost of capital to invest in assets required to improve productivity and achieve long-term strategic objectives. In any case, the supply chain profile should consider the business’s operating environment and its implications on supply chain strategy.

Key Trends and Segmentation

The key trends and segmentation work begins with developing current and two-year perspectives on the supply chain industry overall, markets to be served, customer supply chain requirements and programs, and supplier capabilities. These perspectives require careful consideration to map current and future re-quirements against capabilities so that performance gaps and supporting system needs can be identified for further analysis.

It is also appropriate to address the complexities and cost burden of providing the same level of service to all customer channels and customer segments. Assess-ing the true supply chain cost of serving multiple mar-kets and channels is a key step in providing information to the business unit leaders to consider differentiated strategies, market investments, and segmented profit-ability plans. The “new normal” operating environment in most industries underscores the reality that compa-nies can no longer be all things to all customers.

Competitor Comparisons and SWOT Analysis

The trends and segmentation work is the platform for pre-paring key competitor comparisons and a detailed SWOT analysis of the company’s supply chain. As part of com-petitor and SWOT analysis, it’s useful to benchmark each business against best-in-class companies along five key performance criteria. According to research by Aberdeen Group, in 2009 best-in-class companies delivered the fol-lowing performance:

• 96 percent of orders delivered to customers complete and on-time (perfect order)

• 95 percent of orders received from suppliers complete and on-time (perfect order)

• No change in cash-to-cash cycle time in the past year

• 5 percent decrease in the frequency of out-of-stocks in the past year

• 2 percent decrease in inventory carrying costs in the past year

The SWOT analysis and capacity analysis of the supply chain are crucial inputs to the business unit leaders in the development of market strategies. The credibility and strength of the supply chain are essential elements of market strategy execution. The SWOT analysis provides the information to debate and confirm market strategies with business unit leaders. Such debate is fundamental to aligning leadership on the business’s strategic commit-ment and value proposition.

Key Initiatives

Once the competitor comparisons and SWOT informa-tion are complete and reviewed, work begins to define and scope the key initiatives to be undertaken by the supply chain organization to deliver against the stra-tegic capabilities needed to accomplish business and market strategies (see Figure 1 for an example). In this step, the leaders of the supply chain organization cre-ate specific work plans and timelines for key initiatives. Of critical importance here is to create the plans in a collaborative environment versus in isolated “silos.” There is tremendous real value to be generated in the linkages across the supply chain versus within indepen-dent functions, and without collaboration and integra-tion that value will remain untapped.

Figure 1: Strategic Initiative:Increase production in Asia

Rationale

KeyBenefits

PotentialIssue

Stronger ability to respond to market demand with better pricing

The company will not miss the opportunity to earn additional business in growing markets

Capital investment necessary; human resources needed for turnaround

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Supply Chain Financial Plans

The last step in the supply chain strategic planning process is to create the supply chain financial plans that will feed the business unit financials and form the foundation for the upcoming year’s annual operating plan. The financial plan should be clear and explicit on assumptions, supplier commitments, commodity risk plans, and productivity benchmarks.

When developing the financial plan, a company must clearly identify the correlation between the strategic initiatives and assumptions and the resulting financial outcomes. Performance measures establish the link be-tween performance and accountability. It is imperative to select key performance indicators (KPIs) that:

• Monitor the financial and operational results against agreed-upon targets

• Highlight performance capability gaps in process compliance or issues with planning and execution

• Provide a range of measures encompassing both cost and service activities

• Support root-cause analysis where gaps in targeted performance must be investigated

Supply chain capability has reached an important mile-stone in global business through the effort and inno-vation of talented supply chain professionals. Sound supply chain strategic planning, using a simple but thorough process as just described, ensures that sup-ply chain performance fully contributes to the overall value proposition of the business.

Mike Edie is chief operating officer of Supply Chain Edge, a team of experienced supply chain advisors focused on helping companies accelerate year-over-year productivity improvement, improve operational performance, drive best practices across the entire organization, and realize long-term and sustainable results. To learn more about Supply Chain Edge, visit www.supplychainedge.com.

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About Supply Chain Edge

Supply Chain Edge is a team of seasoned supply chain specialists who are highly skilled in identifying, quantifying, and capitalizing on opportunities that drive performance improvements in key areas such as business growth, earnings per share, return on capital, margins, cash-to-cash cycle times, and customer service.

Supply Chain Edge is unique in two important ways: Our extensive experience in numerous supply chain initiatives with dozens of companies enables us to bring best practices used by other enterprises to every project while working collaboratively with a client’s existing internal talent. And, we don’t simply advise clients what they should do, but instead, help them execute more effectively and efficiently to realize tangible, quantifiable financial gain.

To that end, Supply Chain Edge can help companies realize dramatic performance improvement in the following key supply chain areas:

• Sourcing and procurement processes and strategies

• Domestic and international transportation

• Freight policies and customer-based profitability analysis

• Demand planning and forecasting

• Inbound and outbound transportation

• Inventory control strategies and SKU rationalization

• Capacity planning

• Lead time and cash-to-cash cycle time strategies

• Order management and production scheduling

• Warehousing, distribution center and site location optimization

• “Lean” supply chain strategies and processes

• Customer service policies, processes, and strategies

• Private or dedicated fleet rationalization

• Internal and external benchmarking analysis

• Supply chain disruption, contingency planning, and risk mitigation strategies

• Dashboard and operational metrics

As globalization and competition become more intense and unpredictable, logistics and supply chain strategies, processes, and cost drivers will play an even larger role in an organization’s success. Supply Chain Edge is uniquely qualified to help companies accelerate cost-reduction initiatives, improve operational performance, drive best practices across the entire organization, and realize long-term and sustainable results.