WHAT IS RIGHT TYPE OF SUPPLY CHAIN?

Before devising a supply chain, consider the nature of the demand of your products. Basically, there are two type of products functionl and innovative. Now both have different type of demands and thus different supply chain management for them. Functional products include the daily use products that people buy in a wide range of retail outlets, such as grocery stores and gas stations. Such products have a fairly predictable demand , are stable and have long life cycles because they satisfy basic needs of consumers which do not change much over time. Innovation products consists of products which are different from the daily use and functional products. Innovation can enable a company to achieve higher profit margins, the very newness of innovative products makes demand for them unpredictable. In addition, their life cycle is short,usually just a few months . The short life cycles and the great variety typical of these products further increase unpredictability. Now the product life cycle of functional and innovation products also differs, as its more than 2 years for functional products and 3 months to 1 year for innovative products. The main point here is the difference in contribution margiins. Obviously Innovative products yield high profits than Functional products. Now the predictable demand of functional products makes market mediation easy because a nearly perfect match between supply and demand can be achieved. Companies that make such products are thus free to focus almost exclusively on minimizing physical costs, and its the most important thing due to the price sensitivity of most functional products. And the thing is this approach is exactly the wrong one for innovative products. The uncertain market reaction to innovation increases the risk of shortages or excess supplies. High profit margins and the importance of early sales in establishing market share for new products increase the cost of shortages. Now there are two kind of supply chain processes, Physically Efficient process and Market Responsive process. In Physical Efficient process, it supplies predictable demand efficiently at

the lowest possible cost, while maintaining high average utilization rate. And in Market Responsive process, it responds quickly to unpredictable demand in order to minimize stockouts, forced markdowns, and obsolete inventory, while deploying excess buffer capacity. Also Lead time focus differs in these two processes. While in Physically efficient process, target is to shorten lead time as long as it doesnt increase cost, the target in Market Responsive process is to invest aggressively in ways to reduce lead time. Now the aim is to devise the ideal Supply chain strategy. Now the first thing is to determine whether the products are functional or innovative. Now its obvious that for the products which have unpredictable demand have the major supply chain problems. Now for Functional products, efficient supply chains should be there, instead of Responsive supply chain. And for Innovation products, Responsive supply chains should be there instead of Efficient supply chain. Now sometimes the economic gain from reducing stockouts and excess inventory is so great that intelligent investments in supply chain responsiveness will always pay for themselves. Many companies have turned or tried to turn traditionally functional products into innovative products. But the companies need to understand the difference between the two and the basic difference in the type of supply chain, demands etc. Now for functional products, a company can cut prices by providing suitable discounts to the retailers by taking into accounts the cost it has to incur while maintaing extra inventory. And for innovative products one way is to reduce uncertainty by finding sources of new data etc, or by cutting lead times and increasing the supply chains flexibility so that it can produce to order or at least manufacture the product at atime closer to when demand materializes and can be accurately forecast. Now to avoid uncertainty and making responsive supply chain smooth, it can operate by taking orders and by mass customization. In this case also the company has to forecast demand and employ ways to avoid uncertainty. Thus realigning the supply and product strategies makes a remarkable

competitive advantage that generates high growth in sales and profit.

Studies show that the total supply chain costs account for more than 50% of the cost of the finished product. Yet efforts of optimizing the supply chain by most of the companies have gone to waste. One of the reasons for that is the lack of understanding of the total supply chain management which extends beyond the four walls of the organization as well as treating supply chain management as a cost containment and technology implementation exercise. The main mistakes that companies do are as follows: 1. To identify a supply chain to be a chain of interconnected activities. The supply chain should be viewed as a well oiled machine rather than individual components. In organizations, the supply chain is often seen as silos of planning, procurement, logistics and service. Potential savings calculated in the siloed supply chain often subtract from the total supply chain. To sum up, companies should generally benefit from using a holistic design to delivery process as opposed to the order to delivery mindse t. 2) To continue doing business as usual. The article explains that if a company is rigid with its structure and is not open to changes in its business model along with the scheduled supply chain transformations, it could end up with a failed supply chain. 3) Having the wrong idea about control is another mistake that a company could make with its supply chain. It is important to understand the core competencies for an organization and outsource the rest of the work to professionals in order to strengthen their business. However, it is most important to identify how much control to give up in one s business and maximize on the resources available with the organization. 4) Understanding the relation between demand and supply is very critical. A supply chain should be based on the point of sale data at the customer end rather than being driven by the centralized push system based on the throughput possibility on the basis of resources. Excess inventory leads to high holding costs as well as obsolete inventory which is why proper forecasting needs to be done to optimize the supply chain. 5) Overreliance on technology is another mistake. The use of technology in complex supply chains is inevitable. However, it is of utmost importance to realize that technology is only a tool to implement the plans formulated by people. The optimal scenario is the confluence of right people with a robust technology platform which enforce and adapt a business process that supports the corporate strategy.

6) Visibility is a very important feature of a supply chain. It is very important for organizations to get real time information updates to act as fast as possible. However, such data collection may also lead to overburdening the supply chain with irrelevant data. Hence it is important for organizations to identify where in their extended supply chains such data can be of business value. 7) Most companies make the mistake of adopting a common channel for all products. For example, products with short lifecycles, such as fashion clothing and consumer electronics should not be mixed with products which have long shelf lives. Hence, it is important to have different supply chain techniques foe such different products. 8) Companies often do not recognize the people effect of supply chain transformation which acts as another obstacle. It is however of utmost importance to identify the people who would be willing and helpful in the change process and those who would be reluctant to such change. According to the human adaptation pyramid, gen erally 30% of the employees in any organization would be early adopters to the change process, 40% will adopt it if it is beneficial for them, 20% would eventually come on board, while 10% would never approve of such an idea. 9) Managers often do not reali ze the importance of leveraging the global elements of supply chain operation. It could be beneficial in certain cases, for example in the case of global brands such as Nike and Coca Cola to adapt global supply chain operations. 10) The last mistake that is most commonly made in supply chain is the underestimating of the size of transformation by the managers. At times, the managers are unable to do an accurate analysis of the potential of the project and overlook the interdependencies between the many effo rts and the complexity of the overall project which leads to a failure of the overall project.