Overview of supply chain strategy
Organizations will say they understand the importance of supply chain management, yet 61% of the organizations that participated in a Logistics Bureau survey didn’t have an effective supply chain strategy in place.
An effective supply chain strategy is essential to every organization, but deciding on the correct supply chain strategy to regulate your business activities is considerably more difficult than it appears.
The following 6 supply chain strategy examples are world-renowned businesses. Is it a coincidence that they also have an excellent supply chain strategy in place?
6 Supply Chain Strategy Examples
1. Unilever’s Collaborative Planning, Forecasting, and Replenishment (C.P.F.R.) Strategy
Unilever is a business leader in the consumer goods industry. It deals in packaged food, drinks, personal care items, and cleaning chemicals with a customer base worldwide. In early 2000, Unilever initiated a five-year growth strategy, including a major restructure of its supply chain management.
It concentrated on governance, global procurement, supply chain managers, the engagement of suppliers, and technology. Consequently, Unilever generated savings of $14.24 billion from its efforts and became the epitome of technology adoption in the consumer goods industry.
Unilever’s logistics activities provide the most potential for streamlining its supply chain and boosting its ability to meet its ambitious growth targets. The company is merging its almost 30 warehouses into five huge distribution hubs equipped to fulfill customer orders in as little as a day.
Much of the convergence is due to retailers’ adoption of the zero-inventory policy, which necessitates the best utilization of diffusion and cross-docking in warehouses. Unilever established collaborative planning, forecasting, and replenishment (C.P.F.R.) agreements with selected retail clients to optimize asset utilization, cut inventory, and improve efficiency.
Because orders are frequently influenced by factors that are hard to be predicted, communication between the producer and retailer is essential to improve forecast accuracy.
According to Berkheimer, the vice president of logistics at Uniliver, “high replenishment accuracy can only be accomplished through order forecast coordination and expanded supply chain visibility.”
Unilever’s logistics department is now witnessing stronger partnerships with retailers, improves accuracy in forecasts, and greater efficiency in managing promotions.
Source: Semantic Scholar
Key takeaways: Through its C.P.F.R strategy, Unilever has improved its forecast accuracy by 10%, which resulted in a 10% reduction in inventory holding and a 5% boost in sales volume.
By enabling collaboration with suppliers and enhancing supply chain visibility, you can engage with customers, create trust, have greater insight into all aspects of the supply chain to drive changes, improve forecast accuracy, and respond to potential problems faster and more efficiently.
2. Starbucks’ Vertically Integrated Supply Chain
Following over 50 years of operations, Starbucks today has over 25,000 retail shops worldwide with over $22 million in yearly revenues.
This entails distributing coffee to an extensively large network of retail stores, and Starbucks’ main formula of this efficient network is its incredibly efficient supply chain.
Starbucks has a vertically integrated supply chain, which means Starbucks is engaged in every stage of the supply chain operation, from the coffee bean to the cup of coffee served to customers.
By using a vertically integrated system, Starbucks is working with about 300,000 coffee producers globally. The firm argues that its direct interaction with growers guarantees that the same quality and taste standards apply to all its coffee beans.
Starbucks also collaborates with producers directly because they commit themselves to supply fair trade coffee that is responsibly sourced.
The corporation even has its own standards for coffee and farmer equity (C.A.F.E.) and C.S.G., which demand all suppliers comply with specified ethical, environmental, and quality criteria.
In order to guarantee its producers comply with these criteria, Starbucks utilizes a strict screening system.
Starbucks’ supply chain appears to be inherently complicated because of its size and complexity. However, in 2008, Peter Gibbons, the company’s Vice President for Global Supply Chain Operations, transformed the company’s complex, ever-expanding supply chain into a simplified, cost-effective process founded on basic operational structures.
First, all the supply chain activities were categorized across four macro operations, i.e., plan, source, manufacture, and deliver. Following that, he created a highly centralized logistics system that enables the organization to effectively manage and organize its global network.
Finally, a binary “Scorecard System” has been put in place to evaluate all supply chain activities in four metrics: operational safety, on-time supply and order fulfillment rates, the overall cost of the supply chain, and financial performance in terms of cost-effectiveness.
Starbucks ’ streamlined supply chain structure, management tools, and the utilization of digital technologies enable the firm to attain a high degree of efficiency and responsiveness, which are essential to its organization’s success.
Key Takeaways: Through its virtual integration and C.A.F.E program, Starbucks has been able to ethically source 98.6% of the coffee. Starbucks ’ efforts to streamline its supply chain processes are reflected in its increased sales revenue that has been reported as a 5% increase worldwide.
Regardless of the size of your business, streamlining your supply chain processes into a simple structure can help build an agile supply chain that is flexible to cater to the changing customers’ demands.
Moreover, supply chain integration across all the stakeholders can give your business an added benefit by giving you effective control over sourcing and distribution.
3. Walmart’s Strategic Vendor Relationship & Cross-Docking
Over the last two decades, Walmart has established itself as a leader in the retail industry with the highest sales per square foot.
In its transformation from regional store to global powerhouse, the company has become famous for its effective management of the supply chain.
Walmart has built its operations around the notion that customer's demands need to be fulfilled in the shortest time possible. The organization has concentrated on building cost structures that enable them to offer lower prices.
Following that, Walmart focused on establishing a more organized and comprehensive supply chain management strategy in order to capitalize on and expand this strategic advantage and gain market leadership.
Walmart has long been involved in strategic sourcing to locate suppliers capable of meeting demand while offering the best price. The firm then forms strategic alliances with its vendors, promising them long-term and increased purchases in return for the cheapest possible pricing.
Walmart has revolutionized supply chain management by establishing communication networks with suppliers to strengthen the relationship in order to enhance material flow and reduce inventories.
The worldwide network of suppliers, warehouses, and retailers is regarded as nearly like a single company. Cross-docking is a logistic procedure that lies at the heart of Walmart’s strategy of efficiently replenishing stocks. Cross-docking decreases inventory and transport costs and saves transport time.
Source: RTD Logistics
Key Takeaways: Through its effective communication networks with suppliers, Walmart has reduced its out-of-stock occurrences by 16%.
Just like Walmart, you can also benefit tremendously through strategic vendor partnerships and implementing cross-docking as an inventory management strategy. Strategic relationships with the vendor can enable your business to access new markets and improve business operations.
Cross-docking is an inventory strategy where products are directly transported to retail stores without being stored at warehouses. It helps in lowering inventory management costs, transport costs, and transport time.
4. Amazon's Robust Supply Chain Strategy
Several factors have helped Amazon become the e-commerce giant it is today, but its highly efficient supply chain is the most significant part of its success.
Amazon’s effective supply chain management revolves around three fundamental elements, its extensive warehouse and distribution network, a diversified fleet, and implementation of advanced technology in its supply chain operations.
The firm now manages more than 185 fulfillment centers worldwide, with over 25 sortation centers and 75 fulfillment facilities in North America alone. Furthermore, Amazon has over 500 warehouses globally.
The worldwide presence, mainly in large urban areas allows the firm to complete customer orders efficiently at affordable rates.
Sellers may utilize the massive shipping network that Amazon has to their benefit by participating in the Fulfill by Amazon (FBA) program, which requires them to send their items to Amazon’s fulfillment centers where Amazon handles their packing and delivery. It also offers necessary customer service.
Furthermore, Amazon provides its FBA Onsite program in which Amazon optimizes the seller’s processes by using its own warehouse management software.
Suppliers continue to retain their inventories at their locations while Amazon picks up orders from a supplier warehouse and determines the most cost-efficient fulfillment option.
Amazon employs robots in its warehouses and fulfillment centers to pick and pack orders and also load and store stock. This enables the company to accelerate its operations beyond human capacity.
Furthermore, Amazon recently introduced Scout; a six-wheeled automatic delivery robot meant to carry products to customers’ doors.
Source: e-Seller Hub
Key Takeaways: Amazon has reported an inventory turnover of around 10.92, which is incredibly good considering the size and scale of Amazon’s operations and outgoing inventory.
A considerable amount of resources are required to create such a significant supply chain. However, your business may accomplish the same results with the same agility, creativity, and customer-focused strategy.
By implementing these supply chain strategies and constantly enhancing your operational procedures, you can broaden your company’s network while also boosting client satisfaction and loyalty.
5. Tesla's Specialized Supply Chain Strategy
The automobile industry has come a long way from the days of Henry Ford utilizing an assembly line manufacturing process to expedite the creation of a single-vehicle model.
Tesla is now producing revolutionary, tremendously popular, and elegant automobiles directly in California, a place with extremely expensive real estate, while other auto manufacturers are outsourcing their operations abroad to lower-cost locations.
We can evaluate Tesla’s supply chain strategy over time and discover certain distinct characteristics that set it apart from its competitors.
Tesla’s business model is based on a concept that has been fundamental to their success: a determination to take entire control of the supply chain, from raw materials to technological integration to the final user experience.
Instead of having an extensive supply chain network of low-cost part manufacturers, Tesla has a vertically integrated supply chain with a huge car plant close to its corporate headquarters. It also owns a big battery factory.
It designs, produces, sells, and services its own products through its own sales and service network. Tesla has served a significant role in the restructuring of the automobile industry, particularly in terms of customer relationships.
The company’s digital supply chain is even more intriguing, which involves releasing new software and algorithm upgrades to existing car owners utilizing cloud computing.
6. Nike’s Unique and Effective Supply Chain Strategy
Nike is the world’s leading sportswear brand. The multinational giant, as one of the most famous names in the world, is perhaps the most significant player in the contemporary textile business.
Nike’s supply chain is extremely complicated, with millions of sneakers and other items sold each year.
Although there are clearly considerable challenges in managing such complex supply chains, Nike’s proactive strategy to supply chain management is a major contributor to its amazing success.
Nike’s supply chain strategy is centered around three basic principles: outsourcing, diversity to reduce risk, and corporate social responsibility to govern the company’s impact on the society in which it operates.
Its supply chain has been developed from these core principles to one of the most successful supply chains globally.
Outsourcing and diversification are two fundamental elements guiding Nike’s supply chain strategy. Nike outsources all of its footwear and textile manufacturing to independent vendors. It was one of the first international corporations to use this strategy.
Outsourcing is inherently dangerous, but Nike effectively managed this risk from the start by diversifying its supply base considerably. Nike is less susceptible to unforeseeable situations like accidents and adverse weather events since it is not entirely dependent on any one source.
Nike ensures continuous communication with its suppliers to ensure that its high-quality requirements are followed at every stage of manufacturing, offering support through resources and training to introduce suppliers in Total Quality Management (TQM) methodology.
Nike adopts an ambitious strategy to monitor the effects of its supply chain that highlight its forward-thinking. Nike procured 93% of its products and components from sustainably managed factories in 2019.
It has also ended its business with factories that force its employees to do excessive overtime. All these factors have contributed to Nike’s phenomenal success in the global market.
Key Takeaways: As mentioned earlier, through its TQM approach and increased focus on sustainability, Nike has sourced 93% of its products from the factories that are run sustainably.
Nike’s unique distribution model helps it to save $0.15 per unit. Considering the amount of stock Nike produces, $0.15 saving in manufacturing overhead saves millions of dollars for Nike.
Differences in Supply Chain Strategy
On the one hand, Nike’s 100% outsourcing of its operations gives it a competitive advantage, and on the other hand, Tesla’s specialized vertically integrated supply chain works best for its success.
All this highlights one fact there is no single formula of success when it comes to supply chain strategy.
No matter what strategy you may apply to your supply chain, due diligence, effective communication, and incorporation of the right technology at the right time is the key. Nike has benefited from a vast pool of suppliers when it has diversified the risk and implemented strict quality control.
In contrast, Tesla has achieved market leadership in electric vehicles through its specialized, do-it-all-in-house strategy. In a similar vein, to reap the full potential of the abovementioned strategies and innovative technologies, you must adapt and alter your supply chain strategy to account for your business needs and market dynamics.