Harvard Business Review on Managing Supply Chains by Review Harvard Business

Author:Review, Harvard Business
Language: eng
Format: epub
Published: 2015-09-02T20:01:42.241000+00:00

REUBEN E. SLONE is the executive vice president of supply chain at OfficeMax and a former vice president of global supply chain at Whirlpool. JOHN T. MENTZER is the Harry J. and Vivienne R. Bruce Chair of Excellence in Business at the University of Tennessee. J. PAUL DITTMANN is the managing director of the university’s demand and supply integration forums.

Originally published in September 2007. Reprint R0709H

What Is the Right Supply Chain for Your Product?

by Marshall L. Fisher

NEVER HAS SO MUCH TECHNOLOGY and brainpower been applied to improving supply chain performance. Point-of-sale scanners allow companies to capture the customer’s voice. Electronic data interchange lets all stages of the supply chain hear that voice and react to it by using flexible manufacturing, automated warehousing, and rapid logistics. And new concepts such as quick response, efficient consumer response, accurate response, mass customization, lean manufacturing, and agile manufacturing offer models for applying the new technology to improve performance.

Nonetheless, the performance of many supply chains has never been worse. In some cases, costs have risen to unprecedented levels because of adversarial relations between supply chain partners as well as dysfunctional industry practices such as an overreliance on price promotions. One recent study of the U.S. food industry estimated that poor coordination among supply chain partners was wasting $30 billion annually. Supply chains in many other industries suffer from an excess of some products and a shortage of others owing to an inability to predict demand. One department store chain that regularly had to resort to markdowns to clear unwanted merchandise found in exit interviews that one-quarter of its customers had left its stores empty-handed because the specific items they had wanted to buy were out of stock.

Why haven’t the new ideas and technologies led to improved performance? Because managers lack a framework for deciding which ones are best for their particular company’s situation. From my ten years of research and consulting on supply chain issues in industries as diverse as food, fashion apparel, and automobiles, I have been able to devise such a framework. It helps managers understand the nature of the demand for their products and devise the supply chain that can best satisfy that demand.

The first step in devising an effective supply-chain strategy is therefore to consider the nature of the demand for the products one’s company supplies. Many aspects are important—for example, product life cycle, demand predictability, product variety, and market standards for lead times and service (the percentage of demand filled from in-stock goods). But I have found that if one classifies products on the basis of their demand patterns, they fall into one of two categories: they are either primarily functional or primarily innovative. And each category requires a distinctly different kind of supply chain. The root cause of the problems plaguing many supply chains is a mismatch between the type of product and the type of supply chain.

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