By Erik Diks | Managing Director, Europe, Chainalytics |
Increased economic and supply chain pressures mean many European companies are actively searching for new and different ways to further reduce their supply chain costs. But they’re taking on these challenges in an especially difficult environment: There’s a tough competitive landscape. Customers are demanding more product customization, shorter product life cycles and higher service levels. Meanwhile, supply chain cost reduction has already been been on many companies’ agendas for years.
Why It’s More Important Now than Ever to Find & Use a Compass
Competitive strategy serves as an especially important compass in complex times like this. Yet too often companies pursue an unclear competitive strategy for part of their business, or do not translate it into a clear supply chain strategy.
The downside? Companies without a usable compass run the risk of getting stuck in the middle of pursuing several competitive strategies at the same time, not excelling at any strategy, and creating internal confusion and misalignment that affect their supply chains. For example, the product portfolio management strategy of a company that functions based on its critical success factors (CSFs) in operational excellence should be quite different than from that of a company that excels at customer intimacy:
3 Steps for Getting Unstuck
If you find your company stuck, consider the three steps that can get you back on track:
STEP ONE: Choose your competitive profile
Operational Excellence Companies with this competitive strength outstrip competitors at providing best total costs. With this profile, streamlined end-to-end processes, procedures, clear roles, standardization/centralization, automation, waste reduction, and increased transaction efficiency create a well-oiled machine.
Product Leadership Companies that excel at product quality and/or innovation are guided by an entrepreneurial spirit. Their loosely knit business structure and results-driven system encourages creativity. For example, companies may try to copy Apple, yet Apple remains months or years ahead of its competition in innovation. Associated costs with product leadership include high marketing and/or R&D costs.
Customer Intimacy At its best, this profile is focused on providing customers with the best total solution, where a product or service is tailored to the specific needs of the customer. Decision making is delegated to a level close to the customer.
STEP TWO: Explore your order winning Critical Success Factors (CSFs) that can help in determining the appropriate product portfolio management strategy
Every company wants to be successful. But which competencies can you claim as uniquely yours? And how do your unique CSFs ensure your customer appreciates and chooses your product over competitors’?
Are you providing lower price? Fostering delivery speed, accuracy and reliability? Quality compliance? A higher-quality product? The ability to offer a wide product range or respond quickly to unexpected volume changes? Are you innovative, focused on offering services beyond the physical product, providing your customer with an exceptional experience, or making sure that they can access your product?
By identifying your order winning CSFs —you can align your finance, marketing, and sales departments and start translating it to the product portfolio strategy:
- The product leadership model—a combination of make-to-stock and made-to-order environments—will function best with a good R&D department and a portfolio strategy focused on developing a pipeline of new products and/or services.
- The operational excellence model, which is typically a made-to-stock environment, will focus on optimizing the end-to-end processes. The complexity of a product portfolio needs to be regularly reviewed, with the questions Does every product bring “good complexity” (that is paid for by the customer) or “bad complexity” (that only adds cost).
For example, consider how one company alleviated problems with their operational model with a wide range of products that bloated and complicated its portfolio. They completely reduced their product portfolio, focusing on core product groups and order winners and increasing volumes and profitability per product, freeing up money to reinvest and create a better-performing portfolio.
- The customer intimate model is typically a make-to-order environment that requires smart module development, presenting customers with solutions. It’s also very good at costing products that are completely new to the organization.
STEP THREE: Stay with your competitive strategy unless you’re in a rut
As you can see, knowing your company’s strengths and weaknesses–along with finding a reliable compass–will go a long way to alleviating any problems and putting you on the right track to success.
Erik Diks is managing director of Chainalytics Europe, where he is responsible for all sales and delivery of Chainalytics’ end-to-end supply chain consulting services. He brings over 20 years of broad supply chain strategy, supply chain network design, sales and operations planning (S&OP), demand and supply planning, and product and customer portfolio optimization to his work with Chainalytics clients.