What Is the Right Supply Chain for Your Products?
Today’s digital era has come about with remarkable technology advancements that have simplified a wide array of processes. However, amid such technology improvements lies the deteriorating state of supply chain processes. Fischer thereby elucidates on some of the factors that have resulted in the poor performance supply chain activities. According to Fisher, a vast majority of organizations have failed to employ a proper framework necessary for devising an efficient supply chain strategy. Fisher thereby gives a step to step procedure on how an organization may devise the right supply chain for its products to reap excellent revenue.
What surprised you? What could you apply?
The cost of supply chain processes has increased dramatically as a result of adversarial relations between the supply chain partners. Additionally, the supply chain performance has worsened to an alarming state as the majority of organizations over-rely on price promotions instead of developing effective supply chain strategies. The situation has further deteriorated as most organizations have failed to analyze and predict market demand. According to Fischer, one of the ways by which a business can develop proper supply chain strategy is by analyzing the nature of demand for the products being supplied.
Demand analysis may thus be carried out to access different factors such as; demand predictability, product variety, market standards for lead times, and product lifecycle. Products are divided into two; primarily useful or primarily innovative. Each type of product is said to employ a particular form of a supply chain. Functional products are described as products that are needed to satisfy humans’ basic needs. Thus, they are stable with long life cycles and predictable demand. Unlike functional products, innovative products are developed to match the current technology or fashion. Though they may lead to high-profit margins, their demand remains unpredictable as they depend on the consumers’ changing values, lifestyles, tastes and, preferences. Innovative products thereby require a specific type of supply chain that is entirely different to that employed on functional products.
According to Fischer, supply chain performs two different functions namely; market mediation and physical function. The physical role carried out by a supply chain involves the converting unprocessed materials into finished goods and moving them from one location of the supply chain to the other. Contrariwise, supply chain facilitates market mediation through making sure that the products reaching the marketplace match with the specifications provided by the consumers. Since the demand for functional products is predictable, the purpose of a supply chain for market mediation is highly achievable.
An organization producing functional products may thereby reduce inventory and maximize production efficiency by creating and freezing a proper schedule. Concurrently, market mediation cost is relatively high when supplying innovative products whose market demand remains uncertain and unpredictable. It is imperative for an organization to develop a matrix needed to establish the best supply chain strategy.
Functional products require an efficient supply chain process whereas innovative products require a responsive process. A company is set to endure low revenues if it utilizes a responsive supply chain for functional products and an efficient supply chain processes for innovative products. More companies that were producing functional products are today producing innovative products. However, these organizations have failed to reap excellent revenue as they tend to focus on physical efficacy as opposed to the responsive processes of supplying the goods. This mismatch has thereby resulted in an ineffective form of supply chain leading to a reduced profitability margin. According to this article, I would develop a matrix so as to determine the most effective form of supply chain that would be different for functional and innovative products.
What wasn’t answered in the article?
The article failed to answer the various strategies by which an organization may employ before supplying the produced innovative products. Fischer also failed to provide an answer on why organizations with the correct supply chain still fail to garner significant profits and revenues. To add to this, the article failed to provide solutions for organizations experiencing overproduction or underproduction of innovative products.
Questions to be answered
- How can an organization recover mismatch costs arising from wrongful prediction on demand and supply of innovative products?
- What new strategies should be taken to improve demand and supply forecasting by organizations producing innovative products?