Strategic Supply Chain Alignment

Best Practice in Supply Chain Management

John Gattorna

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9780566078255
• eBook ISBN: 9781351897525
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Supply chain performance will be a key indicator of overall corporate success into the next century. This book, edited by logistics and supply chain expert John Gattorna, and with international contributions, presents unpublished material on next generation thinking about the management of the supply chain. Based on the recently developed strategic alignment model it shows how external market dynamics, the company's strategic response, and internal capability must be aligned if competitive advantage is to be achieved. Supply chain management is a strategic challenge demanding top level management attention. This book tackles the subject at that strategic level to help companies reposition their supply chains successfully. The book then offers the vital link between strategy setting and implementation, providing comprehensive coverage of the main areas of execution, and making it an essential compendium on all aspects of the subject. With case studies from major organizations from around the world, it is a 'must' read for anyone wishing to be at the forefront of international supply chain management thinking. Strategic Supply Chain Alignment brings together for the first time the world's leading logistics professionals, management consultants and academics to offer their insights and experiences on the latest supply chain management techniques. This collection of previously unpublished material offers the reader a unique opportunity to identify the hot issues, discover emerging strategies and uncover key industry and market perspectives. Divided into five sections which reflect the important components of the strategic alignment model, the book covers: The market: Customer value creation and segmentation, and the rationale behind the integration of supply with demand. Strategic response: Considers channel strategy, supply chain configuration and operations and distribution management. Culture: Adopting organization options which focus on delivering.

Chapter 1
New approaches to strategy

Dynamic alignment of strategy and execution

Peter Fuchs, Andrew Young and Alida Zweidler-McKay

Over the past two decades both strategic positioning and excellent execution have emerged as drivers of sustainable success. But the pace of change and the growth of strategic alternatives have forced companies to think again about how to formulate strategy and create competitive advantage. Companies are learning that the key to success lies in the alignment between strategic positioning and execution.

Strategy formulation processes are changing to enable companies to create and sustain alignment in their organizations. Companies are using more sophisticated planning tools and adopting a more dynamic and iterative approach to strategy. And they are experimenting more with the details of strategy, rather than merely implementing formal long-range plans. But companies need the internal capacity to follow this path—structure, culture and systems must all support a flexible organization that is geared to change.

Introduction

Today’s competitive environment is more demanding than ever. Two factors in particular are affecting the way in which companies can conduct business successfully.

First, companies across a broad range of industries are facing rapid change and growing uncertainty. Under these conditions, they find it increasingly difficult to establish a sustainable competitive advantage. Company planners have less time to develop and implement strategies.

Secondly, in the context of this uncertainty, strategic experts have expressed a variety of opinions about the drivers of success. Companies must sort through a wide array of complex and often conflicting advice in developing their strategies.

The increasing complexity and pace of change inevitably have a dramatic impact on how successful companies operate. Achieving a competitive edge demands a fresh approach to both strategy formulation and execution.

An emerging view

In the face of this complexity, companies are finding that focusing in isolation either on aspects of strategic positioning or execution capabilities does not lead to a sustainable competitive edge. A more dynamic and iterative view of strategy is emerging.

Traditionalists have described strategy as a process of analysing the competitive environment and determining a unique strategic position within it. But the potential for companies to maintain competitive advantage through unique positioning has been eroded by the explosion in the availability of competitive information. Unique positioning alone is no longer sustainable.

Many successful companies have already realized that the ability to execute well has become a key part of competitive strategy. Excellence in execution at least partially protects companies from the ravages of rapid change and copycat strategies. Winning companies like Wal-Mart, British Airways and McDonald’s have shown that simple, widely known strategies can be eminently successful if the execution of the strategy is a step above the competition. But execution excellence without the right strategic positioning is not enough. Eventually, the advantages won through improvements such as total quality management, outsourcing, reengineering and benchmarking are eliminated as competitors catch up (Porter, 1996).

In isolation, neither unique strategic positioning nor execution excellence is sufficient to create sustained competitive advantage. The emerging view of strategy is that success depends on developing and aligning a unique combination of positioning and execution capabilities. Successful strategy is about building a system of mutually complementary elements.

Case Study The paper chase: Wausau Paper Mills

Wausau Paper Mills manufactures printing, writing and speciality paper products and sells them throughout the US and in international markets. In the US paper and forest products industry, Wausau is only a small player in terms of sales, assets or production capacity. It does not rank in the top 30 in any of these categories. However, when it comes to financial performance, Wausau sets the industry standard. Over the period 1986–96, it multiplied shareholder value more than ten times and outperformed the industry average by more than a staggering 700 per cent. Financial analysts predict that Wausau will continue to do well.

Many other players in the industry would appear to hold some competitive advantages over Wausau, in particular the economies of scale that many thought were requirements for profitability in the industry. And in a commodity business like paper, a unique product position is very easily copied. So what sets Wausau apart in this highly competitive business?

Figure 1.1 An emerging view of strategy

Wausau’s success is not a result of positioning alone. It has developed a combination of strategy and execution capabilities that is unique and difficult to imitate.

Wausau’s strategic position

Wausau is a lean and flexible niche player. The company has successfully focused on creating or occupying niche markets, typically gaining a significant market share in a segment (for example, it has a 40 per cent market share in pressure-sensitive labels) and realizing operating margins well above average. If one of the segments in which Wausau operates becomes crowded, it quietly exits and goes on to find another speciality product. In the early 1980s, for example, Wausau provided 3M with the lightweight yellow paper the latter used for its hugely successful ‘Post-It Notes’. When other paper companies entered this market three years later and 3M asked Wausau to cut its prices, the company declined and left the business.

Wausau enters and leaves markets more often than competitors, but this is part of a definite strategy. Overall, it concentrates its efforts on just a few product segments. This niche strategy seems to be paying off.

The second component of Wausau’s positioning is its focus on lean operations. Although it has significantly increased its production capacity over the last few years, it has no ambition to become self-sufficient or to integrate vertically. This sets it apart from many of its competitors and proves to be an excellent position in a highly cyclical industry suffering from production over-capacity.

Wausau’s execution capabilities

Wausau is the industry leader in identifying and exploiting new business opportunities, demonstrating both flexibility and creativity in its willingness to move to new product lines as they become more profitable.

Wausau acquired Rhinelander Paper, a struggling producer of interior liners for cereal boxes and pet foods. Seeing a market opportunity, it turned the company into an early producer of microwaveable popcorn bags. As others entered that market, Wausau again repositioned Rhinelander, this time producing pressure-sensitive labels with great success.

Wausau has also demonstrated strong skills in commercializing new products. For example, in experimenting with coloured paper, it developed ‘Astrobrights’, a superior speciality paper that fades less quickly than rival products. Wausau’s product became so popular that customers would ask for it by name—a remarkable achievement in an environment that usually does not emphasize brand names.

Over time, Wausau has developed some of the best distribution capabilities in the industry to meet customers’ needs for timely delivery. Today, approximately 75 per cent of all items are shipped within 24 hours, a service level much higher than that found at most other paper companies. Ongoing distribution initiatives indicate that the company is not resting on its laurels and intends to distance itself even further from its competition.

Wausau is also skilled at developing and maintaining strategic relationships, with both customers and suppliers. Learning that a major customer was suffering from rising pulp prices, Wausau developed a paper that uses less pulp. In order to reduce its own energy costs, it entered an agreement with a nearby electric utility to build a high-efficiency power plant next to one of its mills.

Alignment at work at Wausau

Wausau’s success is built on the tight alignment between its positioning and execution capabilities. To support its position as a niche player that rapidly enters, exploits and exits markets, it must identify market opportunities and adapt to changing buyer values. Strong customer relationships help Wausau identify unique customer needs. Its abilities to develop and commercialize new products further support this positioning. The company’s strong distribution capabilities support these customer relationships and allow it to expand geographically. Its skills in developing strategic relationships allow it to maintain lean, flexible operations without the inertia created by upstream or downstream integration.

Each of these examples illustrates the important connections between Wausau’s positioning and capabilities. Wausau leads its industry because specific components of its positioning and execution capabilities mutually reinforce each other.

The new strategy process

We now begin to see some implications for the process of formulating strategies. The traditional process begins with industry and competitor analysis, moves on to developing and testing hypotheses and making recommendations, and ends with implementation. In the modern uncertain environment, that process is far too linear. To maintain alignment between the various parts of the organization, a dynamic and iterative approach is now required. Companies must constantly prepare for, anticipate and adapt to changing market conditions. Speed and flexibility are key requirements.

Dynamic and iterative process

In the changing environment, companies cannot afford to plan according to a single view of the future. Instead, successful companies are open-minded. They are able to develop multiple strategic options and they frequently experiment with new ideas. They are able to modify their course midstream, in response to feedback from the market and changing conditions.

The dynamic and iterative strategy process that is now required differs significantly from the traditional, formal planning procedure. In place of a discrete annual or biannual strategy process, planning has become a continuous management responsibility. The dynamic nature of strategy formulation is indicated by the pair of curved arrows on the strategy framework in Figure 1.2.

Sophisticated and creative tools

The proliferation of information means that companies can know more about their performance than ever before. Advanced technologies are now available to help them sort through and understand this information. By investing in these technologies, companies can take some of the guesswork out of planning, to make better-informed, fact-based decisions.

Figure 1.2 The new strategy process

Companies are also using more creative tools to facilitate the development of multiple strategic options. Instead of trying to base strategy formulation purely on best-guess predictions, they are learning to develop more robust planning processes that help them prepare for a range of futures.

In the early 1970s, Shell Oil Company pioneered ‘scenario planning’, a technique that involves developing strategic responses to a number of potential future scenarios. By encouraging its managers to consider a range of hypothetical situations, Shell was uniquely prepared for the OPEC oil embargo of 1973–4. By the 1980s it had moved from being the weakest of seven petrochemical giants to becoming the strongest of the oil companies (Miller, 1992).

Modern analysis and planning tools allow companies to prepare for, anticipate and respond to changes in their competitive environment. When change occurs, these companies are able to adapt their planning much more quickly than are their competitors.

An introspective view

The paired arrows on the strategy framework have a second meaning. Strategy is not a one-way process; it is no longer sufficient to plan according to the environment and then build appropriate capabilities. Successful companies are skilled at introspection and coldly assess their own strengths and weaknesses in developing their strategies.

A position that is based on the market environment, without attention to the company’s unique abilities, may be easily imitated. But the sum total of the organization—its people, technology, processes, culture and the way it has developed its own capabilities—is hard to copy. No two companies are alike. A strategy that utilizes the company’s unique combination of resources, capabilities and culture has a greater chance of sustained differentiation in the marketplace.

A natural implication of formulating a strategy based in part on the company’s strengths is that this strategy will be implementable. A company will experience fewer barriers to implementing a strategy based on its unique abilities than will the competition.

Hartford Steam Boiler is a multinational property and casualty insurance company whose positioning is built on specific skills. It insures equipment for target customers in industries such as utilities, paper manufacturing, oil refining and food processing. Over the years it has developed a sophisticated knowledge base and an extensive corps of engineers with expertise in inspecting and insuring manufacturing equipment. Building on this expertise, the company has also developed an inspection services unit to help clients prevent losses. By leveraging its existing capabilities, it has been able to expand its position to provide a broader range of services to its customers. The expansion of Hartford Steam Boiler’s services makes it difficult to imitate (Heskett, Sasser and Hart, 1990).

Case Study Improving home improvement: Home Depot

Home Depot’s strategic position

In 1978, Home Depot revolutionized the home improvement market by creating a unique strategic positioning. Its large, low-cost, no-frills warehouse concept provided consumers with a deeper and broader merchandise assortment than the traditional, small, high-priced hardware store. Home Depot’s unique combination of one-stop shopping, competitive prices and highly knowledgeable, service-oriented personnel enabled it rapidly to overtake its competitors to become the world’s largest and most profitable home improvement retailer.

Home Depot’s execution capabilities

Home Depot’s...

Table of contents

• Cover
• Half Title
• Dedication
• Title
• Copyright
• Contents
• Acknowledgements
• Foreword
• Introduction
• CHAPTER 1 New approaches to strategy Dynamic alignment of strategy and execution
• CHAPTER 2 Strategic supply chain management Creating shareholder value by aligning supply chain strategy with business strategy
• PART I THE MARKET
• PART II STRATEGIC RESPONSE
• PART III CULTURAL CAPABILITY
• PART IV LEADERSHIP
• PART V INFORMATION ENABLERS AND DRIVERS
• PART VI SPECIAL INTEREST
• A final word John Gattorna
• Contributors
• Index