Taxonomy of Supply Chain Strategies
The taxonomy of supply chain strategies provides a detailed theoretical framework for any strategy-related research in the field of supply chain management. Any organization while selecting the supply chain strategy does a careful analysis of the demand/supply characteristics of different products/markets served by the organization. This forms the basis for a taxonomy of appropriate supply chain strategies. Christopher et al. have put forward a taxonomy for selecting supply chain strategies.
Table of Content
The taxonomy uses both predictability of demand for products and replenishment lead times. The explanations related to this combination.
|Supply Demand Characteristics||Resulting Strategies|
|Short lead time + Predictable demand||Lean, continuous replenishment|
|Short lead time + Unpredictable demand||Agile, quick response|
|Long lead time + Predictable demand||Lean, planning, and execution|
|Long lead time + Unpredictable demand||Leagile production/logistics postponement|
Generic Supply Chain Strategies
The table suggests that there could be four generic supply chain strategies.
- Short lead time + Predictable demand
- Short lead time + Unpredictable demand
- Long lead time + Predictable demand
- Long lead time + Unpredictable demand
Short lead time + Predictable demand
In cases when demand is predictable and replenishment lead time is short then a continuous replenishment strategy is adopted. This is how companies like Procter & Gamble manage their supply chain for fulfilling demands at Walmart. Procter & Gamble takes the help of point-of-sale data to replenish products at individual stores of Walmart.
Short lead time + Unpredictable demand
Now, if there is unpredictable demand and long lead time, the ideal solution could be to carry inventory in some generic form and assemble/configure them as and when required (depending on when the actual demand takes place). This is an example of the postponement strategy.
Hewlett Packard (HP) follows this strategy for the range of its Deskjet printers. HP builds semi-finished products at its central facility and then ships them to regional centers around the world, which are run by third-party logistics service providers. At these centers, the product finally gets configured and delivered to customers when actual orders are received.
Long lead time + Predictable demand
The third situation depicts long lead times with predictable demand. In such situations, there is an opportunity to use the lean type of strategies, where products could be made or sourced well ahead of demand in the most efficient manner. Take the example of UK-based retailer Woolworths which sells a million plastic Christmas trees every year.
The store sources these products from China and for this, it places its order over six months ahead of the season. Woolworths does so based on the prior experience of demand for such trees at the time of Christmas, the store sees no or little risk in following this strategy.
Long lead time + Unpredictable demand
Let us now discuss the last scenario, when the demand is unpredictable and lead times are short. In such cases, agile solutions are required based on a rapid response. Zara is a good example of a retail chain, following this strategy. Zara is operated by Inditex Group, a Spanish fashion giant. Zara is known for developing a new product and getting it into stores within just two weeks.
It collects information daily to know the tastes of consumers and creates new designs and modifies existing ones. Accurate product information and inventory management help Zara to manage and design thousands of garments within the available stock. If a certain style or fashion becomes the new must-have, Zara’s designers work swiftly on the new style and bring it into a store while the trend is still going strong.