Supply chain models in brief

In order to remain competitive, supply chain leaders realise that they need to automate their processes, align their teams, and unify and share their data across the enterprise. However, this is easier said than done. Supply chains are complicated, and best practice can vary from sector to sector, so knowing which of the supply chain models to adopt is paramount.

There are considered to be six generic supply chain models, of which one group is oriented towards efficiency and the other towards responsiveness. Any manufacturing business should have a supply chain corresponding to one of the six models.

In industries where the value proposal is oriented toward low cost and/or high relevance of asset utilisation to total cost, efficiency is vital throughout the process. Examples include chemicals, steel and paper manufacturing. They are best suited to one of three supply chain types—”efficient,” “fast,” and “continuous-flow”—that are best able to maximise asset utilisation:

The “efficient” supply chain model is best suited to industries that are characterised by intense market competition, fighting for the same group of customers, who may not perceive major differences in their value proposals, so that commodity price is dominant. In this model, management must maximise utilisation of machinery and other assets and maintain high overall equipment efficiency to reduce cost. They also rely on very accurate forecasting to ensure product availability and perfect order fulfilment.

The “fast” supply chain model is best associated with products with a short lifecycle. From the customer’s perspective, the main difference among competitors’ value proposals is how well they are able to update product portfolios in accordance with the latest trends.

Management should focus on promoting continuous portfolio renewal, which is supported by three main capabilities: short time from idea to market, maximum levels of forecast accuracy in order to reduce market mediation cost, and end-to-end efficiency to ensure affordable costs for customers.

The “continuous-flow” supply chain model relies on supply and demand stability, with processes scheduled in such a way as to ensure a steady cadence and continuous flow of information and products. This model typically is for a very mature supply chain with a customer demand profile that has little variation.

Supply chain integration is crucial and should be supported by three main capabilities. In the early stages, these include electronic transactions, used to reduce the number of transactional processes required during the order cycle, as well as the sharing of sales and inventory information to improve demand management. In the most mature stage, collaborative planning with key customers helps to anticipate demand patterns.

When customer demand is highly unpredictable the relevant supply chain models are responsiveness-oriented. They include the “agile,” “custom-configured,” and “flexible” models.

The “agile” supply chain model is useful for companies that manufacture products under unique specifications for each customer on a make to order basis.

To be agile the model demands excess production capacity, and products and processes designed for the smallest possible batches.

The “custom-configured” supply chain model often applies to products such as cars, which can be configured within a limited combination of product specifications, usually by combining parts or sub-assemblies.

Usually, the processes before product configuration are lengthier than the configuration itself and the downstream processes, so they are managed under an efficient, or a continuous-flow supply chain model. The configuration and downstream processes then operate as in an agile supply chain.

The “flexible” supply chain model suits companies that must meet unexpected demand and therefore are faced with high demand peaks and long periods of low workload. Adaptability is key and management should focus on ensuring flexibility, which is supported by four main capabilities: extra capacity of critical resources, rapid-response capability, technical strengths in process and product engineering, and a process flow that is designed to be quickly reconfigurable.

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