Modelling to Align Business Level and Supply Chain Strategies

Charles Featherston
1 Introduction
The relationships between a firms business level strategy and its
supply chain are complex. Understanding such a relationship
enables firms to maximise the potential value that a supply chain
can generate. Further understanding the dynamic complexity of a
supply chain allows firms to formulate supply chains that not only
gives them a competitive edge, but also allows firms to adopt
supply chains that will be robust to future changes in the general
and competitive environments.
2 Supply Chain Strategy
A firms supply chain is the source of its value. The supply chain is
the flow, both upstream and downstream, of physical materials,
information and finances. It is from these activities that a firm
generates value, making the supply chain a key source of
competitive advantage. Effective management of supply chains
maximises the value generated.
5 Systems Dynamics
Complex systems are influenced by exogenous factors, feedback
loops and delays to often behave in ways we do not understand.
Systems dynamics modelling is a method whereby a complex
system is modelled to behave like the real system. This is useful
because the model can be used to test the impact of different
policies and exogenous pulses on the system.
Several tools are available to help model a dynamically complex
system. Below are the outputs of two example programs. Figure 1
is a influence loop diagram of the beer distribution game. In this
diagram each factor is connected to its influences through arrows.
Figure 2 shows an ExtendSim AT model. It is a model of a basic
supply chain with wood flowing from raw material through to the
finished product.
6 Scenario Planning
Scenario planning is a method of formulating medium-term strategy
by iteratively generating a series parameters outlining a possible
future based on the predetermined and on the uncertainties as we
see them today. In this project scenario planning will be used to
test the dynamics of supply chains by analysing external and
internal pulses applied to a systems dynamics model of a supply
chain.
7 Case Studies
Historical case studies will be used to validate the model. Historical
data will be used in the model and the outputs will be compared to
the historical outcomes of the case study.
8 Combining these Methods of Analysis
One of the challenges of this project will be to combine these two
methods of analysis. Adequate understanding and the ability to
manipulate of these tools needs to be developed in order to apply
them together.
The goal of using systems dynamics and scenario planning is to
apply the model to a firm currently operating in the market. The
two tools can then be used to analyse possible strategies the firm
could adopt, both in its supply chain and at its business level.
9 Planned Outcomes
It is proposed that business level and supply chain strategies be
formulated in parallel. Such an approach will allow maximise the
potential of the supply chain to add value and would also reduce
efficiencies. Through concurrent formulation the limitations of the
other would define each strategys parameters, increasing
management efficiency and administration costs.
10 Conclusion
Uncovering the major links between a firms business level
strategies and its supply chain will help to maximise the value
generated. Further understanding the complexities in this dynamic
system will help a firm build a supply chain that is robust to
environmental impacts and sustainable into the future.
Figure 3: A basic Supply Chain For Wooden Furniture
References
Giunipero, Lawrence C & Monczka, Robert M. (1997),
Organizational approaches to managing sourcing, International
Journal of Physical Distribution & Logistics Management, Vol. 27,
Iss. 5/6, p.321.
Hanson, Dallas; Dowling, Peter J.; Hitt, Michael A.; Ireland, R.
Duane and Hoskisson, Robert E. (2008), Strategic Management:
Competitiveness and Globalisation, Asia Pacific Third Edition,
Thomson: Australia.
Levy, David L. (1995), International sourcing and supply chain
stability, Journal of International Business Studies, Vol. 26, Iss. 2,
p. 343.
NG Group (2007), Supply Chain Management, NG Group Global
Consulting Solutions, NG Group: Ireland.
Sterman, John D. (2000), Business Dynamics: Systems Thinking
and Modelling for a Complex World, McGraw-Hill/Irwin: New York,
N.Y, USA.
Figure 2: Causal Structure of the Beer Distribution Game (Sterman, 2000, p.688)
3 Business Level Strategy
A business level strategy is an integrated and coordinated set of
commitments and actions designed to exploit core competencies
and gain a competitive advantage (Hanson et al., 2008, p.4). A
broad encompassing view of all of a firms operations and activities
is required to formulate business level strategies. As such they are
often formed by higher level managers.
4 The Connection
Authors have written about the discontinuity between various
sections of the supply chain and business level strategy (see Levy,
1995; Giunipero & Monczka, 1997 ). The authors indicate that the
supply chain, the source of the value generated by a firm, would
benefit from having its strategy formulated in parallel with the
firms business level strategy. A firms supply chain strategies are
usually formulated by middle level managers and are often done to
reflect the business level strategy. This reactive method of
formulating supply chain strategy can lead to inefficiencies within
the supply chain. Lack of higher management participation also
leads managers to make decisions that can disrupt the supply chain
(Levy, 1995, p.346). It is proposed that business level and supply
chain strategies be formulated in parallel. Such an approach would
allow the limitations of the other to define each strategys
parameters and reduce inefficiencies.
Figure 4: Results from the Wooden Furniture Model
Figure 1: A Diagram of a Supply Chain
(NG Group, 2007)