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A SUPPLY CHAIN STRATEGIC PLANNING FRAMEWORK

Conference Paper · January 2010

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 A SUPPLY CHAIN STRATEGIC PLANNING FRAMEWORK

Matthew J. Liberatore, Villanova University, 610-519-4390, matthew.liberatore@villanova.edu

Tan Miller, Rider University, 973-590-4638, tanjean@verizon.net

ABSTRACT

Developing and implementing a supply chain strategy is essential for maintaining competitive
position. As part of the strategy development process, firms must select projects that best
achieve strategy. In this paper we present a framework that a firm can employ to select those
projects which will best support the firm’s supply chain objectives and strategies. A multi-
criteria decision-making technique, such as the Analytic Hierarchy Process, can be used to
support this strategic planning process. An example is presented to illustrate the proposed
approach.

INTRODUCTION

We present a framework that a firm can employ to select those projects which best support the
firm’s supply chain objectives and strategies. This framework offers a well-defined process by
which firms can select those projects that will yield the greatest contributions towards achieving
their objectives and executing their strategies. Our framework employs the analytic hierarchy
process (AHP), a multi-criteria decision-making technique, to guide a firm through its strategic
planning process. This guidance includes a methodology for developing project priorities
subject to budget constraints and other organizational requirements such as the need to allocate
resources across different functional areas and strategies.

LITERATURE REVIEW

A supply chain strategy should be selected based on the characteristics of the product and
markets served. Fisher [3] categorized products as either functional or innovative, depending on
the predictability of demand, size of margins, length of product life cycles, and level of product
variety. Functional products face a stable demand process and low margins, and so their supply
chains should focus on cost efficiency. Innovative products face unpredictable demand but have
higher margins, and so a responsive strategy is desired, and can be achieved using mass
customization or product postponement.

Characteristics of the supply processes, including the number of supply sources and process
changes, and variable or stable yields can also be related to the choice of a supply chain strategy.
Lee [5] proposes that products having predictable demand and stable supply sources require an
efficient supply chain strategy, while those having unpredictable demand and stable supply
sources require a responsive strategy [3]. However, if supply processes are evolving Lee [5]
proposes two additional strategies, depending on the level of demand uncertainty. When demand
is predictable and the supply process is evolving, Lee proposes a risk hedging strategy that pools
resources to share risks in supply disruption. An agile supply chain is needed when demand is
unpredictable and supply is evolving. It must be flexible enough to respond to changing levels
of demand, while trying to minimize the supply disruptions. Autry, Zacharia, and Lamb [1]
developed a classification scheme for logistics strategy types based on the results of a survey of
managers and executives knowledgeable about their firm’s logistics strategies. Using cluster
analysis, two strategies were determined: functional logistics and externally-oriented logistics.
Those firms taking a functional logistics strategy focus on inventory and order management,
order processing, procurement, and storage. The underlying measurement items emphasize
efficiency and cost management, analysis and control. Those firms employing an externally-
oriented strategy are most concerned with ensuring that their logistics activities are compatible
with the needs of their trading partners and/or directed toward stewardship of the overall
business environment (e.g., green or socially responsible logistics). Firms adopting this strategy
focus more on coordination and collaboration, social responsibility, strategic distribution
planning and technology and information systems

Defee and Stank [2] discuss how the strategy-structure-performance paradigm [4], [7] can be
extended from a single-firm to a supply chain environment that includes the firm’s channel
partners. The presumption is that competition has moved from the firm to the supply chain level.
Therefore, inter-firm coordination is required to achieve a supply chain strategy. Sadler and
Hines [8] discuss an integrated supply chain planning process that attempts to involve all partner
companies or intermediaries into the process. They describe the application of their strategic
operations and logistics process (SOLP) to the Australian meat processing industry [8] and at a
heavy fabrication business in Australia [9]. However, the approach followed by many
manufacturers is to develop a supply chain strategic plan internally, while considering the
relationships with their partners during the planning process.

A review of the supply chain strategy and planning literature has informed our research on the
issues that must be addressed in the supply chain planning process.

PLANNING FRAMEWORK

We use an example firm, the ABC Manufacturing Company, to illustrate how supply chain
objectives, strategies and project selection process can be integrated into one aligned,
comprehensive approach. ABC produces a wide variety of consumer goods and distributes its
products to a broad array of retailers who then sell these goods to consumers. Recently ABC has
also implemented its own direct-to-consumer channel of distribution, an effort still in initial
stages of development. ABC’s supply chain organization is just now entering its annual strategic
planning process.

To develop and organize its supply chain objectives and strategies, ABC first employs the
mission, objective and strategy (MOS) approach to strategic planning [6]. The MOS approach
represents a planning framework in which a firm defines its overall mission (step 1), establishes
objectives to support its mission (step 2), and then develops strategies to support its objectives
(step 3). Similarly, a major organization within a firm, such as Supply Chain, can also adapt the
MOS approach for its functional area. ABC’s supply chain organization utilizes the MOS
methodology to form the first three tiers of its supply chain planning framework. The first level
– ABC’s overall supply chain mission – is stated as:

MISSION: Position ABC’s supply chain to support the overall firm objectives as
efficiently and effectively as possible

In the second stage ABC evaluates its supply chain from both internal and external perspectives,
and based on this evaluation, defines a set of objectives designed to achieve its mission. The
ABC team reviewed a wide range of supply chain functional capabilities, and based upon this
review, defined explicit performance objectives in the following areas:

SUPPLY CHAIN OBJECTIVES

i. Regulatory Compliance
ii. Cost Efficiency
iii. Delivery Effectiveness
iv. Flexibility
v. Security

We note that ABC (and any firm utilizing this process) should formulate precise objectives
against which it can accurately evaluate itself in these defined functional areas. However, for
illustrative purposes, we limit our discussion of ABC’s objectives to this simple description of
the general areas of objectives.

In the third planning stage, ABC develops strategies designed to meet those objectives posed in
the second stage. Here ABC’s managers consider and address the needs of all of the major
stakeholders and constituents of the firm and its supply chain. ABC’s supply chain management
addressed six key areas where it believed that well-defined and “measurable” strategies were
necessary to achieve these five objectives. ABC determined that it required strategies to address
the following major stakeholders and constituents of its supply chain:

SUPPLY CHAIN STRATEGIES

i. The Consumer (CONS)

ii. Its Customers (CUST)
iii. Its Governmental and Societal Responsibilities (G&S)
iv. Its Financial Well-being (FIN)
v. Its Suppliers and Partners (S&P)
vi. Its Internal Operations and Employees (OPS&E)

Again, for the illustrative purposes of this paper, we will not describe the details of the explicit
strategies that ABC would have developed. Instead, we simply note the general areas of strategy
that address all of ABC’s stakeholders and constituents.
The mission, objectives and strategies defined by ABC’s supply chain management provide a
framework for the organization to move forward. With its strategies defined, now ABC must
select and initiate individual projects that will facilitate the successful implementation of its
strategies. For ABC, this next process consists of first identifying a set of potential supply chain
strategic projects, and then selecting the actual projects it will pursue among the candidate
projects proposed. The list of potential supply chain projects and the strategy they support are
shown in Figure 1. Figure 2 displays the complete framework.

No.  Project Description Strategy

Supported
   1  Streamline Existing Direct To Consumer Delivery and Internet CONS 
Ordering Services
2  Integrate POS (point of sale) Data As Input To The Current CUST 
Forecasting and Production Scheduling Processes
3  Establish and Enhance Customer Relationship Management Services CUST 
(CRM)
4  Implement A Customer Segmentation Program Based On Customer CUST 
Profitability & Activity Based Costing (ABC) Analyses
5  Expand Supplier Relationship Management (SRM) Programs S&P 
6  Evaluate and Benchmark Current Security Processes and Procedures on G&S 
Supply Chain, and Recommend Enhancements
7  Integrate Current Individual Country Sales & Operations Planning OPS&E 
Processes Into One Global S&OP Process
8  Develop And Implement Plan to Optimize Use of RFID In Supply OPS&E 
Chain and use of RFID vs. use of Bar Codes
9  Evaluate Current Use Of Third Party Logistics (3PL) Firms And FIN 
Recommend If Firm Should Increase Use Of 3PLs
10  Develop and Implement Labor Productivity Measurement Systems For OPS&E 
plant and warehouse operations
11  Expand Current Import / Export Compliance IT Capabilities G&S 
12  Benchmark Firm’s Current Carbon Footprint and Develop Long-Term G&S 
Green Manufacturing Operations Plan
Figure 1. Project Descriptions and Strategies Supported

ANALYSIS

To determine the set of projects that best supports the supply chain mission, a multicriterion
method such as the Analytic Hierarchy Process could be used [10]. An AHP analysis uses
judgments in the form of pairwise comparisons to measure the impact of items on one level to
the next higher level. At each level, the pairwise comparisons are organized into a matrix and
the weights of the items being compared are determined by computing the maximum eigenvalue
of the matrix. A weighted averaging approach is used to combine the results across levels of the
hierarchy to compute a final weight for each alternative.
Level 1 Mission: Position the firm’s supply chain to support the overall firm objectives as efficiently and effectively as
Mission/
possible.
Goal ===============================================================================
Goal: Determine the relative importance and priority of individual projects in achieving the firms’ supply chain
objectives and strategies

Level 2 REGULATORY COST DELIVERY FLEXIBILITY SECURITY

COMPLIANCE EFFICIENCY EFFECTIVENESS
Objectives

Level 3 CONSUMER CUSTOMER GOV’T/ FINANCIAL SUPPLIER/PARTNER INTERNAL

SOCIETAL
Strategies

•CONS RATE •CUST. RATE •ENVIRON •COST vs DIR •RELIABILITY •SCCAPABL

Level 4 •PRODAVL •FILL RATE •SEC_REG •COST vs IND •QUALITY •NON ITTEC
•ACCESS •PARTNER •RELATION •SCROI •FLEXIBLE •ITTEC
Criteria •CUST SEG •INFLUENCE •INVENTRY •PARTNERS •SKILL SET
•CRM •CASH FLOW •COST COMP •PRODIVTY

Level 5 EXCELLENT VERY GOOD GOOD FAIR

Rating Scale

Level 6
Projects P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12

Figure 2. Supply Chain Strategic Planning Framework

As applied to Figure 2, the planning team would determine the relative importance of the
objectives in achieving the mission. For example, how much more important is regulatory
compliance than cost efficiency (or vice versa) in achieving the mission? Next, the team would
determine the relative importance of the strategies in achieving each objective. For example,
with respect to the cost efficiency objective, how much more important is the consumer strategy
as compared to the customer strategy? For each strategy, the criteria must be compared so that
the weights needed to evaluate the projects can be established. For each criterion a rating scale is
then established, such as excellent, very good, good, and fair. Weights are developed for each of
these ratings, and so projects can be scored. For example, since project three supports the
Customer strategy, it must be rated with respect to the five Customer criteria (CUSTRATE,
FILLRATE, PARTNER, CUSTSEG, CRM). Each of the criteria has specific definitions. For
example, the ratings scale for FILLRATE is: Excellent = project will move firm’s line item fill
rate to customers to 99% or higher from its current 95% level, Very Good = 98% to 99% fill rate,
Good = 96% to 98% fill rate, and Fair = 95% to 96% fill rate. Those projects having the highest
scores would be funded, subject to budget availability.

CONCLUSIONS

In this paper, we have developed a comprehensive framework to support a firm’s supply chain
strategic planning activities and its project selection process. Our framework combines two well
 established methodologies, the MOS (for strategic planning) and the AHP (for multi-criteria
decision-making/project selection) to formulate one aligned planning process. In particular, this
framework and methodology allows a firm to ensure that the individual supply chain projects
that it pursues support and align with its strategies and objectives. The framework provides a
firm with an approach to first establish its mission, objectives and strategies. Then this
framework allows a firm’s management to qualitatively and quantitatively select and prioritize
those projects that will best fulfill its strategies and objectives. In the corporate supply chain
planning process, where difficult and often budget-constrained decisions must be made on which
projects to implement, our framework offers the guidance necessary to assure aligned decision-
making.

REFERENCES
[1] Autry, C. W., Zacharia, Z. G., Lamb, C. W., “ A Logistics Strategy Taxonomy,” Journal of
Business Logistics, 29(2), 2008, 27 – 51.

[2] Defee, C. C., Stank, T. P., “Applying the Strategy-Structure-Performance paradigm to the
Supply Chain Environment,” The International Journal of Logistics Management, 16(1),
2005, 28 - 50.

[3] Fisher, M. L., “What Is the Right Supply Chain for Your Product,” Harvard Business
Review, 75(2), 1997, 105 – 116.

[4] Galbraith, J. R., Kazanjian, R. K., Strategy Implementation: Structure, Systems, and Process,
West Publishing Company, St. Paul, MN, 1986.

[5] Lee, H. L., “Aligning Supply Chain Strategies with Product Uncertainties,” California
Management Review, 44(3), 2002,105 – 119.

[6] Liberatore, M. J., Monahan, T.F., Stout, D.E., “A Framework For Integrating Capital
Budgeting Analysis With Strategy,” Engineering Economist, 38(1), 1992, 31-43.

[7] Miles, R. E., Snow, C. C., Organizational Strategy, Structure, and Process, McGraw-Hill,
New York, NY, 1978.

[8] Sadler, I., Hines, P., “Strategic Operations Planning Process for Manufacturers with a Supply
Chain Focus: Concepts and a Meat Processing Application,” Supply Chain Management:
An International Journal, 7(4), 2002, 225 – 241.

[9] Sadler, I., Gough, R., “Applying a Strategic Planning Process to Several Supply Chain
Planning Partners,” Journal of Manufacturing Technology Management, 16(8), 2005, 890 –
908.

[10] Saaty, T. L., The Analytic Hierarchy Process, Pittsburgh, PA: RWS Publications, 1996.

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