Implications -- What happens when companies do not have effective strategic supply chain design?

Insufficient attention to strategic supply chain design has serious implications for a company and its shareholders, commonly experienced as a range of performance problems

• Difficulty driving total supply chain costs to their lowest sensible levels
• Increasing effort being spent on firefighting
• Impact of any cost improvement is quickly eroded by shifting business conditions
• Unforeseen capacity issues in production or distribution
• Unforeseen capacity issues with suppliers or third party partners
• Inability to fully exploit a better than expected success with a new product
• Capacity imbalances: too little capacity where needed, while elsewhere assets are underutilised
• Increasing difficulty maintaining margins
• Working capital levels rising without improved service levels
• Working capital levels much higher than competitors
• Tendency to always be reacting to circumstances, not acting to control situations

Many of these symptoms are highlighted when companies benchmark their performance against competitors. Companies often launch a series of improvement initiatives to address symptoms independently in each function, without understanding how the underlying drivers interact or what trade-offs are important.

Executive decision makers are expected to be able to see beyond obvious problems to the underlying causes, interactions and wider consequences. In these situations, it is often difficult for managers to step back and look at the bigger picture. This is where strategic supply chain design can make all the difference.

The consequences of supply chain glitches on shareholder value and profitability have been studied extensively by Professor Vinod Singhal of the Dupree College of Management at the Georgia Institute of Technology. His study of the impact of over 830 cases of supply chain problems concluded that supply chain glitches

• Cause significant erosion of shareholder value
• Result in stock price drops of around 25% when a glitch is announced
• Have a greater effect on high growth companies and smaller firms
• Are always looked upon unfavourably by financial markets
• Result in market penalties regardless of what caused a glitch