Building a Supply chain

Two aspects are needed to build a supply chain

1. Alignment of the organizations in the chain and
2. Improved coordination between them for flow of materials, services, information and finance

The organizations in the supply chain need to be aligned with respect to the ultimate objectives of providing value to the customer. Their strategies regarding this objective need to be aligned. Inter-organizational collaboration has to be improved. Organizations, like people, have their own psychology. Aligning organizations is of primary importance in managing supply chains. The chains do exist; everyone knows about that. What is needed is managing them to produce the desired joint competitiveness. Alignment is one important task in this management of supply chains. This task deals with psychology, strategies and such other intangible and broad aspects of corporate cultures, corporate values philosophies of the organizations in the supply chain have to be compatible.

Leader Company in the Supply Chain:

It requires leadership to make two or more disparate organizations to work together closely. Although one may feel that the circumstances of the market place should make the organizations organize themselves to form a supply chain in practice a leader organization is essential. Self-organizing polycentric actors forming a supply chain is only an ideal. In practice the actors also have to be selected i.e. the partners on the chain have to be chosen, the strategy of the chain has to be decided upon and it has to be aligned. Hence a leader organization is essential. Generally the leader organization or ‘focal company’ is one that has the largest financial power or superior technological knowledge or is the one that generates greatest share of value among all the organizations that are in the supply chain.

As was mentioned earlier in the context of Keiretsu, a supply chain is an effective hybrid of a hierarchical setup and free market competitive organization. Each company in the supply chain performs according to its core competency. These companies do not compete with each other like the family as a whole i.e. of the supply chain as a whole. There is inter-organizational collaboration towards that objective.

What keeps them all together?

What is the binding factor for these independent companies to form a supply chain? The simple answer is: there is a pay-off for everybody. For one, there is a committed business. To put it in another way, the companies in the chain are all committed to the success of all the members. Such assurance – nay, commitment is hard to come by if these companies were looking for business by themselves. Commitment, trust, reliability and security are the biggest gains in belonging to a supply chain. Here, the business is performed like it was a social activity. The other tangible gains could be the financial a technical support provided when needed.

Mindset: Thus, in building chain,
1. the participating or partner companies are to be chosen
2. the strategies and policies of the participating companies have to be aligned and
3. a culture of trust and cooperation has to be initiated and sustained

The activities mentioned above could be classified as tasks pertaining to the mindset.

Coordination: The next task in building a supply chain is to ensure coordination of the flow of materials, information and finance, the objective being to satisfy the ultimate customer and to do so with efficiency. This task deals more with physical or tangible aspects. It tries to bring in improved process orientation. The flows are not treated as isolated activities performed at different locations on the supply chain. Islands of efficiency are not desirable; it is the overall, joint efficiency that is to be enhanced. It should be a smooth flow up in the customer, without developing any hiccups along the supply line.