How to Create a Supply Chain

A supply chain consists of manufacturers, retailers and others involved in filling a customer order. The elements of a supply chain will vary with business and product type. For example, the supply chain for a restaurant will not be the same as a clothing retailer or a management consultancy. The supply chain must be resilient, responsive and flexible for businesses to survive in a world of increased competition and changing customer preferences.

Identify the key components of your supply chain. For a new business, this might mean starting from scratch and developing relationships with suppliers, manufacturers and logistics companies. A high level of coordination and collaboration is critical because a disruption in any one component of the supply chain affects everybody. In a joint Wharton School and Boston Consulting Group report, BCG’s vice president Marin Gjaja said that the first hurdle to creating this coordination is internal, because organizations are usually not set up to move products from concept to production at the lowest possible cost, especially on a global scale.

Define the supply chain manager's role. Kevin O'Marah, vice president of research at consulting firm AMR Research-Gartner, believes that communication is critical for managers to drive innovation throughout the supply chain. The supply chain manager must understand the sales process in order to make plans for changing customer needs. He must also interact with the design group to understand the kinds of parts he needs to order for manufacturing new products.

Cut lead times. Anticipate changing customer needs and competitors' actions and launch new products on time. First-mover advantage is critical. For example, Apple launched the iPad handheld device in 2010 and was able to quickly establish market dominance because none of its major competitors were ready with competing products. O'Marah believes that the speed of innovation is also important. Companies should look at concurrent or parallel development methodologies to cut their time to market and keep pace with the competition in terms of new product launches.

Build resilience in the supply chain. According to Massachusetts Institute of Technology professor Yossi Sheffi, organizational resilience -- the ability to deal with the unexpected -- increases in importance as the risks become greater. Develop resilience by increasing redundancy (such as holding extra inventory and having multiple suppliers), building flexibility and changing the corporate culture. Build flexibility by adopting standardized processes -- which allow production and parts to be moved easily between multiple products and plants -- and maintaining a strong relationship with the suppliers. Change the culture by fostering a passion for dedication throughout the organization.

Manage risk. According to the Wharton report, the three main sources of supply chain risk are operational, natural disasters and political instability. Identify the nature and scope of the vulnerabilities and implement risk mitigation activities, such as having backup suppliers and keeping extra inventory on hand in case of sudden supply shortages.

Measure performance. Use metrics such as lead times, defect rates, inventory levels and customer satisfaction levels to continually evaluate and adjust the components of your supply chain.