Choosing the right type of supply chain model

Companies operating in competitive markets need an edge. Choosing the right supply chain model can provide one. Here’s how to decide what model is right for your business.

The right approach to supply chain management can bring about significant operational advantages. Aside from the primary benefits, like ensuring customer orders are fulfilled on time, a well-managed supply chain can be the driving force behind operational efficiency and actively protect against supply chain risks.

There is a dichotomy between these two benefits. A more efficient supply chain reduces the cost of procurement, manufacturing, transportation, and other business operations, resulting in higher margins. Meanwhile, a more resilient supply chain can better respond to changing circumstances and recover more quickly from disruptions.

While efficiency and resilience are desirable traits in a supply chain, companies may prioritize one or the other of these goals depending on their business requirements. This is the fundamental process through which they decide which supply chain model is right for them.

Popular supply chain models

Supply chain models are essentially frameworks around which businesses formulate and develop a more sophisticated supply chain strategy. The choice of a particular model will be dictated by the aims of the business, the nature of the products they sell, and market trends/demands. There are plenty of models to choose from, but these are some of the most common:

Continuous flow

Continuous flow is one of the most traditional supply chain models designed to minimize waste and maximize efficiency. Focusing on the throughput of raw materials and goods requires seamless synchronization of all stages of the supply chain, from procurement to delivery. This model enables companies to hold less inventory and reduces the time taken for products to move through the chain.

Fast chain

Speed and agility are prioritized in the fast chain model. Highly adaptable, this approach is best suited for businesses selling products that change frequently or have short lifecycles. By harnessing automation and data analysis to enable real-time supply chain visibility and demand forecasting, companies can deliver products to market faster and respond rapidly to changes in demand or challenging market conditions.

Efficient chain

An efficient chain model seeks to streamline processes and use resources in the most effective way. By maximizing supply chain efficiency and minimizing waste or redundancy, businesses can reduce operational costs and increase overall profitability. With an emphasis on supplier management – selecting vendors, negotiating contracts, and controlling costs – companies using the efficient chain model will finetune their supplier base to meet their supply chain objectives.

Although not primarily designed for agility or resilience, this model helps businesses stay competitive in normal market conditions.

Agile

Prioritizing the ability to adapt rapidly to changes in demand, the agile model is suitable for businesses that deal in made-to-order products and specialty items or for businesses that operate in markets where demand is unpredictable. The agile approach minimizes the time frame between orders being placed and manufacturing being carried out.

Integrating real-time demand data and inventory visibility to enable high sensitivity to changing market factors, agile supply chains often have redundancy baked into the supply chain. This isn’t the most cost-effective approach, but it does increase supply chain resilience and is, therefore, suitable when market conditions are challenging or unpredictable.

Custom-configured

The custom-configured supply chain model is a bespoke approach that merges the principles of continuous flow and agile supply chain models.

As its name suggests, it facilitates custom configuration during a product’s production and assembly. This approach is, therefore, ideal for businesses selling products that can be personalized. Although materials for the non-customizable parts of the product will need to be supplied at a constant rate, those for the personalized elements may be supplied at variable rates.

A custom-configured model tends to involve a higher initial outlay for supply chain design and set-up. However, it can deliver efficiency over time – and since it offers a high degree of customizability, it may suit companies with particularly unique business objectives.

Flexible

With the potential to deliver the best of both worlds – efficiency, and agility – flexible supply chain models are suitable for businesses that experience periods of extremely high demand followed by periods of low demand.

Companies can dynamically adjust their procurement of materials and alter production levels by taking advantage of effective demand forecasting and real-time inventory tracking. As such, activity can be scaled up when demand is high and reduced when it is low. This model often involves a broad supplier base, with some suppliers chosen for speed and others for cost-efficiency.

How to choose the right supply chain model

There is no right or wrong supply chain model, but some models are better suited than others to achieve a particular business’s aims.

When it comes to supply chain modeling, businesses need first to develop a comprehensive understanding of the market they operate in, their customers’ needs, and the business’s operational objectives.

They can then evaluate the pros and cons of various supply chains and decide which approach best suits their specific aims. By combining different elements from various models, businesses may adopt a more bespoke supply chain strategy.

Whatever the chosen model, companies can further strengthen their supply chain management approach by deploying working capital solutions. These solutions allow for better working capital management, and a stronger working capital position means businesses can invest more in further optimizing their supply chain.

Supply chain finance and dynamic discounting are two of the most common working capital solutions, and they have key differences:

• Set up by the buyer, supply chain finance allows suppliers to receive early payment on their invoices by accessing finance at a cost based on the buyer’s credit rating. By enabling suppliers to source capital from a bank or other financial provider at a lower cost, buyers are in a stronger position to negotiate better terms.
• With dynamic discounting, a supplier receives payment for an invoice earlier than its due date in exchange for giving a discount. The earlier the payment is made, the greater the discount. This approach allows purchasers to take advantage of automated early payment discounts. Suppliers, meanwhile, can choose which invoices they want to accelerate and how early they wish to be paid.

 
A dedicated inventory management system is also a strong addition to a supply chain management strategy, allowing businesses to track and manage the flow of goods through their supply chain. This enables businesses to oversee inventory sourcing, storing, and selling more effectively, making it easier to understand and achieve optimum stock levels to fulfill demand while avoiding waste.

Some inventory management systems may offer further benefits. Taulia’s Inventory Management solution, for example, enables buyers to align the flow of goods with production demand. The solution can take ownership of goods-in-transit or at a nearby warehouse, improving balance sheets for both buyers and suppliers. Companies can therefore build up nearby safety stocks to mitigate the risk of outages and enjoy greater economies of scale by purchasing larger volumes while still receiving just-in-time deliveries.