Why Every Start-up Always Has a Supply Chain Problem?

There is a common assumption that every company’s supply chain should be similar, if not the same. Even learned professors at august institutions write highly prescriptive articles in highly regarded magazines such as Harvard Business Review saying these things. For example see this article by a Stanford professor, on which I had a running correspondence through Harvard Business Review. My rebuttal of the article was published in the next issue of the same magazine.

The reality, encountered in the rough and tumble of the real business world is very different. Especially in the world of start-up companies – even the unicorns – the supply chain looks very different.

Supply Chain Maturity differs at each stage

In fact, our supply-chain maturity model shown in figure describes four  stages of supply-chain, where each stage of product life-cycle is paralleled by a maturity stage of supply chain. As figure below shows, there are four relevant zones of operations determined by two key factors on product maturity and supply chain maturity. Zone 1 is the foundation zone in which both the product and the supply chain are quite immature. As the name implies, in this zone the foundation for the future business is being laid. The next zone on the top left quarter of the matrix – the Innovation zone – implies a relatively mature supply chain, but a developing product. As the name suggests, this is the zone where both product and process innovations are rapidly taking place. The profitability zone on the top right quadrant is where both the product and the supply chains are relatively mature and while incremental innovation might be still possible. This zone is primarily focused on enhanced profitability. Finally, the twilight zone on the bottom right corner is when the product is reaching the end of its profitable life cycle and the supply chain becomes brittle.

Profitability Zone and Innovation Zone are the two most productive zones

Needless to say the more time spent in the profitability zone the more a company can reap rewards of its efforts. However, to maintain fresh product lines, to constantly stay on cutting edge and to retain long term leadership, companies will have to also spend some time in the innovation zone. Intuitively, companies want to spend time in the top two quadrants and minimize their time in the bottom two quadrants. In fact, overlapped on the four zones is a typical supply chain maturity cycle we observe. We will discuss this conundrum in more detail in Chapter 11 where we observe the Advanced Product Phasing strategies of the 5-STAR Network businesses.

 

 

Improvised Supply Chain

Initially, in the introductory stage of the product life-cycle, the supply chain is still very basic. In this improvisational stage of supply-chain, the key focus of supply-chain team is to really just gather enough material somehow, from somewhere, to make the product or to keep the research and development team supplied with raw material. They are not doing any advanced planning at this stage. They are not even aware of all the raw materials or all the parts, which will be required for making this product. Bill of Materials may not exist or, if it does, it is incomplete. There is no supply-chain planning mechanism besides this Bill of Material. There is no supply-chain control mechanism either. Even a budget does not yet exist, or it might be just a very rudimentary budget. At this stage of supply-chain maturity, the companies are not worried about its efficiency at all. There is no supply-chain collaboration with its partners for this simple reason: we don’t even know who they will be.

 

 

To read more get the book on http://5starbusinessnetwork.com/ or download 3 free chapters.

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Vivek Sood

I write about "The Supply Chain CEOs", "The 5-STAR Business Networks", and, how to "Unchain Your Corporation". In my work, I help create extraordinary corporate results using several 'unique' supply chain methodologies. Contact me for interesting, high impact projects, or, to get access to my IP for creating transformations using these methodologies.

  • Steve Banker says:

    Most companies believe they have better than average supply chain resilience. However, when put to the test with a disruption – natural disaster or man-made – it becomes clear that not all supply chains are created equal. Best-in-class organizations leverage real-time intelligence from their ecosystem of networked global trade partners to realize superior supply chain visibility and agility.

    Once a company’s maturity has been scored, the analysis also shows how far it is practical for a company to advance over a three-year period. But achieving those advances requires a plan. What skills and competencies need to be developed, and in what order? Carlos Valderrama, the Senior Vice President of Global Customer Success at LLamasoft, stated that it is possible to go from a low level of maturity to a very high level within three years

    I am the Vice President of Supply Chain Services at SRC Advisory Group, a leading industry analyst and technology consulting company. I engage in quantitative and qualitative research on supply chain management technologies, best practices, and emerging trends.

  • Easton Adeline says:

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  • Austin Serenity says:

    Supply chain encompasses all activities required to deliver on a given product and service/experience.

    Problems may appear in your product ( poor handling, poor storage, poor packaging, poor materials).

    Problems may appear through your customers’ experience of your offering ( poor handling of orders, poor feedback, poor visibility of inventory, poor customer service, poor warranty offering).

    Problems may appear in your balance sheet! (high inventory costs, high shipping costs, low stock levels, high transit times, long queues…)

    I am a supply chain professional so I may be biased… but I consider all business problems to somehow affect your supply chain. Interesting question. Hope this helps.

  • Isabelle SCM says:

    Very informative post! There is a lot of information here that can help any business get started with a successful social networking campaign!

  • jerian says:

    Yes in start-up every one faces a supply chain problems.
    Effective supply chain management enables enterprises to track the movement of the raw materials needed to create products, optimize inventory levels to reduce costs, and synchronize supply with customer demand. Furthermore, supply chain management enables enterprises to maintain visibility over their logistics to ensure availability of materials and delivery of products to customers. Effective supply chain management also helps enterprises avoid production stoppages by identifying areas in which they are reliant on a single supplier.

  • Evan says:

    Very Informative blog for supply chain managers. it provides learning how supply chain differs for every organization based on the level of it.

    • Steve Banker says:

      The end goal of any company is a satisfied customer. The process of locating, obtaining and transporting the inputs needed to do this is the core function of supply chain management. Supply chain design in the manufacturing industry requires a great deal of focus on physical product and a broader supplier base, while service firms typically have little need for physical inputs other than office supplies, and often work with a much smaller group of suppliers.

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