What is Supply Chain Strategy: Importance, Types, Improvement, and Examples

The word 'Supply chain' suggests that multiple aspects will be involved. Manufacturing companies or product-based companies depend upon procuring raw materials from their source. After production, these products are distributed to the end users in the market. So, now this chain has those links that create the entire supply flow. 

Supply Chain = Supplier + Manufacturer + Distributor + Retailer + Consumer

We are going to simplify this topic for you in the blog. Let's start with the basics.

What is supply chain strategy?

Take a look at the process chart above. You will understand 'Who should be the person with the maximum weightage to initiate a supply chain?'—Procurement Managers. After that, the manufacturing, logistics, and sales departments are involved. However, it is worth noting that logistics ( the method of transporting goods) is also involved in sourcing raw materials and distributing finished products.

If we combine everything (the chain links and the key stakeholders), we can easily conclude that the Supply chain needs a practical and well-researched strategy. 

Thus, the supply chain strategy is a plan that outlines how a company will manage the flow of goods and services from suppliers to customers. It helps you decide the best way to source materials, produce products, and deliver them efficiently to meet customer demand. This blueprint also involves coordinating with the point of contact for manufacturing, inventory management, and logistics. 

Now that you know how many variables are in the Supply chain, you need to understand the importance of developing a strategy. 

Importance of supply chain strategy

Every strategy has a particular aim. In the Supply chain, the strategy aims to create a 'ripple effect' that touches all aspects of your business. 

1. Cost Reduction is a significant aspect 

Based on the research, it was found that Supply chain strategies reduce your financial burden by 15% to 20%. A popular plan that businesses mostly prefer is 'Lean Manufacturing'. Your production includes the waste material that comes into the picture. To manage that waste, you invest money to dump it safely. This strategy reduces waste production.   

If you want to ensure 'optimum inventory management', then' 'just-in-time inventory' is another strategy you can apply. Six Sigma also helps eliminate defects and saves money in production. It would help if you had different strategies to cover various aspects of your supply chain.. 

2. More throughput results in more production 

When you optimise your supply chain, you focus on activities like balancing inventory levels, improving production flow, and enhancing collaboration across the supply chain. This results in a 20-30% increase in throughput, making product delivery faster and more efficient. Using tools like automation and real-time tracking reduces errors and improves response times to customer needs. As a result, your business becomes more productive, saves costs, and ensures customer satisfaction, keeping you competitive in the market.

3. Resource Optimisation

Balancing customer demand, inventory levels and delivery efficiency often challenge resource optimisation. For example, a retail company might struggle to maintain stock levels and meet demand spikes, leading to overstocking and higher warehousing costs. Without effective logistics and supply chain management, these inefficiencies grow. However, by using resource optimisation strategies such as just-in-time inventory and transportation planning, companies can maintain the right inventory, reduce costs, and ensure timely deliveries, driving sustainability and higher productivity.

Key components of supply chain strategy

Here are the key components of a supply chain strategy with clear examples for better understanding. 

1. Demand Management 

Imagine a company selling 10,000 units of a product in May 2024 and 12,000 in June 2024, showing a 20% increase. Market trends suggest a 15% rise in demand for July. Using this information, the company plans to produce 13,800 units for July, ensuring enough supply without overstocking or underproducing.

2. Supplier Relationships

A car manufacturer often delays getting parts from a supplier during peak production times. To fix this, the manufacturer works closely with the supplier, establishing stronger communication and placing orders earlier. This ensures the parts always arrive on time, preventing production delays.

3. Inventory Optimisation

A furniture company has 2,000 chairs in stock but expects to sell 1,500 next month based on past sales. Instead of keeping too much inventory, they adjust their order and only produce what's needed. Storage cost reduction and excess stock avoidance are the direct benefits of inventory optimisation. 

4. Logistics and Distribution

Transportation always involves decision-making. Our analysis says that the choice of routes and containers contributes significantly to the efficiency and cost of overall production.

5. Risk Management

This is where the Supplier strategy turns out to be a life-saving decision. The procurement manager faces disruption on a daily basis. Since you do not get one raw material from a single vendor, and to produce your product, you need everything on time in one place, the risk of production halting due to a lack of supply can be managed by making a strategy. You can create ready-to-use backup suppliers in case your main vendors fail to deliver the material. 

Characteristics of supply chain strategy

While planning and implementing a strategy for your supply chain, ensure that you achieve the following: 

1. Balance: Your supply chain strategy should create a balance between the demand and supply of your raw material ensuring your inventory quota remains optimum. 
2. Increase in efficiency rates: You can enhance your existing efficiency of production. It happens when you are able to identify the cause of delays in the availability of raw material and then implement measures to remove those delays which enhance the production. 
3. Transparency: When you embrace transparency, you can clearly see the data—what’s working and what’s not. This clarity helps you identify gaps, innovate solutions, and build strong, trusting relationships with your partners.
4. Cost Management: If you apply a cost-focused supply chain strategy, then you are going to manage inventory levels by ensuring you have the right stock without overstocking, transportation costs by optimizing routes and consolidating shipments, and supplier pricing by negotiating better deals and reducing waste through streamlined processes.
5. Collaborative: As you strengthen relationships with suppliers and customers, trust grows, and you move beyond transactions to form lasting partnerships. Together, you can innovate, adopt new technologies, and continuously improve processes while aligning incentives to ensure everyone benefits.

Types of supply chain management strategies

Theoretically, there are at least 7 different types of strategies to maintain resilience and continuity in the supply chain; which are listed below. Since each strategy is attributed to solving some pain points, you are free to incorporate as per your requirements: 

1. Lean Strategy: If you want to reduce waste and increase efficiency.
2. Agile Strategy: If your priority is quickly adapting to the market changes.
3. Hybrid Strategy: You can combine both strategies and call it Hybrid. Hybrid strategy = Lean + Agile 
4. Six sigma: This strategy gives you the power of accurate prediction which you can apply in your operations. 
5. Just in time: This strategy will align your raw material from your supplier to your production. 
6. Continuous Flow Strategy: If your business runs on consistent demand then for consistent incoming of raw materials, you can opt this one. 
7. Custom-Configured Strategy: There is always room for improvement. When you meet a unique problem then you need a specific strategy to solve it. 

Effective ways to improve supply chain strategy

Improvement in supply chain strategy comes with an understanding of the structure. Look at the image below.

1. Start by evaluating your supply chain partners: First, ask yourself—are your current partners delivering the value you expect? Are they reliable, cost-effective, and aligned with your goals? Setting clear criteria will help you focus on the partners that matter most.
2. Pick the key players you can rely on: Not every partner is equally important. Identify the ones who have the most significant impact on your business. These people make or break your operations and deserve your closest attention.
3. Understand where your business stands: Take a step back and see where you fit in the bigger picture. Are you driving the process or depending heavily on others? Knowing this will help you take control where it matters most.
4. Map out your network: It's essential to see how everyone is connected—where you are and where your partners are. This helps you pinpoint gaps, overlaps, or areas for improvement.
5. Build stronger connections: Once you know the flow, work on tightening those connections. Better communication, faster coordination, or smarter tools can make sure everything runs like clockwork.
6. Focus on what's critical: Some processes, like sourcing and delivery, are at the heart of your operations, while others, like inventory or IT, support them. Sharpen your focus on both so that the essentials run smoothly and the rest effectively support them.

Examples of successful supply chain strategies

Here are brief examples of supply chain strategies from Zara, Shein, and TreeHouse Foods:

1. Zara: Zara's success is driven by its Just-in-Time (JIT) production and in-house manufacturing. By producing smaller batches of clothing based on real-time customer demand, Zara minimises excess inventory and quickly adapts to new fashion trends, staying ahead in the fast fashion market.
2. Shein: Shein uses a digitised supply chain to minimise inventory waste and match real-time demand. The company tests new products in small batches (100-200 items) before committing to larger production, reducing the risk of overproduction and allowing for quicker customer responsiveness.
3. TreeHouse Foods: TreeHouse Foods leverages vertical integration to manage its supply chain, particularly by integrating its suppliers and production processes. This control allows the company to streamline production, reduce costs, and improve product quality by overseeing the entire chain from raw materials to delivery.