The success of industries and companies today does not rely solely on manufacture of innovative product and marketing strategies. It is equally important for industries to set up a functional and effective supply chains which will help catapult profit margins. However most companies have sought other remedies such as launching innovative products and price promotions (Fisher 106). Ineffective supply chains can result to numerous losses annually. It is unfortunate that most industries do not even revise their supply chains. Fisher estimates that poor coordination of the supply chain among partners in the USA results to a thirty billion loss annually. Services envelop the product and it is important to note that these services are very essential (Fuller, O’Connor and Rawlinson 87). Logistics are one of the services that must be carefully managed to ensure that the industry becomes more profitable and cut on losses (Fuller, O’Connor and Rawlinson, 88).
The major logistic difficulty experienced by companies is that there is an excess of some products and a shortage of others (Fuller, O’Connor and Rawlinson, 88). This difficulty arises when companies are unable to predict and estimate demand. Fisher therefore advises that before setting up a supply chain, the industry must identify the nature of demand for its products (106). This is because the demand directly affects the supply. Based on various aspects such as market standards for lead times fisher has classified demand patterns into two categories i.e. primarily functional and primarily innovative. Fisher therefore realizes that a mismatch between the type of product and the supply chain to be the main source of logistical problems (107).
These are products that have a relatively predictable demand because they meet the basic needs. These products include groceries and gas however these products have a low profit margin owing to the high competition in the market (Fisher, 106). Market mediation is easy on these products because of their predictable demand. Market mediation is one of the functions of the supply chain where the company tries to match supply to demand (fisher 107). Therefore companies strive more to reduce the physical costs in order to increase the product’s profit margin. This is important because the demand for functional products is price-sensitive. Companies ensure that the supply chain is effective through synchronizing ordering, production and delivery of the products therefore minimizing inventory while increasing production efficiency (fisher, 107). To this end manufacturers must ensure there is quick and efficient flow of information between the retailers, suppliers and manufacturers.
In contrast to functional products, innovative products have an unpredictable demand and relatively higher profit margins while their lifecycle is short (fisher, 106). Due to lack of predictable demand the supply chain strategy differs significantly from that of functional products. Companies have to keep a stream of new products into the market hence the products have a short lifecycle. The volatility of demand for innovative products could result to shortages or excessiveness of supply. Companies dealing with innovative products must use early market signals to position inventory. The suppliers hired must be efficient, dynamic and flexible because speed in decision making is very important (Fisher, 108). Demand could easily outstrip supply leading to stock-outs this must be countered by increasing speed and flexibility of the supply chain. Company must be wary of a shift from functional products to innovative products without a subsequent change of the supply chain. This could result to a total fiasco if the products demand is low leading to high inventories. Companies change their functional products to innovative ones in an effort to increase their profit margin. This is also fueled by the need to gain a competitive advantage over other companies providing similar products (fisher 110). In order to survive these companies must revise their supply chain strategy so that it becomes responsive. The other option is to change their products from being innovative to functional. These companies can also find more sources of new data so that they can make the demand more predictable. The company should strive to reduce inventory and make sure that the supply chain is responsive. The company must avoid stock-outs by all means because this frustrates customers who want to buy the commodity.
Responsive supply chains such as the Just-in time method can reduce inventory (Fisher 108). The just in time method is also similar to continuous replenishment program. Logistics can utilize the constantly improving information systems to pass information speedily from the retailers to the manufactures so that ordering, manufacture and delivery of products can be done with precision. This will also enhance the sharing of facilities such as warehouses due to less need space for keeping inventory (Fuller, O’Connor and Rawlinson 91).
Companies must also strive to remain competitive and profitable across their markets without overcharging some of its customers. Companies may also consider sharing logistic assets in order to benefit from the economies scales (Fuller, O’Connor and Rawlinson 98). Consolidation will enable teams reduce the number and dispersion originating from warehouses.
Today companies are struggling to cut production cost and increase their profit margin in a very competitive environment. However most of them try to reduce the physical cost and forget to venture into logistics. As a result most of the supply chain strategies are old and have not been revised to fit into the modern day requirements. Companies that produce Innovative products must adopt a responsive supply chain whereas those that produce functional ones must also try to increase efficiency and reduce inventory. The managers must lead in reviewing the supply chain to ensure that the company follows the best and most effective logistic strategy.