Supply Chain Configuration

Read this article, which examines the challenges western nation manufacturers currently face. Specifically, it covers firms in industrial products, toys, fast fashion, and designer furniture.

Methodology: A framework for network configuration

Case-study company 4 - Designer furniture

Today, the company is part of a small, exclusive array of luxury brands that are representatives of quality and world-class design. The ambition of the company is to become the preferred and successful brand within exclusive design furniture and to enhance the customers' image by supplying such furniture. The company's self-perception has been based on the fact that they were the producers behind some of the most outstanding design furniture over the years. A number of years ago, the company fully mastered a broad line of in-house production lines of tables and lounge, dining, meeting, and stackable chairs.

In the run-up to the new millennium, the company experienced a slump in sales. Therefore, an analysis to clarify internal and external values was initiated. It showed that the company was facing a paradox: internally, they saw themselves as a company characterized by having a wide and dynamic range of products, created by many top architects and furniture designers. However, externally, only a few products and designers dominated the target group's picture of the company. This initiated a shift towards an increased market orientation with a large-scale investment in a sales- and image-building platform, which would attract new designers and boost the sales profile of the company.

The shift from a product- and production-oriented mindset to a focus on sales and international branding meant that the roles of sales, marketing, logistics, and development processes increased tremendously and emerged as the new core processes that replaced the actual manufacturing competence. As a result, a broad number of production lines and processes traditionally mastered in-house were reduced dramatically by outsourcing, reducing the number of production lines managed in-house to approximately 36%.

Following a period characterized by a strong focus on rationalization and optimization within production and sourcing, a new strategy was developed, indicating how the company wanted to work with their suppliers. The strategy was supported by a set of tools, the introduction of which was intended to lead to considerable changes in the configuration and management of the relationship between the company and their suppliers and to put pressure on the different network actors' ability to change.

First of all, the objective of the new sourcing strategy was to support the overall business plan to create value in the eyes of the customer. Furthermore, the strategy should put focus on implementation and balance of input and output and relate to the differentiated and context-based conditions for the company's sourcing activities. The objective of the sourcing model was to differentiate and consolidate sourcing activities and to enable the formulation and execution of multiple sourcing and relation strategies related to different suppliers. Furthermore, the model served as a tool for securing "risk" sourcing and for measuring performance of the suppliers.

In relation to the activities of strategic and key sourcing, a partnership approach towards suppliers was developed. The decision to undertake a partnership approach was closely tied to the recognition that the competition in sales markets is not only between companies, but also between supply chains. Furthermore, in some situations, close cooperation with suppliers is necessary and beneficial for customers and stockholders. Finally, the development of partnerships was seen as a driver to create synergies and to:

  • Increase cooperation and a holistic supply chain to reduce waste,
  • Reduce the risk of low-performance and general company risk, and
  • Increase flexibility.

Through the partnership approach, the company aims to build long-term relationships to ensure a tight alignment of activities and resources and to improve sourcing performance (strategic KPI) in order to minimize company and customer risk. In addition to coping with established relations with suppliers, the company continues to source key processes, components, and stainless steel, with the main focus on Poland as the number-one sourcing market.

Although new products are introduced, it seems fair to classify the company in the lower left cell of figure 3, thus also satisfying the need to tightly coordinate the many different suppliers so as to maintain its image among customers of a reliable supplier of high-quality designer furniture. The new sourcing strategy implies a significant need to address the supporting strategic roles of supply chains, such as benchmarking, prototyping, and ramp-up. The network structure may be described as a star, resulting in a highly complex sourcing task. It may be relevant for the company to consider shifting to a network structure with a number of loosely coupled networks for product groups using similar material and production technology.