Aligning Product Strategy to Supply Chain Practices

Read this article. The authors study whether organizational products are aligned with optimal supply chain types. Besides the product, what other aspects must be analyzed when selecting a specific type of supply chain?


Demographic profile

The business profile of respondents is shown in Table 1. Respondents have been in operation for more than 4 years, with 3 of them having operated for a longer period: Respondent 3 for 8 years, Respondent 6 for 10 years, and Respondent 9 for more than 13 years. Except for Respondent 7's business, which operates as a partnership, all the other businesses are individually owned. Respondents run different craft businesses such as jewellery, ceramic, interior and office décor and fashion. Businesses are owner-manager run, with the exception of Respondents 3 and 7: Respondent 3 employs additional people who help with the design and manufacturing of products, whilst Respondent 7 works with a business partner. All the respondents employ additional people when demand is high. All the businesses are formal and registered businesses. They are male-run businesses, except for Respondents 3, 4 and 9 which are female-run businesses. Respondents' revenues vary from R40 000 to R500 000 per year, except for Respondent 3 who has no record of annual revenue. Although some businesses have been operating longer than others, these have not necessarily been performing better than the more recently established craft businesses. For example, Respondent 9 has been in operation for 13 years, yet their sales revenue is lower than for Respondent 7 who has been operating for just 4 years. Respondent 3 pays no rental because she operates from her house. She works with three other people, but they sometimes operate without income as the businesses does not generate sales on a monthly basis.

TABLE 1: Business profile of the businesses interviewed.

Number of product lines sold

Except for Respondent 3, who has six product lines, respondents have between two and five product lines. As small businesses are owner-managed, it makes sense that these businesses have narrow product lines because they might not be able to manage all the product lines effectively. As shown in Table 2, Respondents 1, 3, 4, 5, 6, 8 and 9 also have a narrow product assortment, whilst Respondents 2 and 7 have a deeper one. Respondents 1, 3, 4, 6, 8 and 9 also do not have brand names for their products, whereas Respondents 2, 5 and 7 do have branded products. For example, one respondent has two brand names, one for the local market and the other for international market.

TABLE 2: Product strategies used by the craft business respondents.

Product differentiation and associated supply chain cost implications

Respondents 1, 3, 8 and 9 standardise their products across market segments. They do, however, differentiate their product designs from those of competitors. Only Respondent 4 makes and sells products that are similar to those of competitors. Products are made for different customer groups, including trade customers, tourists, local consumers and the export market. Respondent 3 produces products similar to those of any other producer supplying office stationery and interior décor, but most significantly differentiates her products through the type of raw materials that she uses, such as the use of sand and recycled materials (which results in innovative fresh product designs which are popular). With regards to sand as a raw material, she has gained a competitive advantage through lowering her cost of raw materials as the sand used is easily obtainable and obviously very inexpensive to source. She can therefore charge lower prices than her competitors by simply substituting one inbound sourced material over another more expensive one. She also has an advantage through the uniqueness of raw material (sand), which makes her stand out from her competitors.

Whilst a number of craft businesses do produce products that are difficult to copy, there were also certain craft businesses that proactively and innovatively used recycled materials to produce very good quality products. The literature review confirms that there is indeed a business case for utilising green opportunities in the supply chain setting. Hugo and Badenhorst-Weiss underscore the possible business opportunities in their discussion entitled 'Greening opportunities throughout the supply chain'; similarly, Iannuzzi also has a pertinent discussion on 'green and healthy product design factors' and how waste can be effectively used to make money in innovatively designed products.

Use of brand names and unique design features in the product design process

Respondent 7 has four brand names, each used specifically for different market segments. He makes fashion products, traditional clothes, contemporary clothes, as well as wedding and classical lines for men and women. He has different designs, including innovative cultural design (African designs with tribal or cultural styles clearly evident), as well as modern and contemporary ones, and still manages to customise designs for different customers. His product assortments vary in terms of colours used, designs, and sizes and, in addition, he can adapt the product to customer's specifications. Burt et al. feature an in-depth discussion on the 'Categories of specifications' and certain of these specification categories are evident in the product design process of this crafter.

Respondents 5 and 6 both stamp their products with their business name and contact details. This is important for repeat buying as a customer can phone to place an order or refer other customers to this respondent. Respondent 6 can also adapt his designs to meet specific needs of customers and customise products for customers. Products come either in plain colours or in African 'Big Five' animal designs and he has two different designs: one for the local market and one for export. Respondent 2 customises his products through the use of different colours and sizes based on customer's request.

Respondent 4 creates unique designs. He produces interior décor products such as cases and kitchenware. He has a narrow product assortment: he creates one design for each product, using the same colour with three different sizes. Although this helps to distinguish him from competitors, it also limits his business growth as some of the customer's demand that he sell to them and not their competitors. With such a narrow assortment and with exclusive contracts to supply one customer, he might need to increase his product assortment by adding different colours, which would free him up from any 'exclusive' agreements and he would obviously then be able to sell more and make more money.

Retailing and distribution strategies differ from respondent to respondent (see Table 3). With regard to the availability of products, customers can visit all of the Respondent's factories or stalls where they can buy and collect the products. In terms of general transportation to customers, products can also be delivered to customers, as is the case with Respondents 1, 2, 5, 6, 7, 8 and 9. In terms of outbound transportation of finished goods, respondents can either deliver personally to customers or courier the products anywhere in the world. Customers can also buy products at the various exhibitions in which respondents are involved, from retail stores selling their products or from the stall in case of Respondents 4 and 9. Various order management systems are used by respondents: customers can either, (1) phone to place the order, (2) place orders via email, (3) physically place orders at the exhibition where items are displayed or (4) visit the factory where items are made. Whilst certain smaller orders are processed very quickly within minutes (especially at exhibitions and during factory-visit sales where finished goods are readily available), it often takes up to 2 weeks for the respondents to process a large order.

Dimensions of the supply chain used by the craft business respondents.

Craft businesses use either their own vehicles or third-party logistics operators to distribute their products locally and internationally. In terms of transport modes used and transport infrastructure (vehicles etc.), only Respondents 2, 5 and 7 have their own transport (one a delivery vehicle and one a sedan). Respondents 1, 3, 4, 6, 7, 8 and 9 use public transport to deliver products to customers locally and/or third-party courier companies to ship products internationally via air transport (unless the package delivered is abnormally large, then sea transport is occasionally used as it is more cost-efficient). International customers pay for the courier expenses. 

Respondents often make use of third-party operators for very large local deliveries. This is expensive and craft producers often lack the experience and time to source a reasonably priced transport method locally, often ending up paying far more than what they should (as a result of their lack of logistics and transport knowledge regarding the competitiveness of rates charged). As transport is needed as and when a customer buys, it makes it difficult for them to develop relationships with the transport suppliers and thereby leverage better rates over the long term. The lack of development of alliances and healthy relationships with transporters was evident with most respondents.

All respondents utilise their own production facilities and storage facilities or warehousing to create and store their products In terms of physical production facilities and storage space (warehousing), all the respondents have their own rented factory space. They use the space for production, stock keeping and as a sales display area. Only two of the respondents, 5 and 7, have their own computers and Internet connections (via 3G), whilst the others access computers at Internet cafés.