Essay: Third Way Supply Chain Strategy

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[. . .] Butner also recommends that companies create cost-efficient sustainable products and practices while hedging risks with partners; another key aspect of Third Way is VF's partnering with suppliers.

Some analysts sound a cautious note when it comes to SCM strategies. Dorn of The Strategic Sourceror advises companies to seriously consider all aspects of globalization in light of the challenges of petro-economics. This analyst's comments are as timely today as they were when originally made in 2008. The analyst cites rising fuel costs for cutting deeply into projected savings for the internationally integrated supply chain. Among other challenges, the analyst mentions the following:

Currency values must be included in evaluations

Ability to arrange a supplier audit to maintain quality standards

Trade barrier-caused delays

Political instability

Natural disasters that can cause supply chain interruptions

The analyst concludes by stating that supplier choice and integration are both challenging and potentially risky (Dorn, 2008). Once again, VF's proactive management correctly read the challenges they would be facing, and factored them into his Third Way strategy.

The Supply Chain Council offers more insights into supply chain challenges. They identified key SCM challenges, and offered possible solutions. Cost control is a priority because supply chain operating costs are under pressure from rising freight prices, more global customers, technology upgrades, rising labor rates, expanding healthcare costs, new regulatory demands and rising commodity prices. The SCCR recommends successful use of metrics so that an organization can measure how successful it is in achieving its desired objectives (SCC, 2011). VF has already begun successfully using metric, as shown by the analysis that went into developing Exhibit 4.

SCCR recommends that supply chains be periodically examined for planning and risk management purposes. Supply chains must be assessed and redesigned in response to market changes, new product launches, global sourcing, new acquisitions, credit availability, the need to protect their intellectual property, and the need to maintain asset and shipment security. Fraser and the VF team repeatedly examined their operations, resulting in the Third Way strategy as a way of meeting the challenges they observed. The SCC also recommends managing the supplier/partner relationship; another issue that the Third Way strategy addresses (SCC, 2011).

It should be mentioned that all analysts and industry experts consistently mention customer service as one of the drivers in any discussion of SCM challenges. Harris (2011) defines the relationship between customer service and SCM. He argues that effective supply chain management is "all about delivering the right product in the right quantity in the right condition with the right documentation to the right place at the right time at the right price." VF's thorough analysis of all the factors affecting their sourcing solution began with their determination to provide better customer service by meeting restocking demands and accommodating flexible forecasting.

Another article on challenges and opportunities for supply chain managers discusses the fact that in a recent survey of 500 CFOs, 64% cited reducing direct costs as their top priority. Nonetheless, much like VF, the majority of the respondents were aware of the instability caused by constant cost-cutting efforts on the supply chain; as a result they were struggling to find other ways to meet their business goals (Butcher, 2010).

Supply Chain Digest (2010) also offers its take on the most pressing challenges to confront today's global supply chains. They cite the number one challenging trend of supply chain volatility and uncertainty as having permanently increased. They also cite the second most challenging trend, that securing growth requires truly global customer and supplier networks. VF has recognized the same trends, and responded by putting the Third Way strategy into action.

A Business Week article points out additional challenges associated with upgrading the global supply chain strategy. When compared with decisions about investing in technology, the analyst points out that cultural and human issues are far more challenging. "Taking care to develop relationships with offshore manufacturing personnel -- which involves adequately training them to use the technology and helping them understand the cultural need to meet customer demand in a timely manner -- is critical to developing cooperation and collaboration throughout the supply chain" (Krivda, 2005). VF again anticipated these challenges when they formulated their training plan and partnership agreements with Third Way suppliers.

IBM Global technology Services points out the risks involved in SCM, and the potential costs of disruption. They cite the following statistics:

35-40% lower stock returns for a three-year time period

Share price volatility is 13.5% higher the year following the disruption

Disruptions have a significant negative effect on profitability

Firms continue to operate for at least two years at a lower performance level after experiencing disruptions (IBM, 2007).

Given the serious consequences of disruption, VF did well to focus on an alternative sourcing solution.

The McKinsey Quarterly also provides comments on SCM challenges. In a recent survey on managing supply chains, the most frequently cited challenge of the past three years was the increasing volatility of customer demand. However the most-often-cited problem in the next five years is increasing pressure from global completion (McKinsey, 2011). VF's focus on their supply chain strategy is an appropriate response.

Supplychain-mechanic.com (n.d.) offers additional insights as well into the challenges of SCM. In addition to focusing on cost in sourcing from emerging economies, they suggest other rationales that should not be overlooked:

Consider other business drivers and a plan B. If things go wrong

Consider how the company will manage the supplier

Communicate expectations so the supplier understands requirements on performance, quality and service

In putting together their Third Way strategy, VF factored in these concerns as well.

So far this essay has examined the literature on SCM and challenges that companies face in the wake of the economic crisis of 2008-2009. VF Brands faced these challenges by responding with a new sourcing strategy. The following is a summary of the challenges they faced as they prepared to trial their new sourcing solution.

The fragile economy put additional pressure on VF to be profitable. Their previous focus on cost-cutting had been successful as long as there had been additional opportunities to source production. With global apparel production in full swing, VF simply ran out of lower cost sourcing possibilities.

Because Fraser recognized these trends, he had been advocating for a shift in VF supply chain strategy. Like their competitors VF's outsourcing strategy highlighted flexibility. This requirement resulted in VF working with suppliers on short-term contracts, which strategy allowed VF to shift production among suppliers in different locations in respond to changes in exchange rates, tariffs, and other cost factors. This system was filled with challenges, including lack of coordination and trust between suppliers and apparel companies. As supply chains globalized, the challenges of finding suppliers, along with managing sourcing relationships and coordinating product flows had steadily increased, providing Fraser with the rationale and motivation behind Third Way.

Other challenges included the U.S., losing 50% of its fabric production capacity in the past decade alone. This reduced capacity affected VF as well. VF was also concerned about the long-term effects of the financial crisis on the supply base.

For all of these reasons, Fraser began implementing Third Way as an alternative supply chain strategy.

Bibliography

Blanchard, D. 2009, Top nine supply chain challenges for 2009, Industry Week, [Online] Available at: http://www.industryweek.com/articles/top_nine_supply_chain_challenges_for_2009_18189.aspx?Page=1

Butcher, D.R. 2010. A new year of supply chain challenges and opportunities. Industry Market Trends, [Online] Available at: http://news.thomasnet.com/IMT/archives/2010/01/new-supply-chain-challenges-and-opportunities-for-a-new-year-2010.html

Carter, P.L., Monczka, R.M., Ragatz, G.L., & Jennings, P.L. 2009, Supply Chain Integration: Challenges and Good Practices, CAPS Research, [Online] Available at: http://www.capsresearch.org/publications/pdfs-public/carterp2009es.pdf

DeAngilis, S. 2011. IBM's top five supply chain challenges, [Online] Available at: http://enterpriseresilienceblog.typepad.com/enterprise_resilience_man/2011/04/ibms-top-five-supply-chain-challenges.html

Ditmann, J.P. 2009, Supply chain news: The seven timeless challenges of supply chain management, Supply Chain Digest, [Online] Available at: http://www.scdigest.com/assets/On_Target/09-06-02-4.php?cid=2496&ctype=content

Dorn, W. 2008. Challenges in supply chain management, The Strategic Sourceror, [Online] Available at: http://www.strategicsourceror.com/2008/09/challenges-in-supply-chain-management.html

Ferrari, B. 2011, Supporting organizational fabric, framework and culture, Supply Chain Matters, [Online] Available at: http://www.theferrarigroup.com/supply-chain-matters/category/supply-chain-management-challenges-for-small-and-medium-business/

Ferrari, B. 2011, The two most significant supply chain management challenges in 2011, Supply Chain Matters, [Online] Available at: http://www.theferrarigroup.com/supply-chain-matters/2011/01/31/the-two-most-significant-supply-chain-management-challenges-in-2011/

Freese, T.L. 2006. The value and challenges of supply chain management. Global Supply Chain & Logistics Conference. [Online] Available at: http://www.freeseinc.com/images/The_Value_Challenges_of_SCM-Final.pdf

Harris, D. 2011. Solutions for challenges in supply chain management, Big-Topics.com [Online] Available at: http://www.big-topics.com/2011/04/challenges-supply-chain-mgmt/

IBM Global Technology Services. 2007. Global supply chain challenges. IBM BC&RS, [Online] Available at: http:/ / www.bcilondonforum.org/LinkClick.aspx?fileticket=mrXAXY... www.bcilondonforum.org/LinkClick.aspx?fileticket=mrXAXYOaSew%3D&tabid=340&mid=998

Krivda, C. 2005. The global supply chain, Business Week, [Online] Available at: http://www.businessweek.com/adsections/2005/pdf/0535_supplychain.pdf

McKinsey Quarterly. 2011. A looming supply chain challenge: Global competition. [Online] Available at: http://web.hbr.org/email/archive/dailystat.php?date=011711

Ross, A. n.d., The challenges of supply chain management, Supply Chain.com, [Online] Available at: http://www.supplychain.com/docs/challenges_of_supply_chain_management.pdf

Sillett, J. n.d., Top supply chain challenges for consumer goods companies, Manufacturing a & Logistics IT, [Online] Available at: http://www.logisticsit.com/absolutenm/templates/article-critical.aspx?articleid=1178&zoneid=31

Supply Chain Council. 2011. The five most common supply chain challenges, Supply Chain Council, [Online] Available at: http://supply-chain.org/top-supply-chain-challenges

Supply Chain Digest Staff. 2010. Supply chain news: The five challenges of today's global supply chain. Supply Chain… [END OF PREVIEW]

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