Efficient versus Responsive Supply Chain Strategy

1. Introduction

Companies nowadays face a challenge with the ever-changing market needs. They must choose the strategy that fits the best with their product, firms can reach out for the most efficient or the most responsive in the supply chain are management.

1.1 Responsive Strategy

Predicting the demand for a product can have can be very complicated, it can be as hard as forecasting the weather. Even if a company has a very advanced system for forecasting, human behavior cannot be accurately predicted, therefore there are high forecast errors. The responsive strategy provides the company flexibility and permits them to have a quick reaction to types of events and remain strong in the supply chain game. A good example is the fashion industry, where even though there are expected trends for fashion the forecasting error is very elevated, according to The Wharton School, the average forecast error for fashion items is 55%. (Infosys, 2015)

1.2  Efficient Strategy

The efficiency strategy focuses more on the internal operations rather than the external factor that can affect the company’s performance. Supply chain efficiency is related to how companies manage their resources in the best way possible, these resources could be either human, financial, technological, or physical. Companies that are in a very intense market competition tend to use this type of strategy.

 Efficiency strategy can be defined as a cost-focused strategy. Companies are always seeking cost reduction and avoiding waste resources and non-value added activities.

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2. Describing and contrasting (the output of the two strategies, the products to which each strategy)

Efficient Supply Chain StrategyResponsive Supply Chain Strategy
– Lower costs
– Optimization in shipping routes, personnel, and inventory.
– Based on saving money and increasing profits throughout the business.
– Gets products to their destinations in a cost-effective way.
– Can offer customers better prices than the competitors  
– Respond quickly to demand.
– Maintain capacity flexibility against supply/demand uncertainty.
– Based on speed, flexibility, quality, and reliability.
– Invest in ways to reduce lead time.
– Select primary suppliers for speed, quality, and flexibility.
Contrast between strategies

2.1  Contrast Efficient Supply Chain versus Responsive Supply Chain

Analyzing this information, we can clearly notice that Efficient and responsive strategies focus on different things. The efficient strategy focuses more on finding ways to optimize their resources and logistics to be able to reduce costs to be able to have more profits and also to be able to offer better prices for customers. On the other hand, a responsive strategy focuses more on trying to be very accessible for their customers and be more flexible to them and their demands.

     There is something both have in common, which is benefiting their customers. Each strategy gives it a different way but the end goal is the same. A good recommendation for companies would be to try and use both as much as possible. A quote from Supply Chain Movement aptly mentioned a very wise quote: “As responsive as required, as efficient as possible.”

3. Two Companies effectively using both Strategies

Two good examples of companies using these two different strategies work in the retail industry are Walmart with an Efficient Supply Chain Strategy and 7-Eleven Japan for the Responsive Supply Chain Strategy.

The benefits Walmart reaped for an efficient supply chain management included a reduction in lead time (the time taken for goods to reach Walmart stores from the place of the manufacture) faster turnover, accurate forecasting of inventory levels, increased warehouse spaces, reduction in safety stock and better working capital utilization.

7-Eleven Japan’s structure for responsive supply management was to provide rapid replenishment to all its stores, the information system helped the stores to better match the supply of demand, and the collaboration with the suppliers through secure websites provides vital information leading to a new product or new packaging.

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