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Why Every Start-up Always Has a Supply Chain Problem?

There is a common assumption that every company’s supply chain should be similar, if not the same. Even learned professors at august institutions write highly prescriptive articles in highly regarded magazines such as Harvard Business Review saying these things. For example see this article by a Stanford professor, on which I had a running correspondence through Harvard Business Review. My rebuttal of the article was published in the next issue of the same magazine.

The reality, encountered in the rough and tumble of the real business world is very different. Especially in the world of start-up companies – even the unicorns – the supply chain looks very different.

Supply Chain Maturity differs at each stage

In fact, our supply-chain maturity model shown in figure describes four  stages of supply-chain, where each stage of product life-cycle is paralleled by a maturity stage of supply chain. As figure below shows, there are four relevant zones of operations determined by two key factors on product maturity and supply chain maturity. Zone 1 is the foundation zone in which both the product and the supply chain are quite immature. As the name implies, in this zone the foundation for the future business is being laid. The next zone on the top left quarter of the matrix – the Innovation zone – implies a relatively mature supply chain, but a developing product. As the name suggests, this is the zone where both product and process innovations are rapidly taking place. The profitability zone on the top right quadrant is where both the product and the supply chains are relatively mature and while incremental innovation might be still possible. This zone is primarily focused on enhanced profitability. Finally, the twilight zone on the bottom right corner is when the product is reaching the end of its profitable life cycle and the supply chain becomes brittle.

Profitability Zone and Innovation Zone are the two most productive zones

Needless to say the more time spent in the profitability zone the more a company can reap rewards of its efforts. However, to maintain fresh product lines, to constantly stay on cutting edge and to retain long term leadership, companies will have to also spend some time in the innovation zone. Intuitively, companies want to spend time in the top two quadrants and minimize their time in the bottom two quadrants. In fact, overlapped on the four zones is a typical supply chain maturity cycle we observe. We will discuss this conundrum in more detail in Chapter 11 where we observe the Advanced Product Phasing strategies of the 5-STAR Network businesses.

 

 

Improvised Supply Chain

Initially, in the introductory stage of the product life-cycle, the supply chain is still very basic. In this improvisational stage of supply-chain, the key focus of supply-chain team is to really just gather enough material somehow, from somewhere, to make the product or to keep the research and development team supplied with raw material. They are not doing any advanced planning at this stage. They are not even aware of all the raw materials or all the parts, which will be required for making this product. Bill of Materials may not exist or, if it does, it is incomplete. There is no supply-chain planning mechanism besides this Bill of Material. There is no supply-chain control mechanism either. Even a budget does not yet exist, or it might be just a very rudimentary budget. At this stage of supply-chain maturity, the companies are not worried about its efficiency at all. There is no supply-chain collaboration with its partners for this simple reason: we don’t even know who they will be.

 

 

To read more get the book on http://5starbusinessnetwork.com/ or download 3 free chapters.

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