Canal De Suministro

on price promotions. One recent study of the U.S.

food industry estimated that poor coordination

among supply chain partners was wasting $30 bil-

lion annually. Supply chains in many other indus-

tries suffer from an excess of some products and a

shortage of others owing to an inability to predict

long life cycles. But their stability invites competi-

tion, which often leads to low profit margins.

To avoid low margins, many companies intro-

duce innovations in fashion or technology to give

customers an additional reason to buy their offer-

ings. Fashion apparel and personal computers are

obvious examples, but we also see

Before devising a supply chain,

consider the nature of the

demand for your products.

successful product innovation where

we least expect it. For instance, in

the traditionally functional category

of food, companies such as Ben &

Jerry’s, Mrs. Fields, and Starbucks

Coffee Company have tried to gain

an edge with designer flavors and

innovative concepts. Century Prod-

demand. One department store chain that regularly

had to resort to markdowns to clear unwanted mer-

chandise found in exit interviews that one-quarter

of its customers had left its stores empty-handed

because the specific items they had wanted to buy

were out of stock.

Why haven’t the new ideas and technologies led

to improved performance? Because managers lack

a framework for deciding which ones are best for

their particular company’s situation. From my ten

years of research and consulting on supply chain is-

sues in industries as diverse as food, fashion appar-

el, and automobiles, I have been able to devise such

a framework. It helps managers understand the na-

ture of the demand for their products and devise the

supply chain that can best satisfy that demand.

The first step in devising an effective supply-

chain strategy is therefore to consider the nature of

the demand for the products one’s company sup-

plies. Many aspects are important – for example,

product life cycle, demand predictability, product

variety, and market standards for lead times and

service (the percentage of demand filled from in-

stock goods). But I have found that if one classifies

products on the basis of their demand patterns,

they fall into one of two categories: they are either

primarily functional or primarily innovative. And

each category requires a distinctly different kind of

supply chain. The root cause of the problems plagu-

ing many supply

...