Product strategy affects every link in the supply chain.
The role of a product strategy on a marketing supply chain can be a complex relationship. While the product may be one of hundreds of products moving through a company or a category supply chain, a single product improvement, discontinuation or new product introduction affects the smooth operation of the supply chain and company profitability. Sound product strategy adds value. United Parcel Service (UPS) once said in a white paper that a well-executed supply chain strategy results in value creation for the entire organization.
History
Historically, a supply chain is the interrelated set of operational functions that takes raw materials and turns them into products that are delivered to customers. The "supply chain" terminology refers to the use of a holistic approach instead of piecemeal activities that may or may not work together. These include: balancing product supply and demand, sourcing raw materials, manufacturing and product assembly, warehousing and inventory systems, order management, distribution across all channels and customer delivery, including customer service.
Product Changes Affect Entire Chain
As concise as a supply chain is required to be, it must be flexible enough to handle strategic product activity, from long-planned launches to urgent adjustments. A decision to make the product 30% larger, in an attempt to outflank the competition, can affect everything from raw material orders to packaging to sales order systems.
Another decision to reduce the product weight by three ounces can affect the function of the product assembly line, the warehousing, inventory and shipping costs, not to mention the retailer allowances offer to stock your goods. Discontinue a product as a cost-cutting action, and someone in the supply chain has to figure out retrofit the factory to produce something else and keep the overhead costs in line so the company continues to be profitable.
Product Differentiation May Broaden Distribution Avenues
Product differentiation can impact company distribution methods and add new channels. Adding product variations made available to only one type of retailer can improve overall distribution and may even create a direct-sales force focused on that channel. For instance, producing smaller product sizes or special flavors can put a brand into a convenience store. A fashion brand that adds petite sizing or women's sizes can increase its sales revenue and margin, because it expands the potential retail stores that can offer the brand.
Line Extensions and Pricing Promotions
Product line extensions, which might be as simple as adding an additional flavor to a packaged potato brand, can be golden opportunities, minimizing introduction costs and building the brand. It can offer new sales incentives, increase product shelf space and add distribution opportunities. At the same time, even the simplest new flavor requires sourcing new ingredients, assigning manufacturing line resources, adjusting warehousing and inventory systems and educating the sales force to selling the product.
Pricing promotions provide short-term sales excitement and opportunity to suggest end-aisle displays that can deliver quick sales. Such promotions require swift, clear supply chain communications because they are time-dated promotions.
The Contemporary Supply Chain
In the 21st century economic climate, it is no longer enough to simply deliver a product to address a customer need. Now both the product and the supply chain itself become integral to building and maintaining a relationship with the customer that rewards loyalty and builds continuing demand. No industry knows this better than the auto industry, which relies on a smoothly oiled service network to build long-term, repeat business for its brands.
Trending Product Strategy: The Green Supply Chain
As consumers' interest in sustainability grows, green products will grow in importance. In order for a product to be "green," the entire supply chain must support the claim. Successful green supply chain programs are long term and can represent strong brand reinforcement potential when integrated within a corporate green strategy and, ultimately, the overall business strategy. This alignment is important, for without it, a company risks wasting resources on efforts that don't deliver product value.
Tags: supply chain, supply chain, warehousing inventory, deliver product, inventory systems, product assembly