Nowadays, a single company is rarely executing all steps necessary to create a product or deliver a service. Instead, there is a network of partners that source, design, assemble, and ship a product to the customers. All of which need to be aligned in order to ensure business performance and customers satisfaction.
External alignment refers to aligning all actions and decisions with all partners in the network that contribute to a product or service, in order to make sure that customer value can be reached.
External alignment ensures smooth cooperation between these numerous supply chain partners. Supply chains have become increasingly complex. With companies often only knowing their first and, maybe, second tier connection, losing oversight over who is responsible for what.
If the supply chain network is not aligned with the overall business strategies, consequences can include a rise in costs, a drop in revenue, and an increase in overall risk. A lack of alignment then can therefore lead to overall poor business performance.
There is a series of factors that influence a business’ ability to achieve alignment throughout their supply chain network.
For example, increasing uncertainty and globalization lead to more fluctuations and more susceptibility to all types of external changes, e.g. changes in exchange rates. Further, lifecycles of products are decreasing, and customers demand a greater variety of products. This shrinks the window of opportunity within which a particular supply chain strategy fits. Lastly, quicker developments and changes in technology and the increasing demand to account for sustainability require the whole supply chain network to adapt to changing conditions and requirements constantly.
These and many more factors put pressure on supply chain networks and demand a high degree of adaptability and flexibility, while maintaining speed and quality.
Information sharing is the key aspect for alignment amongst parties in a supply chain network. Without having all the relevant information to make decisions, a business cannot know what customers want. Besides, without the right information businesses don’t know how much inventory is in stock, and when more products should be produced. Ultimately, information is the key to supply chain visibility, which allows decisions to be made in service of improved supply chain performance.
Information is thus the glue that allows all supply chain partners to work together to create an aligned and coordinated supply chain network. This leads to an increase in overall business performance.
As mentioned above, for external alignment to happen information sharing is crucial. For instance, inventory data when one is managing customer inventories. We modeled information sharing, and more in our business simulation games. In our simulations one can experiment with external collaboration at footprint, planning system, information sharing and execution level. A great way to learn about pros, cons and strategic fit.
Furthermore, you can read more information about related topics. Have a look at our articles about sales and operations planning (S&OP), integrated business planning (IBP), total cost of ownership (TCO), strategic alignment or KPIs.