One of the more unique applications of the SWOT (Strength Weaknesses Opportunities & Threats) analysis is to use it to analyze the effectiveness of a company’s supply chain. The approach is to review whether the supply chain properly addresses the company’s short-term, time-sensitive delivery requirements, while also addressing its long-term cost objectives. Since the purpose of supply chain management is to ensure timely deliver of parts, raw materials and finished goods, it makes sense to use the SWOT analysis to accentuate the positives and address the negatives within the company's supply chain.
Most companies perform the analysis from one end of the spectrum. They either analyze their supply chain by reviewing the attributes the company itself brings to the table, or they do it by reviewing the attributes its vendor brings to the table. However, we’re going to bridge these two approaches together and try to combine them into one assessment. For each portion of the supply chain SWOT analysis, we’ll summarize the types of questions and issues that best define the attributes of the company and its biggest vendor. However, this approach could equally be applied to an entire group of vendors.
Ultimately, the SWOT analysis should answer questions such as: Does the company’s supply chain maximize the company’s purchasing power? Does it properly control costs and allocate resources to effectively use the company's economies of scale? Does the company’s supply chain spread the company’s risk so as to mitigate the impact of vendor delivery delays and quality issues? Most importantly, is the supply chain structured around the company's business model, its market, its business cycles and its customers demand patterns?
The above video explains the importance of matching your supply chain and inventory strategy to your business model and your customer demand patterns. It is from the following post: Small Business Inventory Management: Match Inventory to Business Model This post includes insight into running JIT, Min-Max and a version of Dell's Push-Pull.
The Supply Chain SWOT Analysis
The best run supply chains are built on matching the company’s inventory management practices with its business model. For instance, in an industry where customer demand is high, linear and constant, companies require an extremely flexible supply chain, one where vendors are capable of turning around parts and materials immediately. In this portion of the analysis, focus on the inherent strengths of your company’s supply chain. These could be related to the vendor's core competencies, their willingness to extend favorable payment terms, their turn around time on parts and materials, as well as their ability to hold inventory for extended periods. For your company, it might include its purchasing power, its strength in negotiation, its ability to pay vendors on time, and any additional volumes it brings to the table.
A company’s weaknesses within its supply chain aren’t hard to spot. Most companies have a fairly easy time identifying what needs to be addressed. When looking at your company’s weaknesses, make sure you’ve first addressed that aforementioned question as to whether your company has matched its inventory strategy to its business model. Most of the weaknesses are linked to running the wrong supply chain approach. In other instances, weaknesses are prevalent when businesses lack the purchasing power to drive down costs. Still, sometimes companies don’t capitalize on their purchase volumes and instead, fragment those volumes with poor order planning.
Think of opportunities that can help improve the company’s supply chain. These can relate to new vendors entering the market, an extension of credit terms, or an increase in existing credit limits. Some companies use their added volumes from new business in order to lower costs and enact new strategies. In essence, the additional volumes provide the impetus to move forward with new cost reduction initiatives. The focus should be on identifying opportunities to reduce the company’s cost structure and improve turnaround time on incoming parts and materials.
The threats portion of the SWOT analysis must focus on the current and future threats to the company’s supply chain. This analysis should focus on any decisions made by vendors that could pose problems to the company’s supply of materials and parts. In addition, these threats could come from the market or industry itself. For instance, it’s not uncommon for companies to suddenly encounter payment issues and cash flow problems, simply because of a downturn in the economy. Not being paid on time forces companies to be late themselves. These are serious threats to that company’s supply chain. Proactive companies take the time to contact their vendors to immediately discuss the issue facing both parties.
The End Result
So, now you’ve got this entire list of Strengths, Weaknesses, Opportunities & Threats that define the attributes of your company and your vendor with your inventory management strategies. What’s next? Now, the focus is on accentuating the company’s strengths, eliminating its weaknesses, capitalizing on opportunities and planning for future threats. For instance, if your company had strong payment habits, then it could use it to secure a higher credit limit and extension of terms with your vendor. If you expanded your warehouse, then you might be able to eliminate issues pertaining to the material shortages your vendor faces from time-to-time by entering into a consignment inventory agreement.
The above video explains the differences between SWOT and TOWS and is from the post: TOWS Analysis and Your Supply Chain: Lower Costs, Better Service
When companies perform the supply chain SWOT analysis, they are better able to lower costs and improve upon those approaches that help ensure timely availability of parts and materials. The intention is not to do this type of analysis all the time. However, performing a quarterly, or semi-annual, review is well worth the time and effort. It’s all about using the company’s strengths as leverage in order to secure more favorable service and terms with vendors. To do that requires the company assess its supply chain from an internal perspective relative to its vendor’s perspective. This exercise will expose any inherent weaknesses within your supply chain and provide you with the impetus to make necessary changes.
To read about how you can use the same approach to improve your customer service, then please read: How Can a Competitor SWOT Analysis Improve Your Customer Service?
To read about using the TOWS analysis to align vendor and strategic partnerships, please read: Using TOWS to Align Strategic Partnerships & Vendor Relationships