Can a TOWS analysis help lower costs within your supply chain? Better yet, can it be the tool you use to secure better service from your vendor base? When answering these questions, think of how most companies apply a simplistic approach to reducing their inventory management costs. Think of how these companies rarely plan or come up with specific strategies. These are the enterprises that try to use fear and intimidation to threaten their suppliers. To these companies, their volumes are the only tool at their disposal and the biggest lever to bending suppliers to their will.
Unfortunately, rarely do these aforementioned approaches work. However, a TOW analysis forces companies to think outside the box. It does this by helping them to consider more than just their volumes. So, how can a TOWS analysis help improve your company's supply chain?
The Limitations of the SWOT Analysis
One of my earlier posts examined how assessing the company’s supply chain with a SWOT analysis was a way to improve inventory and vendor management. However, while SWOT has numerous applications, and is valued by businesses due to its simplicity as a brainstorming tool, it does have some limitations.
First, with a SWOT grid there are often too many items under some headings and not nearly enough under others.
Second, individuals are often conflicted as to where issues should be placed under headings. In most cases, they put the same issues under multiple headings in order to account for different perspectives. For instance, they may determine that some issues are both strengths and weaknesses, or opportunities and threats, depending upon the company’s perspective, the customer’s perspective or even the market's perspective.
Third, there is no mechanism within the SWOT grid to move issues to strategic plans and move those plans to action items.
- Uneven distribution of items
- Conflicting distribution of items
- Can’t move forward with a strategy
The TOWS analysis eliminates all these aforementioned issues and provides a path forward on strategic initiatives. It does this by forcing companies to view their strengths and weaknesses as internal to their operations, while forcing them to see their opportunities and threats as external to their market. Next, it helps companies match their internal strengths and weaknesses to their external opportunities and threats.
Finally, the TOWS grid forces companies to come up with specific strategies and to elaborate on those strategies with action plans. Now the question moves to the application of this tool within your supply chain. So, how is this done?
The TOWS Grid and Your Supply Chain
Take the standard SWOT grid above and reconfigure it to look like the TOWS grid below. Isolate your strengths and weaknesses as internal to your company and place them at the top of your grid. Next, put your opportunities and threats on the left hand side and state them as external to your market. Match your internal strengths to your external opportunities. Match your internal strengths to your external threats. Identify those internal weaknesses that could impede your ability to secure your external opportunities, and finally, isolate those weaknesses that could make your external threats more severe.
Reducing Costs & Improving Service Within Your Supply Chain
The purpose of this exercise is to move strategies to action plans in order to improve your company’s supply chain. We’ve kept our analysis simple by limiting the number of items under each TOWS heading to three. You can go all the way up to 5, but try to keep it simple, succinct and to the point.
Next, we’ve itemized each resulting strategy within the inner workings of the grid under the four headings of "Strengths/Opportunities," "Strengths/Threats," "Weaknesses/Opportunities," and finally, "Weaknesses/Threats". Here is an example of the TOWS analysis for a given company’s supply chain. Each heading has three specific points. These are then matched to the internal portion of the grid.
Moving Strategies Inside the TOWS Grid to Specific Action Plans
As mentioned, the TOWS analysis works because it is a better mechanism to move strategies to action plans. For instance, in the “Strengths/Opportunities” section, our first grid lists “S1, S2 to O1 & O2” as the first strategy to work on. This lists the internal strengths of “prompt payers & loyalty” (S1) and “consistent purchasing volumes” (S2), to the external opportunities of “lower prices through vendor consolidation” (O1) and “lower per-unit freight costs” (O2). Our strategy is listed as….
S1, S2 to O1 & O2: Use payment habits and consistent volumes to push forward on vendor consolidation. Which vendor most wants our business and offers us the best price, service and delivery terms across all raw materials? Which vendor offers the best chance to lower our per-unit freight costs?
This is the strategic overview. The company would then itemize the individual action plans within the overall strategy that emerged from this inner portion of the grid. These action plans might look like the following items below.
1. Improve Terms: Use volumes to secure extended 45 day or 60 day terms. Or, if extended terms aren’t possible, then use strong payment history to secure an upfront discount on invoices (net-10 day terms 1-2% discount). The company’s solid payment history should be able to secure one of these two initiatives. Either way, the company will effectively reduce its inventory holding costs.
2. Secure Contracts: Use volumes to justify long-term contractual agreements on supply with vendors. These contracts will be used to lower holding costs even further by sharing these costs with vendors. It will also help secure supply and protect the company against future material shortages. Investigate using inventory consignment agreements with vendors to lower financing and reduce the per-unit freight costs on incoming parts.
3. Capitalize on Vendor Location: Which vendor is closest to the warehouse for each and every raw material, part and sub-assembly component? Isolate these vendors in order to lower the company's per-unit freight costs on incoming parts.
The TOWS analysis can improve your supply chain by providing you with specific strategies to pursue, while outlining the individual action plans to use within those strategies. TOWS improves upon SWOT by focusing your attention on those internal and external attributes within your company and your market. When used properly, this planning tool can lower costs and improve the service you get from vendors. It can also help in reducing the number of inventory skews your company carries forcing you to reduce your vendor base, while also helping to reduce your per-unit freight costs on incoming parts. By itself, SWOT is a fantastic brainstorming tool, but its limitations are well-known. However, the TOWS grid allows you to move ideas to strategies and strategies to action plans.
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