Often companies have no comprehensive supply chain strategy, and even if they do, it may not be integrated with the overall business strategy.

A lot of top managers don’t like to get their hands dirty on supply chain. So management of the supply chain is often its own little entity, and then the focus is often not on the big picture or on the right things. 

For example, there's often a focus on inventory. Everybody wants to reduce and limit inventory, but they often don't do an adequate job of identifying how that affects their service to customers or their costs.

Within the supply chain, manufacturing is often a kingdom unto itself, even though it is an integral part of the supply chain. 

Even when there is a strategy, it's often lacking in sophistication and depth. Having an integrated supply chain strategy that fits with the overall business strategy is a very important first step. 

It seems like everybody these days wants to have a world-scale operation. They want to have a big plant that produces lots and lots of stuff because they were taught in business school that's the way to drive costs way down.

In reality, there are all kinds of problems associated with having these very, very large operations. There may be occasions when it's the right thing to do, but there are many occasions when it is not. In fact, there are many times when much smaller operations – skid-scale operations – are preferable. They can be done locally on a very small scale and that’s actually a better option for the customer and for the company that’s doing it.

A manufacturing company that needs a gas for its process can find suppliers that will provide small plants to generate the gas right on site. Those skid-scale plants may not work for a large-scale need, but they can provide a dependable supply for a customer who needs it. 

That kind of model is often overlooked.With computerization and automation, there's a lot of potential in small scale that hasn't been fully explored. 

Transportation issues are the focus of this problem.

Do you have the correct supply chain network? Have you really laid it out the best way possible? Have you given good thought to where you manufacture things, to where your customers are and to how you move between those locations? Do you need distribution centers? If so where? What modes of transportation do you pick?

Do you ship by rail? How careful are you to make sure your rail shipments are not subject to overcharging? Do your customers have the capacity to receive rail cars, or do you need to trans-load your shipments into trucks to get them to your customers?

Do you ship things by air? Even though air shipments are very, very expensive, there are times when that's the right choice to make for your business.

If you can optimize the way your supply chain works, you can simplify your inventory needs dramatically and make your operation much more flexible. Achieving flexibility is a key goal of supply chain strategy.

We have watched the globalization of the supply chain in the past couple of decades. Often, reducing cost is a driving force in that decision for a company. The problem is that the inherent risks of making your supply chain dependent on off-shore vendors and suppliers often aren't considered carefully enough, or that the information required to adequately assess those risks has not been available.

As a result, many companies have become dependent on more risky supply systems. Look at what happened to production at Japanese-owned auto plants in the United States when the tsunami disrupted the supply of parts coming from Japan.

Increased risks can result from natural disasters, economic or political instability in other countries, even cultural differences. But it's extremely important to understand the risks you are facing when you establish your supply chain. 

Think about the stock market. Everyone thinks they can beat the market. People invest in managed mutual funds because they are betting they can beat the market. And yet it has been proven time and time again that a bet on the market – through index funds – is a wiser investment.

Most senior managers seem to think that they can force their organization to create accurate forecasts. But that's simply not true. There are too many random factors.

Now that doesn’t mean that you shouldn’t forecast. You need to be able to forecast, but you also have to recognize what the likely accuracy of that forecast is. You can't just think of it as precise. There some things you can control and there some things you cannot control, at least not at the moment. You need to learn to understand and live with that variation.

So you need to have a very good process in place for how your company is going to use forecasting. What are you going to do with a forecast and to what extent are you going to trust it?

Most organizations fail to give enough consideration to their supply chain flexibility. 

When companies build their supply chain, they often skimp on building flexibility into it because its a way to reduce their fixed costs. For example, if you make a plant more flexible quite often you’ll have to build more capacity. It's a thin line between having barely enough capacity, enough capacity, and having excess capacity.

You don't want excess capacity because that's a waste of investment. But you do want enough capacity. If you don’t have enough capacity, then you’re going to be much less flexible and nimble. You won’t be able to service your customers the way you want to. You won't have the ability to rapidly change production from one product to another, when that could be very, very important.

A company with an excellent supply chain strategy has thought through the trade-offs between having flexibility and the cost of having flexibility. Those companies make informed decisions; they don't have decisions made for them by outside forces.