Fundamentals

of Supply Chain
Management

Lecture 2
Strategic Decisions in
Supply Chain Management

Mohanty Ch.2
Topics
Globalization and Business strategy
Model for strategic formulation in SCM
Supply chain strategies
Value in SC
Core competencies in SC
Strategic SC decisions
CRM strategy
SRM strategy
SCOR Model
Globalization?
The march towards
GLOBALIZATION has become so
fast that it has created a storm of
controversy during the last two
decades .

Opponents Proponents
Creates: The only Answer to

Inequalities
problems faced by
the developing
Joblessness
world may then be:
Environmental
Social
Degradation
Political
Effect of Globalization

Emergence of Global Brands

Exposure of Consumers to
International Quality Standards
Ability to Produce anywhere in the
World regardless of Geographic
Distance from the Point of Sale.
Impact of Slogans based on
Patriotism to sell Local Products
decreasing.
Business strategy

Strategy: set of plan & policies to gain

long term competitive advantage
Choices to make:
Selection of goals & objectives
Products & services to offer
Design & config. Of policies
Market positioning
Appropriate level of scope & diversity
Design of Org. structures/administrative
systems
 Characteristics of Strategy
Time horizon Extended, both to implement &
observe the result

Concentration of effort May not be immediate, but eventual

impact is significant

Pattern of decisions Decisions must be supportive to

each other and follow a consistent
pattern

Pervasiveness All levels of orgs. Must act

consistently over time to reinforce
strategy
Development of business strategy

Clearly identify targeted customers

Broadly indicate required operations & SC
functions
Identify & support development of core
competencies
Core competencies: source of sustainable
competitive advantage
Set time frames & performance objectives
 Visio
n
Mission
Statement
+
Values

Business Strategy

New Supply Sales &

product Chain Marketing
Strategy Strategy Strategy

Finance Strategy

Information Technology Strategy

Human Resource Strategy

Model for SCM Strategy Formulation

SRM Strategy

Superior
Business
SC Strategy Performance

CRM strategy
Supplier Relationship Management
(SRM)
Typology of Relationship
Adversarial
Adversarial negotiations
Fragmentation among suppliers
Annual bids
Arms length approach.
Sporadic communication
Barometric
Power/dependency (Power balance)
Cooperation/competitiveness
Trust/opportunism
Understanding/misunderstanding
Closeness/distance
Contd

Complementary
Partnership consolidation
Long-term commitments
Highly integrated operations
Frequent planned communication
Best economics
 Supply chain relationship Matrix
High
Strategic Products Leverage Products
Collaborative Relationships Cooperative Relationships
Cost Focus Cost Focus
V Win/win Approaches Usually win/win Approaches
a
l
u Transaction Products Market Products
e Transactional Relationships Competitive Relationships
Transaction cost Focus Price Focus
Win/lose Approach Win/lose Approaches
Low

Few Qualified Suppliers Many

 The SCC is an independent, not-for-profit, global corporation with
membership open to all companies and organizations interested in
applying and advancing state-of-the-art supply chain management
systems and practices.
Over 800 Company Members
Cross-industry representation
Chapters in Australia/New Zealand, Brazil, Europe, Japan,
North America, Southern Africa, and South East Asia with
petitions for additional chapters pending.
The Supply-Chain Council (SCC) has developed and endorsed the
Supply Chain Operations Reference-model (SCOR) as the cross-
industry standard for supply chain management
 What is a process reference model?
Process reference models integrate the well-known
concepts of business process reengineering,
benchmarking, and process measurement into a cross-
functional framework
Business Process Best Practices
Reengineering Benchmarking Analysis
Capture the as-is state
Capture the as-is of a process and derive
state of a process the desired to-be future
and derive the state
desired to-be Quantify the
future state operational
performance of Quantify the operational
similar companies performance of similar
and establish companies and establish
internal targets internal targets based on
based on best-in- best-in-class results
class results Characterize the
management Characterize the
practices and management
software solutions practices and
that result in best- software solutions
in-class that result in best-in-
performance class performance
management processes

Plan

Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source

Return Return Return Return Return

Return
Return Return

Customers
Suppliers Supplier Your Company Customer
Customer
Supplier
Internal or External Internal or External

SCOR Model

Building Block Approach

Processes Metrics
Best Practice Technology
 Supply-Chain Operations Reference-
model (SCOR) 6.1 - Processes
Plan P1 Plan Supply Chain

P2 Plan Source P3 Plan Make P4 Plan Deliver P5 Plan Returns

Source Make Deliver

Suppliers

Customers
S1 Source Stocked Products M1 Make-to-Stock D1 Deliver Stocked Products

S2 Source MTO Products M2 Make-to-Order D2 Deliver MTO Products

S3 Source ETO Products M3 Engineer-to-Order D3 Deliver ETO Products

D4 Deliver Retail Products

Re Re
tur
tur
n n
So Del
ive
urc
e
Enable
r
SCOR Boundaries
SCOR Spans:
All supplier / customer interactions
Order entry through paid invoice
All physical material transactions
From your suppliers supplier to your
customers customer, including
equipment, supplies, spare parts,
bulk product, software, etc.
All market interactions
From the understanding of aggregate
demand to the fulfillment of each
order
Returns
 SCOR Project Roadmap
Analyze Basis Competitive Performance Requirements
Operations Performance Metrics
of
Strategy Supply Chain Scorecard
Competition Scorecard Gap Analysis
Project Plan
SCOR Level 1

AS IS Geographic Map
Configure AS IS Thread Diagram
supply chain Material Flow Design Specifications
TO BE Thread Diagram
TO BE Geographic Map
SCOR Level 2
Align
Performance
AS IS Level 2, 3, and 4 Maps
Levels, Practices, Information Disconnects
and Systems and Work Flow Design Specifications SCOR Level 3
TO BE Level 2, 3, and 4 Maps

Implement Develop, Organization

supply chain Test, and Roll Technology
Process
Processes and Out People
Systems
 Mapping material flow (S1, D1)
(SR1,DR1,
DR3)

Manufacturing Warehouse

(S1, S2, M1, D1) Customer

Customer

(SR1,,DR1) European Supplier

(S1) (S1)
(D2)
(SR1,SR3) (SR1,SR3
(DR1)
(S1, D1)
Warehouse Warehouse
(SR1,DR1, (S1, D1)
DR3) Latin American
(SR1, DR3)
Other Suppliers Suppliers
(D1) (D1)

Customer

Warehouse Customer

(S1) (S1)
(S1, D1)
(SR1,SR3) (SR1,SR3)
(SR1,DR1,
DR3)
 Mapping the execution processes Americas
Distributors

S1

SR1
European
S2 M2 D2
RM Supplier
SR3
S2
M1 D1 S1 D1 S1
DR1 SR1
DR1 SR1 DR1 SR1

DR3 SR3 DR3 SR3

S1

Key Other S1 M1 D1
RM
Suppliers
Alpha
RM ALPHA Regional Distributors
Suppliers Warehouses
 Identifying Plan Activities
P1 P1 P1

P2 P3

P
4 P
3 P
2
P2 P P
4 4

European
S2 M2 D2
RM Supplier

Key Other S1 M1 S2 M1 D1 S1 D1 S1
RM D1
Suppliers

S1

Alpha Consumer
RM ALPHA Regional Distributors
Suppliers Warehouses
Supply Chain Scorecard & Gap
Analysis
Supply Chain SCORcard Performance Versus Competitive Population
Overview Metrics SCOR Level 1 Metrics Actual Parity Advantage Superior Value from Improvements

Supply
Delivery Performance to
Commit Date 50% 85% 90% 95%
Chain
Reliability
Fill Rates 63% 94% 96% 98%
EXTERNAL

Perfect Order Fulfillment 0% 80% 85% 90% $30M Revenue

Responsiveness Order Fulfillment Lead times 35 days 7 days 5 days 3 days $30M Revenue
Supply Chain Key enabler to cost and
Flexibility Response Time 97 days 82 days 55 days 13 days asset improvements
Production Flexibility 45 days 30 days 25 days 20 days
Total SCM Management
Cost
3% $30M Indirect Cost
19% 13% 8%
INTERNAL

Cost Warranty Cost NA NA NA NA NA

Value Added Employee

Productivity
NA $156K $306K $460K NA

Inventory Days of Supply 119 days 55 days 38 days 22 days NA

Cash-to-Cash Cycle Time
Assets 196 days 80 days 46 days 28 days $7 M Capital Charge
Net Asset Turns (Working
Capital)
2.2 turns 8 turns 12 turns 19 turns NA
 THE END

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Management in SCM