Supply Chain Performance: Achieving

Strategic Fit and Scope

Outline
• Competitive, Product and Supply chain strategies
• Strategic fit
• Achieving Strategic Fit
• Tailoring the supply chain strategic fit
• Expanding Strategic Scope
• Challenges to achieving strategic fit
 • the set of customer needs a firm seeks to satisfy through
Competitive its products and services in relative to its customers
• For example: Walmart competitive strategy is value for
strategy money and product availability while McMaster focus on
responsiveness instead of low price

Product specifies the portfolio of new products that the

Development company will try to develop

strategy

• determines the nature of material procurement,

Supply chain transportation of materials, manufacture of product or
creation of service, distribution of product
strategy • For example: Dell initially decided to sell computers
directly and in 2007 it decided to sell through resellers
The Value Chain: Linking Supply Chain and Business Strategy

FINANCING, ACCOUNTIONG, INFORMATION TECHNOLOGY, HUMAN

RESOURCE

NEW PRODUCT
MARKETING OPERATIONS
DEVELOPMEN DISTRIBUTION SALES
AND SALES
T
 STRATEGIC FIT

Competitive
strategy

Aligned
goals
Supply chain
strategy
ACHIEVING STRATEGIC FIT:
Step 1- Understanding the customer and supply chain uncertainty:
A company must understand the needs of the customers and the uncertainty they impose on
supply chain

. Response
time

Innovation
Service
Level

Customer
demand
variations

Lot size
Price
 Step 2: Understanding Supply Chain Capabilities
How does the firm best meet demand in uncertain situations?

Handle
Meet short
excessive
lead time
products

Respond to
Build
excess
innovative
quantity
products
demanded

Handle Supply chain High

supply responsiven service
uncertainty ess level
 Cost to achieving responsiveness
Supply chain efficiency: cost of making and delivering the product to the customer
The cost-responsiveness efficient frontier curve shows the lowest possible cost for a given level
of responsiveness.
 Achieving strategic fit:

The final step that is achieving strategic fit involves

following steps:
• Ensure that the degree of supply chain responsiveness is
consistent with the implied uncertainty.
• Assign roles to different stages of the supply chain that
ensure the appropriate level of responsiveness.
• Ensure that all functions maintain consistent strategies
that support the competitive strategy.
Step 3: Achieving Strategic Fit
Comparison of Efficient and Responsive Supply Chains
Efficient Responsive

Primary goal Lowest cost Quick response

Product design strategy Min product cost Modularity to allow

postponement
Pricing strategy Lower margins Higher margins

Manufacturing strategy High utilization Capacity flexibility

Inventory strategy Minimize inventory Buffer inventory

Lead time strategy Reduce but not at expense Aggressively reduce even
of greater cost if costs are significant
Supplier selection strategy Cost and low quality Speed, flexibility, quality

Transportation strategy Greater reliance on low Greater reliance on

cost modes responsive (fast) modes
 Tailoring the supply chain strategic fit
A company making multiple products and serving different customer segments has to design a
tailored supply chain that is able to be efficient when implied uncertainty is low and responsive
when it is high.
For example:
Levis Strauss sells both customized and standard jeans. It tailors its supply chain to meet both
sets of needs.
Important in industries where innovation is critical and product move through a lifecycle
Supply chain strategy must evolve throughout the life cycle
• Beginning: uncertain demand, high margins (time is important), product availability is most
important, cost is secondary
• Later : predictable demand, lower margins, price is important
As the product goes through the life cycle, the supply chain changes from one emphasizing
responsiveness to one emphasizing efficiency
 Expanding Strategic Scope

Scope of strategic fit – the functions within the firm and stages
across the supply chain that devise an integrated strategy with an
aligned objective.

One extreme : Other extreme:

each function at each stage all functions in all stages devise a
develops its own strategy strategy jointly
 FIVE CATEGORIES TO EXPAND STRATEGIC SCOPE
Intraoperation scope
Intrafunctional view
Interfunctional scope
Intercompany scope
Agile intercompany scope
minimize local cost view:
Each stage of the supply chain devises
strategy independently
minimize total functional cost:
Firms align all operations within a
function
maximize company profit:
Functional strategies are developed to
align with one another and
the competitive strategy
maximize supply chain surplus:
Supplier and customer work together
and share information to
reduce total cost and grow supply chain
surplus
a firm’s ability to achieve strategic
fit when partnering with supply chain
stages that change over time
CHALLENGES TO ACHIEVING AND MAINTAINING
STRATEGIC FIT:

Increasing product Globalization and

variety and shrinking increasing
life cycles uncertainty

Changing
Fragmentation of
technology and
supply chain
business
ownership
environment

The environment and

sustainability