Summary of Learning Objectives

is achieving strategic fit critical to a companys overall success?  How does a company achieve strategic fit between its supply chain strategy and its competitive strategy?  What is the importance of expanding the scope of strategic fit across the supply chain?
 Why

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CHAPTER 2 SCM - STRATEGIC FIT

CUSTOMERS DEMAND PRODUCTS WITH DIFFERENT CHARACTERISTICS Cost Quantity Speed Flexibility Customization Quality Service Features (C, Q, S, F)2 These requirements can vary dramatically for customers and products. Consider some examples.
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Competitive & Supply Chain Strategies

 

Competitive strategy: defines the target market/customer needs. Product Development strategy: portfolio of new products to achieve competitive strategy. Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted Supply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important
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SCM - STRATEGIC FIT

ACHIEVING FIT - UNDERSTANDING: 1. THE CUSTOMER/PRODUCT REQUIREMENTS CQSF2 ALSO - IMPLIED DEMAND UNCERTAINTY 2. THE SUPPLY CHAIN RESPONSIVE VS. EFFICIENT 3. STRATEGIC FIT THE ZONE OF STRATEGIC FIT
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Achieving Strategic Fit

 Strategic fit:

Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy Competitive and supply chain strategies have the same goals
 A company may

fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy  Example of strategic fit -- Dell
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The Value Chain: Linking Supply Chain and Business Strategy

Business Strategy
New Product Marketing Strategy Strategy

Supply Chain Strategy

New Product Development

Marketing and Operations Distribution Sales

Service

Finance, Accounting, Information Technology, Human Resources

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Step 1: Understanding the Customer and Supply Chain Uncertainty

 Identify the

needs of the customer segment being

served  Quantity of product needed in each lot  Response time customers will tolerate  Variety of products needed  Service level required  Price of the product  Desired rate of innovation in the product

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Achieving Strategic Fit

is Implied Demand Uncertainty So Important?  Understanding the Customer, CQSF2
 Why

Lot size Response time Service level Product variety Price Innovation

Implied Demand Uncertainty

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Impact of Customer Needs on Implied Demand Uncertainty (Table 2.1)

Customer Need Range of quantity increases Lead time decreases Causes implied demand uncertainty to increase because Wider range of quantity implies greater variance in demand Less time to react to orders

Variety of products required increases Demand per product becomes more disaggregated Number of channels increases Rate of innovation increases Required service level increases
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Total customer demand is now disaggregated over more channels New products tend to have more uncertain demand Firm now has to handle unusual surges in demand
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Levels of Implied Demand Uncertainty

Detergent Long lead time steel High Fashion Emergency steel

Customer Need
Price Responsiveness

Low

High

Implied Demand Uncertainty

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Correlation Between Implied Demand Uncertainty and Other Attributes (Table 2.2)
Attribute Profit margin Avg. forecast error Avg. stockout rate Low Implied Uncertainty Low 10% 1%-2% High Implied Uncertainty High 40%-100% 10%-40% 10%-25%

Avg. forced season- 0% end markdown

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SUPPLY CHAINS EFFICIENT VS. RESPONSIVE

 

  

 

GOAL: LOWEST COST PRODUCT:MAX. PERF. AT MIN COST PRICING: LOWER PRICE AND MARGIN MANU: HIGH EFFICIENCY INVENT: MIN. INVENTORY LEADTIME: REDUCE LEADTIME SUPPLIERS: COST/QUALITY TRANSPORTATION: COST

 

QUICK RESPONSE ASSEMBE TO ORDER HIGHER PRICE AND MARGINS FLEX. CAPACITY MAINTAIN BUFFER REDUCE EVEN WITH HIGHER PRICE SPEED, FLEX., QUALITY QUICK& RESPONSIVIE
12

  

 

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Step 2: Understanding the Supply Chain

 There is

a cost to achieving responsiveness  Supply chain efficiency: cost of making and delivering the product to the customer  Increasing responsiveness results in higher costs that lower efficiency  Figure 2.3: cost-responsiveness efficient frontier  Figure 2.4: supply chain responsiveness spectrum  Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum
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Understanding the Supply Chain: CostResponsiveness Efficient Frontier (Fig. 2-3)

Responsiveness
High

BOSE RADIO DELL

Low High
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WAL-MART BARILLA
Cost
Low
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Responsiveness Spectrum (Figure 2.4)

Highly efficient

Somewhat efficient

Somewhat responsive

Highly responsive

Integrated steel mill

Hanes apparel

Most automotive production

Dell

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Step 3: Achieving Strategic Fit

 All

functions in the value chain must support the competitive strategy to achieve strategic fit Fig. 2.7  Two extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell) Table 2.3  Two key points
there is no right supply chain strategy independent of competitive strategy there is a right supply chain strategy for a given competitive strategy

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Achieving Strategic Fit

Responsive supply chain

Responsiveness spectrum

Efficient supply chain Certain demand

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Implied uncertainty spectrum

Uncertain demand
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Achieving Strategic Fit with Same Firm with Various Products

Responsive supply chain
PRODUCT LINE B CUSTOMER B PRODUCT LINE A CUSTOMER A

Responsiveness spectrum
PRODUCT LINE A CUSTOMER B PRODUCT LINE B CUSTOMER A

Efficient supply chain

Certain demand
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Implied uncertainty spectrum

Uncertain demand
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Achieving Strategic Fit Product Life Cycle Progresses/Competition

Responsive supply chain
INTRODUCTION

Responsiveness spectrum

MATURING COMMODITY

Efficient supply chain Certain demand

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Implied uncertainty spectrum

Uncertain demand
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Strategic Scope
Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy

LOCAL OPTIMAL BY FUNCTION

VERY LOCAL OPTIMAL BY OPERATION W/I

Suppliers Manufacturer Distributor

Retailer

Customer

FUNCTIONALLY OPTIMAL
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Intracompany Interfunctional Scope

 All

functional strategies within a company are developed to support each other and the companys competitive strategy  Strategic fit is expanded to include all functions in a firm  Goal is to maximize company profit  Figure 2.11

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Strategic Scope GLOBALLY OPTIMAL STRATEGY

Suppliers Manufacturer Distributor Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy Retailer Customer

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Intercompany Interfunctional Scope

 The only

positive cash flow for the supply chain occurs when the customer pays for the product all other cash flows are resettling of accounts within the chain and add to total supply chain cost  Supply chain surplus
Difference between what the customer pays and total supply chain cost Total profit to be shared among all members of the supply chain

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Intercompany Interfunctional Scope

 Increasing supply chain

surplus increases the amount

to be shared  All stages coordinate strategy across all functions to ensure that they best meet the customers needs and maximize supply chain surplus  Also provides more speed by managing the interfaces between supply chain stages  Each company must evaluate its actions in the context of the entire supply chain  Figure 2.12
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