Intro. to Supply Chain Strategies Chapter 2

Recap: What is Strategy? Greek military term: strategos - “the general’s art” Elements establishing purposes setting directions securing a position Companies spend a great % of their income and employee hrs carrying out activities that stem from decisions in various parts of the org. As these activities continue, they help to shape the destiny of the entire company. The top managers are responsible for making the vital decisions that set the org. overall goals and keep all parts of the company pulling together towards these goals. Decisions that have a long-term impact on the general directions and basic character of a company are called “ strategic decisions”, After you have made a or two such decisions, you have a strategy. Positioning when you stand before a shelf, what makes you decide to buy one rather others? Over time you make decisions in here and there, a lot of them. Add capacity, relocate, make appearance in new mkts, outsourcing, “一言以丧邦，一言以兴邦”

SBU Strategy Buz ST -- what strategy is meant Strategic business unit’s strategy - business strategy Business A ST. Comp’ve/ mkting ST. Ops/mfg ST. R/D ST. Finance/acc. ST. Functional strategies support, through a specific & consistent pattern of decisions Buz ST -- what strategy is meant Positioning competitive advantage

Li & Fung’s Retailing Company Mission To be the premier specialty retailing group in Asia offering the right products at the right price at the right places. Li & Fung’s Retailing To deliver ultimate customer satisfaction offering: safe, reliable products competitive pricing convenient location quality customer service a pleasurable shopping experience To leverage group synergy locally and regionally through: shared central resources supply chain management information technology networking with Li & Fung Trading and Li & Fung Distribution

SWOT Analysis to Strategy Formulation Michael Porter

Some Strategic Supply Chain Questions Q1: Should my supply chain focus more on cost or customer service? (Depends on product type and product life cycle) Q2: Do I need retailers in my supply chain? (Compare direct-sell models to traditional models) Q3: Do I need warehouses/DCs in my supply chain? (Role of warehouse/DCs) Q4: Perform all the functions in-house or outsource some? (Depends on your core competencies)

Achieving a Strategic Fit Understanding the products Understanding the SC Developing the ideal strategic fit In the following weeks, we will review inventory theory -- inventory is important because in parallel to information flow and credit flow, the material flow centers around inventory management. Focus of the sessions will be on presenting the analytical planning models in a SC context, thus emphasizing: intuition behind the models their strengths & limitations impact of various factors on the performance of inventory planning strategies Tradeoffs in inventory management Topics: Frameworks for Inventory Mgmt Complexity of the inventory mgmt types & purposes of inventory, inventory-related costs, EOQ, newsboy problem; and continuous /periodic review policies The level of math derivation will be kept as minimal as possible, however, you should refresh knowledge acquired in other courses since this part will play an important role in case analysis and class discussion Q1: Should my supply chain focus more on cost or customer service?

Understanding Your Product Two “Extreme” Types of Products -- (a) Functional products -- predictable demand & long life cycle -- Easy to meet customer demand (revenue predictable) -- Competition based on price offered to customers -- Strategy: Supply chain design should focus on minimizing total cost (b) Innovative products -- unpredictable demand & short life cycle -- Difficult to forecast demand -- Difficult meeting customer demand (oversupply or stockout) -- Competition based on customer service (product variety, degree of customization, lead time) -- Strategy: Supply chain design should focus on customer service

Step 1 Understanding the Customer The nature of the demand for your products Highly predictable demand Somewhat predictable demand Somewhat uncertain demand Highly uncertain demand In the following weeks, we will review inventory theory -- inventory is important because in parallel to information flow and credit flow, the material flow centers around inventory management. Focus of the sessions will be on presenting the analytical planning models in a SC context, thus emphasizing: intuition behind the models their strengths & limitations impact of various factors on the performance of inventory planning strategies Tradeoffs in inventory management Topics: Frameworks for Inventory Mgmt Complexity of the inventory mgmt types & purposes of inventory, inventory-related costs, EOQ, newsboy problem; and continuous /periodic review policies The level of math derivation will be kept as minimal as possible, however, you should refresh knowledge acquired in other courses since this part will play an important role in case analysis and class discussion Purely functional products Established goods New models of existing goods Entire new products Washing m/c refridgritor petro Digiman 8, brand PC Quicktionary 3G handphone

Step 2 Understanding your SC Two “Extreme” Types of Supply Chains Cost effective supply chain Market-responsive SC Primary purpose Supply predictable demand efficiently at the lowest possible cost Respond quickly to unpredictable demand in order to minimize stockouts, and obsolete inventory Manufacturing focus (capacity utilization) Maintain high average utilization rate Maintain relatively lower utilization rate, which implies lower lead times Inventory strategy minimize inventory throughout the chain at long as cost is low Deploy significant buffer stocks of parts and/or finished goods Transportation strategy Use slow transportation modes (truck, rail) to minimize transportation cost Use fast transportation modes (Air) to respond to demand quickly Approach to choosing suppliers Select primarily for cost and quality Select primarily for speed, flexibility, and quality Lead-time focus Shorten lead time as long as it doesn’t increase cost Invest aggressively to reduce lead time LOW COST Customer Service

What is the Right Supply Chain for Your Product? Step 3: A stratigc fit What is the Right Supply Chain for Your Product? Responsive supply chain Nokia, Fashion Toyota, HP Cost-effective supply chain Beers, Tissues Demand uncertainty Low (functional products) High (innovative products)

A Mismatch If you offer too many varieties for a basically functional product using highly flexible mfg systems If you use an efficient SC for an innovative product plan long ahead of sales season carrying a high variety with high stock levels Large forced markdown High stockout In the following weeks, we will review inventory theory -- inventory is important because in parallel to information flow and credit flow, the material flow centers around inventory management. Focus of the sessions will be on presenting the analytical planning models in a SC context, thus emphasizing: intuition behind the models their strengths & limitations impact of various factors on the performance of inventory planning strategies Tradeoffs in inventory management Topics: Frameworks for Inventory Mgmt Complexity of the inventory mgmt types & purposes of inventory, inventory-related costs, EOQ, newsboy problem; and continuous /periodic review policies The level of math derivation will be kept as minimal as possible, however, you should refresh knowledge acquired in other courses since this part will play an important role in case analysis and class discussion Co-exist

Not So Simple! Many companies make both functional and innovative products. How could they configure their SCs to accommodate both? Over time, the nature of product may evolve from innovative to functional or vice-versa. How to adjust your SC to cope with the change? If you choose to improve responsiveness (cost-effectiveness) of your SC, then you would have to compromise your cost performance (delivery time, product availability, etc. - responsiveness performance). In the following weeks, we will review inventory theory -- inventory is important because in parallel to information flow and credit flow, the material flow centers around inventory management. Focus of the sessions will be on presenting the analytical planning models in a SC context, thus emphasizing: intuition behind the models their strengths & limitations impact of various factors on the performance of inventory planning strategies Tradeoffs in inventory management Topics: Frameworks for Inventory Mgmt Complexity of the inventory mgmt types & purposes of inventory, inventory-related costs, EOQ, newsboy problem; and continuous /periodic review policies The level of math derivation will be kept as minimal as possible, however, you should refresh knowledge acquired in other courses since this part will play an important role in case analysis and class discussion

Q1: Should my supply chain focus more on cost or customer service? Product Life Cycle Time Market Volume Ramp-up and growth Maturity End-of-life

Further Discussion: SC Structure? Bagged chips Cylinder chips