1. Supply Chain Performance: Achieving Strategic Fit and Scope
ECT 7240
Week 2
Supply Chain Performance: Achieving Strategic Fit and Scope
SEG 4610
Supply Chain Management
Janny Leung

2. Supply Chain Management
Strategic Decisions
Strategic Decisions are ones that keep an organisation matched to its environment.
Motivation:
Assure long term survival
Ensure profit growth
SEG 4610
Supply Chain Management

3. The Value Chain in a company
New Product Develop-ment
Marketing and Sales
Operations
Distribution
Service
Supply Chain Strategy
Finance, accounting, Info Technologies, human resources
SEG 4610
Supply Chain Management

4. Supply Chain Management
Competitive Strategy
A company’s competitive strategy defines the set of customer needs that it seeks to satisfy through its products and services.
Compaq (immediate availability) vs. Dell (customisation)
Park’N’Shop vs. CitiSuper
Based on the customers’ priorities
Targets one or more customer segments
Aim: provide goods/services to satisfy these customers’ needs
SEG 4610
Supply Chain Management

5. Competitive Dimensions
Cost
Quality
Time
Flexibility/Variety
Strategic Positioning
Defines those positions that a firm wants to occupy in the competitive product space.
SEG 4610
Supply Chain Management

6. Supply Chain Management
Corporate Strategy, Competitive Priorities and Functional Inter-relationships
Market analysis
segmentation
needs assessment
Socioeconomic
and business
environment
Corporate strategy
missions
goals
distinctive
Future directions
global strategy
new products/services
Competitive priorities
cost
quality
time
flexibility
Capabilities
current
needed
plans
Functional area strategies
SEG 4610
Supply Chain Management

7. Terry Hill (London Business School): Order Winners & Qualifiers
Order Qualifiers are those (minimum) criteria that a company must meet to be considered as a possible supplier (e.g. ISO 9000).
Order winners are those criteria that wins the orders.
Invariably due to re-directing competitive priorities
SEG 4610
Supply Chain Management

8. Functional Strategies
Product development
Product portfolio? Outsourced or internal development?
Marketing
Customer segments? Products/price/promotion? Competitors?
Finance
Acquisition and allocation of resources
Supply Chain
Procurement, production, delivery and service
SEG 4610
Supply Chain Management

9. Developing an Operations Strategy (Terry Hill)
1. Define corporate objectives.
2. Determine marketing strategies (strategic positioning).
3. Assess how different products qualify in their respective markets and win orders against competitors.
4. Establish appropriate operational processes for product manufacture and delivery.
5. Provide the operational infrastructure to support production/delivery.
SEG 4610
Supply Chain Management

10. Supply Chain Management
Strategic Fit
Strategic fit means consistency between the competitive advantage that a firm seeks and the process capabilities and managerial policies that it uses to achieve that advantage.
Key to success:
Competitive strategy and functional strategies must support each other and fit as a co-ordinated overall strategy.
Each function must structure its processes to be able to execute these strategies well.
SEG 4610
Supply Chain Management

11. Achieving Strategic Fit
Understand the customer
Customer needs for targeted segments?
Define service requirements and desired costs
Understand the supply chain
Operational characteristics
Performance vs. customer needs
Achieving strategic fit
Re-structure supply chain
Alter competitive strategy
SEG 4610
Supply Chain Management

12. Understanding the customer
Lot size
Response time
Service level
Product variety
Price
Innovation
Implied
Demand
Uncertainty
SEG 4610
Supply Chain Management

13. Implied vs. “real” demand uncertainty
Implied demand uncertainty is the uncertainty that exists due to the portion of demand that the supply chain is required to meet.
Affected by:
Portion of demand (Market segment) handled by supply chain
Attributes desired by customers
SEG 4610
Supply Chain Management

14. Implied Uncertainty Spectrum
Low Implied Demand Uncertainty
Somewhat Certain Demand
High Implied Demand Uncertainty
Somewhat Uncertain Demand
Purely functional products
Established products
New models of existing goods
Entirely new products
Crest toothpaste
Gasoline
New Ford Taurus
Palm Pilot
SEG 4610
Supply Chain Management

15. Supply Chain Management
Relationship between Demand Characteristics and Implied Demand Uncertainty (Fisher)
Attribute
Low Implied Uncertainty
High Implied Uncertainty
Profit margin
Low
High
Average forecast error
10%
40% to 100%
Average stockout rate
1% to 2%
10% to 40%
Average forced
end-of-season markdown 0%
10% to 25%
SEG 4610
Supply Chain Management

16. Achieving Strategic Fit
Understand the customer
Map where their demand is located on the implied uncertainty spectrum
Understand the supply chain
Achieving strategic fit
SEG 4610
Supply Chain Management

17. Understanding the Supply Chain
Supply chain responsiveness is its ability to:
Respond to wide range of quantities demanded
Meet short lead times
Manufacture large variety of products
Meet high service level
Innovate – anticipate customers’ demand
Responsiveness comes at a cost …
SEG 4610
Supply Chain Management

18. Understanding the Supply Chain
Supply chain efficiency is the cost of making and delivering a product to the customer.
Responsiveness – cost efficient frontier
Tradeoff between cost efficiency and responsiveness =>
Supply chain strategy -> level of responsiveness offered
SEG 4610
Supply Chain Management

19. Responsiveness Spectrum
Highly efficient
Somewhat efficient
Somewhat Responsive
Highly responsive
Advance production schedule; low variety or flexibility
Make-to-stock;
Long production lead time (months)
Mix model production;
Production lead time in weeks
Make-to-order;
Lead time in days
Automobile production
Dell PC
Glass production
M&S underwear
SEG 4610
Supply Chain Management

20. Achieving Strategic Fit
Understand the customer
Map where their demand is located on the implied uncertainty spectrum
Understand the supply chain
Map where the supply chain capability is located on the responsiveness spectrum
Achieving strategic fit
SEG 4610
Supply Chain Management

21. Achieving Strategic Fit
Responsive
Supply Chain
Strategic Fit
Efficient
Supply Chain
Certain
demand
Uncertain
SEG 4610
Supply Chain Management

22. Efficient vs. Responsive Supply Chains
Strategy
Efficient Supply Chains
Responsive Supply Chains
Primary goal
Meet (predictable) demand at low cost
Respond quickly to demand
Product design
Max performance at min cost
Flexible design
(modularity, mix-&-match)
Pricing
Lower margin
Higher margin
Manufacturing
High facility utilisation
(low average cost)
Capacity flexibility and cushion
Inventory
Minimise inventory levels
Maintain buffer inventory to meet unexpected demand
Lead Time
Reduce, but not at the expense of production costs
Aggressively reduce
Supplier
Select based on cost and quality
Select based on speed, flexibility and quality
Transportation
Low costs modes
Responsive and speedy modes
SEG 4610
Supply Chain Management

23. Achieving Strategic Fit
Understand the customer
Map where their demand is located on the implied uncertainty spectrum
Understand the supply chain
Map where the supply chain capability is located on the responsiveness spectrum
Achieving strategic fit
Match supply chain responsiveness to implied demand uncertainty in zone of strategic fit.
Other functional strategies must also be coordinated.
SEG 4610
Supply Chain Management

24. Outputs of Strategy (Terry Hill)
Review of implications for manufacturing processes and infrastructure support for current and future products
Assess degree of match between capabilities and order-winning and order-qualifying needs
Continual monitor changes in match and mismatch
Necessary operational re-design, infrastructure investments, change schedule integrated into corporate strategy in co-ordination with other functional strategies
SEG 4610
Supply Chain Management

25. Supply Chain Management
There is no SINGLE right supply chain for everyone …
There is only a right supply chain for your given competitive strategic position.
SEG 4610
Supply Chain Management

26. Other issues affecting Strategic Fit
Company offers multiple products to different customer segments
Grainger: machine parts to Boeing, Ford and also small manufacturers
Fast-moving products warehouses dispersed; slow moving items stored centrally
Product life cycles
Demand characteristics different at different stages of life cycle
Competitive strategic positioning will also change
Supply chain and other functional strategies must adapt as product enters different stages of its life cycle
Competitors’ actions change over time
New products/services
Customers’ expectations changes
SEG 4610
Supply Chain Management

27. Supply Chain Management
Strategic Scope
Suppliers
Manufacturers
Distributors
Retailers
Customers
Competitive Strategy
Product Development Strategy
Supply Chain Strategy
Marketing Strategy
SEG 4610
Supply Chain Management

28. Expanding Strategic Scope
Intra-company intra-operations scope: minimize local costs
Intra-company intra-functional scope: minimize functional costs
Intra-company inter-functional scope: Maximize company profits
Inter-company inter-functional scope: Maximize supply chain surplus
The inter-company view essential as competition is not company vs company ,but supply chain vs supply chain
The broader inter-company scope increases the size of the surplus to be shared among all stages of the supply chain
SEG 4610
Supply Chain Management

29. Drivers of Supply Chain Performance
Efficiency
Responsiveness
inventory
transportation
facilities
information
impact on supply chain performance
role in competitive strategy
decision components
SEG 4610
Supply Chain Management

30. Supply Chain Management
Inventory
Present throughout the supply chain: Raw materials, work-in-process, finished goods at manufacturers/distributors/retailers, etc.
Supply Chain role:
Inventory reflects a mismatch of supply and demand
Purposeful: economies-of-scale, anticipate future demand
Related to throughput and “flow time”
Competitive Strategy role:
location and amount of finished goods inventory impacts product availability (responsiveness)
centralised/distributed storage impacts costs
Decision Components:
cycle inventory : inventory to meet demand between shipments
safety stock: inventory held to meet unexpected demand
seasonal inventory: inventory to meet predictably variable demand
SEG 4610
Supply Chain Management

31. Supply Chain Management
Transportation
Supply Chain role:
Moves product between different stages in a supply chain
Faster transportation modes decreases “flow time”
Competitive Strategy role:
More frequent deliveries increases responsiveness
Transportation system structure and operation must match the efficiency-responsiveness balance to competitive strategic position
Decision Components:
Transportation mode:
air, truck, rail, ship, pipeline, Electronic delivery
Network design and route selection
In-house or out-source
SEG 4610
Supply Chain Management

32. Supply Chain Management
Facilities
Supply Chain role:
Locations where “value-added” takes place in a supply chain
Manufacturing (transformation), Warehousing (storage)
Competitive Strategy role:
Number and dispersion of warehouses affects costs
facilities, management, inventory, transportation
Location proximity to customers affects responsiveness
Global and local presence affects customers’ perception
Decision Components:
Location
Capacity
Manufacturing Structure (Process Choices)
Warehousing Operations
storage by SKU or job-lots
cross-docking
SEG 4610
Supply Chain Management

33. Supply Chain Management
Information
Supply Chain role:
Information connects the various stages of a supply chain
Daily operational decisions based on information about forecasted demand and product availability
Competitive Strategy role:
New info channels (e.g. Internet B2B platforms) allow customers to design their customised products (increases responsiveness)
Data collection increases understanding of customers’ preference
target market segments
improves demand forecasts
Decision Components:
Choice of enabling technologies
EDI, Internet, ERP (SCM) software
Push vs pull supply chains impacts info system design
Co-ordination and information sharing
Forecasting
SEG 4610
Supply Chain Management

34. Major Obstacles to Achieving Fit
Multiple owners and/or incentives in a supply chain
Local optimisation and lack of global fit
Customer fragmentation
Increased product variety
Shortening life-cycles
Increasingly demanding customers
Increasing implied demand uncertainty
Higher service expectations
Globalisation
Complexity of supply chain
Increased competition
Increased difficulty in executing new strategies
SEG 4610
Supply Chain Management

35. Dealing with obstacles
Multiple owners
Contractual co-ordination
Information co-ordination
Customer fragmentation
Mass customisation
Tailored logistics
Globalisation
Global companies, strategic partnerships
First-mover advantage
Company culture, investment in human resources
SEG 4610
Supply Chain Management

36. Supply Chain Management
E-Commerce Strategy
What is E-commerce?
Commerce transacted over the Internet
Product information
Order placement and/or negotiation
Order tracking
Order fulfilment
Payment
SEG 4610
Supply Chain Management

37. Revenue Impact of E-Commerce
Length of supply chain
Product Info
Time to market
Price/Contract Negotiation
Order placement and tracking
Order fulfilment
Payment
SEG 4610
Supply Chain Management

38. Cost Impact of E-Commerce
Facility
Site and processing costs
Inventory
Levels and kinds
Transportation
Inbound/out bound logistics
Infrastructure
Information Sharing
Co-ordination
SEG 4610
Supply Chain Management

39. Supply Chain Management
Summary
Competitive Strategic Positioning
Order-winners and qualifiers
Supply Chain Performance
Efficiency vs Responsiveness
Co-ordinated strategies
Strategic Fit
customers: implied demand uncertainty spectrum
supply chain: responsiveness-cost spectrum
Challenges
E-commerce
SEG 4610
Supply Chain Management

40. Supply Chain Management
References
Fisher, M. L., ‘What is the right supply chain for your product?’, Harvard Business Review, Mar-Apr 1997.
Marien, E.J., ‘The four supply chain enablers’, Supply Chain Management Review, Mar-Apr, 2000,
Hill, T., Manufacturing Operations Strategy: Text and Cases, McGraw-Hill, 2009.
SEG 4610
Supply Chain Management