1. ACHIEVING STRATEGIC FIT SUPPLY CHAIN DRIVERS AND OBSTACLES

2. SUPPLY CHAIN DECISIONS
Direction and Extent of Vertical Integration
Production/Procurement decisions
Selection of Partners
Nature of Relationships
Facilities Location
Inventory decisions
Transportation decisions
Communications Interface Design Decisions

3. Supply Chain Strategy
The first step in devising an effective supply-chain
strategy is to consider the nature of the demand for
the products that a company supplies
Functional products
Staples that people buy in a wide range of
retail stores and gas stations
Have stable predictable demand and long
life cycles
Innovative products
Demand is unpredictable
Life cycle is short because imitators erode the
competitive advantage

4. ROUTES TO VALUE CREATION
Manufacturing Logistics
Flexible Production
Reduced Costs
Distribution Management
Speedy Movement to Market
Increased Market Share
After Sales Service
Improved Customer Satisfaction
Customer Loyalty

5. ACHIEVING STRATEGIC FIT
Competitive strategy and all functional strategies must fit together to from a coordinated overall strategy. Each functional strategy must support other functional strategies and help a firm reach its competitive strategy goal.
The different functions in a company must appropriately structure their processes and resources to be able too execute these strategies successfully.

6. METHODOLOGY FOR ACHIEVING STRATEGIC FIT
Understanding the customer
Understanding the supply chain
Achieving strategic fit

7. UNDERSTANDING THE CUSTOMER
The quality of product needed in each lot
The response time that customers are willing to tolerate
The variety of products needed
The service level required
The price of the product
The desired rate of innovation in the product

8. DEMAND UNCERTAINTY Apparent Implied Impact on customer needs
Implied uncertainty spectrum
Correlation between implied demand uncertainty and other attributes

9. PRODUCT ATTRIBUTES AND DEMAND UNCERTAINTY
High
Low
Demand uncertainty
Purely
Functional
Products
Demand more
Certain
Established
Goods
Demand
variable
within
limits
New Models
of existing
goods
Demand
unpredictable
Entirely
New
Products
Demand
highly
uncertain

10. CORRELATION -IMPLIED DEMAND UNCERTAINTY AND OTHER ATTRIBUTES
Product Margin
Ave Forecast Error
Ave Stock out Rate
Ave forced season end mark down
LOW HIGH
HIGH IDU
LOW IDU

12. SUPPLY CHAIN RESPONSIVENESS
Respond to wide ranges of quantities demanded
Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a very high service level

13. RESPONSIVENESS EFFICIENT FRONTIER
HIGH
RESPONSIVENESS EFFICIENT FRONTIER
LOW
HIGH LOW
COST

14. UNCERTAINTY RESPONSIVENESS MAP
SUPPLY
CHAIN
RESPONSIVENESS
SPECTRUM
EFFICIENT SUPPLY CHAINS ?
IMPLIED UNCERTAINTY CERTAIN SPECTRUM UNCERTAIN
DEMAND DEMAND

15. LOGISTICS STRATEGIC PLANNING
A unified, comprehensive and integrated planning process to achieve competitive advantage through increased value and customer service, which results in superior customer satisfaction (where we want to be), by anticipating future demand for logistic services and manufacturing resources of the entire supply chain (how to get there).
This planning is done within the context of corporate goals and plans.
Strategic Planning for Logistics; Ohio State University

16. FINDING THE ZONE OF STRATEGIC FIT
RESPONSIVE
SUPPLY
CHAIN
RESPONSIVENESS
SPECTRUM
EFFICIENT SUPPLY CHAINS
Zone of Strategic Fit
IMPLIED UNCERTAINTY CERTAIN SPECTRUM UNCERTAIN
DEMAND DEMAND

18. COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS PRIMARY GOAL
EFFICIENT SUPPLY CHAIN
Supply demand at lowest cost
RESPONSIVE SUPPLY CHAIN
Respond quickly to demand

19. COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS PRODUCT DESIGN STRATEGY
EFFICIENT SUPPLY CHAIN
Maximise performance at minimum product cost
RESPONSIVE SUPPLY CHAIN
Create modularity to allow postponement of product differentiation

20. COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS PRICING STRATEGY
EFFICIENT SUPPLY CHAIN
Lower margins because price is a prime customer driver
RESPONSIVE SUPPLY CHAIN
Higher margins as price is not a prime customer driver

21. COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS MANUFACTURING STRATEGY
EFFICIENT SUPPLY CHAIN
Lower costs through higher utilisation
RESPONSIVE SUPPLY CHAIN
Maintain capacity flexibility to meet unexpected demand

22. COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS INVENTORY STRATEGY
EFFICIENT SUPPLY CHAIN
Minimise inventory to lower cost
RESPONSIVE SUPPLY CHAIN
Maintain buffer inventory to meet unexpected demand

23. COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS LEAD TIME STRATEGY
EFFICIENT SUPPLY CHAIN
Reduce but not at the expense of cost
RESPONSIVE SUPPLY CHAIN
Aggressively reduce even if the costs are significant

24. COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS SUPPLIER STRATEGY
EFFICIENT SUPPLY CHAIN
Select based on cost and quality
RESPONSIVE SUPPLY CHAIN
Select based on speed, flexibility and quality

25. COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS TRANSPORTATION STRATEGY
EFFICIENT SUPPLY CHAIN
Greater reliance on low cost modes
RESPONSIVE SUPPLY CHAIN
Greater reliance on responsive modes

26. EXPANDING STRATEGIC SCOPE
Intra- company and Intra-operation Scope
The minimse local cost view
Intra-company Intra-functional Scope
The minimise functional cost view
Intra-company Inter-functional Scope
The maximise company profit view
Inter-company Inter-functional view
The maximise supply chain surplus view

27. Supply Chain The Supply Chain performs two distinct types of
functions:
1) Physical function
- Includes converting raw materials into parts,
components, and eventually finished goods,
transporting all of them from one point in the
supply chain to the next
- Physical costs include costs of production,
transportation etc.

28. Supply Chain 2) Market mediation
- Purpose is ensuring that the variety of products reaching the marketplace matches what consumers want to buy
- Market mediation costs arise when supply exceeds demand

29. Supply Chain There are also 2 types of supply chains
- Physically efficient process
- Supplies predictable demand efficiently at the lowest possible cost
- Generate high turns and minimise inventory throughout the chain
- Market responsive process
- Respond quickly to unpredictable demand in order to minimise stock outs, forced markdowns, and obsolete inventory
- Deploys significant buffer stocks of parts or finished goods

30. Supply Chain Strategy
To devise the ideal supply chain strategy, companies
have to:
- Determine if their products are functional or
innovative
- Decide if company’s supply chain is physically
efficient or responsive to the market
- Employ a matrix to formulate the ideal
supply-chain strategy

31. Matching Supply Chain Design to Demand
Marshall Fisher. HBR Mar-Apr 1997

32. Supply Chain Strategy Functional Products Innovative Products
Efficient Supply Chain
move
match
mismatch
e.g. Campbell’s Soup
move
mismatch
Responsive
Supply Chain
match
However not very common
withfunctional products
e.g. National Bicycle

33. Outline Drivers of supply chain performance
A framework for structuring drivers
Inventory
Transportation
Facilities
Information
Obstacles to achieving fit

34. Drivers of Supply Chain Performance
Inventory
raw materials, WIP, finished goods within a supply chain
inventory policies
Transportation
moving inventory from point to point in a supply chain
combinations of transportation modes and routes

35. Drivers of Supply Chain Performance
Facilities
places where inventory is stored, assembled, or fabricated
production sites and storage sites
Information
data and analysis regarding inventory, transportation, facilities throughout the supply chain
potentially the biggest driver of supply chain performance

36. A Framework for Structuring Drivers
Competitive Strategy
Supply Chain Strategy
Efficiency
Responsiveness
Supply chain structure
Inventory
Transportation
Facilities
Information
Drivers

37. Inventory: Role in the Supply Chain
Inventory in the supply chain exists because of a mismatch between supply and demand
Major source of cost and huge influence on responsiveness
Significant impact on material flow time in a supply chain
Inventory and flow time are “synonymous” in a supply chain

38. Inventory: Role in Competitive Strategy
If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers
If cost is more important, inventory can be reduced to make the firm more efficient

39. Components of Inventory Decisions
Cycle inventory
Average amount of inventory used to satisfy demand between shipments
Depends on lot size
Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales

40. Components of Inventory Decisions
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible production
Overall trade-off: Responsiveness versus efficiency
more inventory: greater responsiveness but greater cost
less inventory: lower cost but lower responsiveness

41. Inventory Control Systems
As demand and lead times are variable, we can either
order fixed quantities of stock at variable times or
order variable quantities at fixed times

42. Two-bin replenishment system
Imagine two equally sized bins (bays, pallets or similar) used for storage in the warehouse or at the workstation storage point. The ROL be thus be seen visually. With the first bin empty, a new full bin is "called" to arrive before the second bin is exhausted. The call is rotated. With proper rotation system is efficient (little paperwork). In a computerised enviroment the bins/pallets themselves can be bar coded and their movement/position and batch numbers of bin components can be traced.

43. Comparing Responsiveness as demand changes
Re-order level approach - average stock levels stay more or less the same and are less responsive to changes in demand. There is a risk of stock outs with Unexpected rising demand but outstanding re-supply orders can be chased.
Re-order cycle systems - rising demand can exhaust stocks with no outstanding orders in the pipeline.

44. Which System?
Of the systems (annual demand, two-bin, re-order cycle, re-order level) none are universally versatile. Many organisations operate a hybrid. Choosing between fixed quantity or fixed time approaches depends on risking unexpected movement in demand against the costs of administering convenient, scheduled replenishment. The safety stock penalty of fixed re-order cycle methods worsens as stock usage value and demand variability rise. Generally fixed time systems suit stock with stable/predictable demand patterns and low usage values

45. Transportation: Role in the Supply Chain
Moves the product between stages in the supply chain
Large impact on responsiveness and efficiency
Faster transportation allows greater responsiveness but lower efficiency
Also affects inventory and facilities

46. Transportation: Role in the Competitive Strategy
If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it
Can also use slower transportation modes for customers whose priority is price (cost)
Can also consider both inventory and transportation to find the right balance

47. Components of Transportation Decisions
Mode of transportation:
air, truck, rail, ship, pipeline, electronic transportation
vary in cost, speed, size of shipment, flexibility
Route and network selection
route: path along which a product is shipped
network: collection of locations and routes
In-house or outsource
Overall trade-off: Responsiveness versus efficiency

48. Facilities Role in the supply chain the “where” of the supply chain
Role in the competitive strategy
economies of scale from fewer facilities (efficiency priority)
larger number of smaller facilities (responsiveness priority)

49. Components of Facilities Decisions
Location
centralization (efficiency) vs. decentralization (responsiveness)
other factors to consider (e.g., proximity to customers)
Capacity (flexibility versus efficiency)
Overall trade-off: Responsiveness versus efficiency

50. Information: Role in the Supply Chain
The connection between the various stages in the supply chain -- allows coordination between stages
Crucial to daily operation of the each stage in a supply chain -- e.g., production scheduling, inventory levels

51. Flows in a Supply Chain Supply Chain Customer Information Product
Funds
Supply Chain

52. Information: Role in the Competitive Strategy
Allows supply chain to become more efficient and more responsive at the same time
reduces the need for a trade-off
Information technology investments
What information is most valuable?

53. Components of Information Decisions
Coordination and information sharing
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
Overall trade-off: Responsiveness versus efficiency

54. Considerations for Supply Chain Drivers
Efficiency
Responsiveness
Inventory
Cost of holding
Availability
Transportation
Consolidation
Speed
Facilities
Consolidation/ Dedicated
Proximity/ Flexibility
Information
What information is best suited for each objective