1. © 2007 Pearson Education 2-1 Chapter 2 Supply Chain Performance: Achieving Strategic Fit and Scope Supply Chain Management (3rd Edition)

2. © 2007 Pearson Education 2-2 Outline uCompetitive and supply chain strategies uAchieving strategic fit uExpanding strategic scope

3. © 2007 Pearson Education 2-3 Competitive and Supply Chain Strategies uCompetitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services uProduct development strategy: specifies the portfolio of new products that the company will try to develop uMarketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted uSupply 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

4. © 2007 Pearson Education 2-4 The Value Chain: Linking Supply Chain and Business Strategy

5. © 2007 Pearson Education 2-5 Achieving Strategic Fit uIntroduction uHow is strategic fit achieved? uOther issues affecting strategic fit

6. © 2007 Pearson Education 2-6 Achieving Strategic Fit uStrategic 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 uA 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

7. © 2007 Pearson Education 2-7 How is Strategic Fit Achieved? uStep 1: Understanding the customer and supply chain uncertainty uStep 2: Understanding the supply chain uStep 3: Achieving strategic fit

8. © 2007 Pearson Education 2-8 Step 1: Understanding the Customer and Supply Chain Uncertainty uIdentify the needs of the customer segment being served uQuantity of product needed in each lot uResponse time customers will tolerate uVariety of products needed uService level required uPrice of the product uDesired rate of innovation in the product

9. © 2007 Pearson Education 2-9 Step 1: Understanding the Customer and Supply Chain Uncertainty uOverall attribute of customer demand uDemand uncertainty: uncertainty of customer demand for a product uImplied demand uncertainty: resulting uncertainty for the supply chain given the portion of the demand the supply chain must handle and attributes the customer desires

10. © 2007 Pearson Education 2-10 Step 1: Understanding the Customer and Supply Chain Uncertainty uImplied demand uncertainty also related to customer needs and product attributes uFirst step to strategic fit is to understand customers by mapping their demand on the implied uncertainty spectrum

11. © 2007 Pearson Education 2-11 Achieving Strategic Fit uUnderstanding the Customer –Lot size –Response time –Service level –Product variety –Price –Innovation Implied Demand Uncertainty

12. © 2007 Pearson Education 2-12 Impact of Customer Needs on Implied Demand Uncertainty Customer NeedCauses implied demand uncertainty to increase because … Range of quantity increasesWider range of quantity implies greater variance in demand Lead time decreasesLess time to react to orders Variety of products required increasesDemand per product becomes more disaggregated Number of channels increasesTotal customer demand is now disaggregated over more channels Rate of innovation increasesNew products tend to have more uncertain demand Required service level increasesFirm now has to handle unusual surges in demand

13. © 2007 Pearson Education 2-13 Step 2: Understanding the Supply Chain uHow does the firm best meet demand? uDimension describing the supply chain is supply chain responsiveness uSupply chain responsiveness -- ability to –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

14. © 2007 Pearson Education 2-14 Step 2: Understanding the Supply Chain uThere is a cost to achieving responsiveness uSupply chain efficiency: cost of making and delivering the product to the customer uIncreasing responsiveness results in higher costs that lower efficiency uSecond step to achieving strategic fit is to map the supply chain on the responsiveness spectrum

15. © 2007 Pearson Education 2-15 Step 3: Achieving Strategic Fit uStep is to ensure that what the supply chain does well is consistent with target customer’s needs

16. © 2007 Pearson Education 2-16 Step 3: Achieving Strategic Fit uAll functions in the value chain must support the competitive strategy to achieve strategic fit. uTwo extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell). uTwo 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

17. © 2007 Pearson Education 2-17 Comparison of Efficient and Responsive Supply Chains (Table 2.4) EfficientResponsive Primary goalLowest costQuick response Pricing strategyLower marginsHigher margins Mfg strategyHigh utilizationCapacity flexibility Inventory strategyMinimize inventoryBuffer inventory Lead time strategyReduce but not at expense of greater cost Aggressively reduce even if costs are significant Supplier selection strategyCost and low qualitySpeed, flexibility, quality Transportation strategyGreater reliance on low cost modes Greater reliance on responsive (fast) modes

18. © 2007 Pearson Education 2-18 Other Issues Affecting Strategic Fit uMultiple products and customer segments uProduct life cycle uCompetitive changes over time

19. © 2007 Pearson Education 2-19 Multiple Products and Customer Segments uFirms sell different products to different customer segments (with different implied demand uncertainty) uThe supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments uTwo approaches: –Different supply chains –Tailor supply chain to best meet the needs of each product’s demand

20. © 2007 Pearson Education 2-20 Product Life Cycle uThe demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle uSupply chain strategy must evolve throughout the life cycle uEarly: uncertain demand, high margins (time is important), product availability is most important, cost is secondary uLate: predictable demand, lower margins, price is important

21. © 2007 Pearson Education 2-21 Competitive Changes Over Time uCompetitive pressures can change over time uThe Internet makes it easier to offer a wide variety of products uThe supply chain must change to meet these changing competitive conditions

22. © 2007 Pearson Education 2-22 Expanding Strategic Scope uScope of strategic fit –The functions and stages within a supply chain that devise an integrated strategy with a shared objective –One extreme: each function at each stage develops its own strategy –Other extreme: all functions in all stages devise a strategy jointly –how expanding the scope of strategic fit improves supply chain performance. We represent the scope of strategic fit on a two- dimensional grid. Horizontally, the scope of strategic fit is considered across different supply chain stages, starting from suppliers and moving all the way along the chain to the customer. Vertically, the scope is applied to the fit achieved across different functional strategies competitive, product development, supply chain, and marketing.

23. © 2007 Pearson Education Expanding Strategic Scope uFive categories: –Intracompany intraoperation scope: minimize local cost view –The most limited scope over which strategic fit is considered is one operation within a functional area within a company. –Intracompany intrafunctional scope: minimize functional cost view : the scope of strategic fit expands to an entire function within a stage of the supply chain. –Intracompany interfunctional scope: maximize company profit view –Companies realized the importance of expanding the scope of strategic fit across all functions within the firm. With the intracompany interfunctional scope, the goal is to maximize company profit. To achieve this goal, all functional strategies are developed to support both each other and the competitive strategy. –Intercompany interfunctional scope : maximize supply chain surplus This occurs with the intercompany interfunctional scope, in which all stages of the supply chain coordinate strategy across all functions, ensuring that together they best meet the customer's needs and maximize supply chain surplus. Also Today, more and more companies they are able to respond quickly to market needs and get the right product to the right customer at the right time. 2-23

24. © 2007 Pearson Education Expanding Strategic Scope uFlexible interfunctional scope also called a gile intercompany interfunctional scope : Agile intercompany scope refers to a firm's ability to achieve strategic fit when partnering with supply chain stages that change over time. uFor example, a manufacturer may interface with a different set of suppliers and distributors depending on the product being produced and the customer being served. The strategy and operations at firms must be agile enough to maintain strategic fit in a changing environment. 2-24

25. © 2007 Pearson Education 2-25 Different Scopes of Strategic Fit Across a Supply Chain

26. © 2007 Pearson Education 2-26 Summary of Learning Objectives uWhy is achieving strategic fit critical to a company’s overall success? uHow does a company achieve strategic fit between its supply chain strategy and its competitive strategy? uWhat is the importance of expanding the scope of strategic fit across the supply chain?