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Supply Chain Performance: Achieving Strategic Fit and Scope

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PowerPoint presentation to accompany

Chopra and Meindl Supply Chain Management, 5e

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Learning Objectives

Explain why achieving strategic fit is critical to a company’s overall success.

Describe how a company achieves strategic fit between its supply chain strategy and its competitive strategy.

Discuss the importance of expanding the scope of strategic fit across the supply chain.

Describe the major challenges that must be overcome to manage a supply chain successfully.

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Competitive and Supply Chain Strategies

Competitive strategy defines the set of customer needs a firm seeks to satisfy through its products and services

Product development strategy specifies the portfolio of new products that the company will try to develop

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

All functional strategies must support one another and the competitive strategy

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The Value Chain

Figure 2-1

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Each department will have to align processes for the Value chain .

https://www.youtube.com/watch?v=g8p2H7EvoGM

Achieving Strategic Fit

Strategic fit – competitive and supply chain strategies have aligned 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

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Example: Companies are not in alignment with competitive strategy. EG. Using a supplier that is slow for a big product roll out. E.g. Big promotion for a new item like a new designer bag. Utilizes a manufacturer in Asia that uses shipping and has unpredictable lead times.

Achieving Strategic Fit

The competitive strategy and all functional strategies must fit together to form a coordinated overall strategy.

The different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully.

The design of the overall supply chain and the role of each stage must be aligned to support the supply chain strategy.

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All areas of the organization need to be in alignment with the overall strategic goal. Sometimes there is inter company fighting within departments. One department is pointing fingers of the other department and they are looking for their own best interest. Anyone worked in a environment like this?

How is Strategic Fit Achieved?

Understanding the customer and supply chain uncertainty

Understanding the supply chain

Achieving strategic fit

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Step 1: Understanding the Customer and Supply Chain Uncertainty

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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Step 1: Understanding the Customer and Supply Chain Uncertainty

Demand uncertainty – uncertainty of customer demand for a product

Implied demand uncertainty – resulting uncertainty for the supply chain given the portion of the demand the supply chain must handle and attributes the customer desires

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Ex. Emergency Orders- higher demand uncertainty than that of a company that supplies pasta which has long lead times.

Customer Needs and Implied Demand Uncertainty

Customer Need	Causes Implied Demand Uncertainty to …
Range of quantity required increases	Increase because a wider range of the quantity required implies greater variance in demand
Lead time decreases	Increase because there is less time in which to react to orders
Variety of products required increases	Increase because demand per product becomes more disaggregate
Number of channels through which product may be acquired increases	Increase because the total customer demand is now disaggregated over more channels
Rate of innovation increases	Increase because new products tend to have more uncertain demand
Required service level increases	Increase because the firm now has to handle unusual surges in demand

Table 2-1

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Supply chain is Reactive based on the customer needs.

Implied Uncertainty and Other Attributes

	Low Implied Uncertainty	High Implied Uncertainty
Product margin	Low	High
Average forecast error	10%	40% to 100%
Average stockout rate	1% to 2%	10% to 40%
Average forced season-end markdown	0%	10% to 25%

Table 2-2

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How would you design your supply chain based on implied uncertainty.

Implied Uncertainty and Other Attributes

Products with uncertain demand are often less mature and have less direct competition. As a result, margins tend to be high.

Forecasting is more accurate when demand has less uncertainty.

Increased implied demand uncertainty leads to increased difficulty in matching supply with demand. For a given product, this dynamic can lead to either a stockout or an oversupply situation.

Markdowns are high for products with greater implied demand uncertainty because oversupply often results.

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1Eg Apple I-phone 11

2. Eg Table Salt – historical data

3. e.g. Give me an example of this: hype back packs for school. Too many of the same design

4. Back pack- mark downs

Impact of Supply Source Capability

Supply Source Capability	Causes Supply Uncertainty to...
Frequent breakdowns	Increase
Unpredictable and low yields	Increase
Poor quality	Increase
Limited supply capacity	Increase
Inflexible supply capacity	Increase
Evolving production process	Increase

Table 2-3

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E.g. Electronics when new to market . E.g. Tesla new to market. Modify the supply chain.

Levels of Implied Demand Uncertainty

Figure 2-2

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Hight uncertainty: Hand held projectors.

Step 2: Understanding Supply Chain Capabilities

How does the firm best meet demand?

Supply chain responsiveness is the 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

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Step 2: Understanding Supply Chain Capabilities

Responsiveness comes at a cost. WHY?

Supply chain efficiency is the inverse to the cost of making and delivering the product to the customer

The cost-responsiveness efficient frontier curve shows the lowest possible cost for a given level of responsiveness

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Cost-Responsiveness Efficient Frontier

Figure 2-3

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Responsiveness Spectrum

Figure 2-4

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Based on Demand of the goods usually we can have a better prediction on responsiveness.

Step 3: Achieving Strategic Fit

Ensure that the degree of supply chain responsiveness is consistent with the implied uncertainty

Assign roles to different stages of the supply chain that ensure the appropriate level of responsiveness

Ensure that all functions maintain consistent strategies that support the competitive strategy

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Zone of Strategic Fit

Figure 2-5

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Roles and Allocations

Figure 2-6

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You can achieve meeting demand uncertainty based on different designs withing your supply chain.

So IKEA- Supply chain 1

Supply chain II- City Furniture

Efficient and Responsive Supply Chains

	Efficient Supply Chains	Responsive Supply Chains
Primary goal	Supply demand at the lowest cost	Respond quickly to demand
Product design strategy	Maximize performance at a minimum product cost	Create modularity to allow postponement of product differentiation
Pricing strategy	Lower margins because price is a prime customer driver	Higher margins because price is not a prime customer driver
Manufacturing strategy	Lower costs through high utilization	Maintain capacity flexibility to buffer against demand/supply uncertainty
Inventory strategy	Minimize inventory to lower cost	Maintain buffer inventory to deal with demand/supply uncertainty
Lead-time strategy	Reduce, but not at the expense of costs	Reduce aggressively, even if the costs are significant
Supplier strategy	Select based on cost and quality	Select based on speed, flexibility, reliability, and quality

Table 2-4

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Modularity: (smaller part) product differentiation

Tailoring the Supply Chain

Achieve strategic fit while serving many customer segments with a variety of products across multiple channels

Requires sharing some links in the supply chain with some products, while having separate operations for other links

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E.g. Zara, Fed Ex

Supply Chain Levers to Deal with Uncertainty

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Capacity: E.g. Paint

Inventory: Where to hold

Time: Zara invested in supply chain 48 hour reaction

Information: Target: pregnant women

Price: Airline tickets during high volume times

Changes Over Product Life Cycle

Beginning stages

Demand is very uncertain, and supply may be unpredictable

Margins are often high, and time is crucial to gaining sales

Product availability is crucial to capturing the market

Cost is often a secondary consideration

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New product roll-out

Changes Over Product Life Cycle

Later stages

Demand has become more certain, and supply is predictable

Margins are lower as a result of an increase in competitive pressure

Price becomes a significant factor in customer choice

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STOP HERE

Expanding Strategic Scope

Scope of strategic fit – the functions within the firm and stages across the supply chain that devise an integrated strategy with an aligned objective

Intraoperation scope – minimize local cost view

Each stage of the supply chain devises strategy independently

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Expanding Strategic Scope

Intrafunctional view – minimize total functional cost

Firms align all operations within a function

Interfunctional scope – maximize company profit

Functional strategies are developed to align with one another and the competitive strategy

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Expanding Strategic Scope

Intercompany scope – maximize supply chain surplus

Supplier and customer work together and share information to reduce total cost and grow supply chain surplus

Agile intercompany scope – a firm’s ability to achieve strategic fit when partnering with supply chain stages that change over time

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Different Scopes of Strategic Fit Across a Supply Chain

Figure 2-7

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Challenges

Increasing product variety and shrinking life cycles

Greater product variety and shorter life cycles increase uncertainty while reducing the window of opportunity within which the supply chain can achieve fit

Globalization and increasing uncertainty

Significant fluctuations in exchange rates, global demand, and the price of crude oil

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Challenges

Fragmentation of supply chain ownership

Firms are less vertically integrated

Take advantage of supplier and customer competencies they did not have

New ownership structure makes aligning and managing the supply chain more difficult

Aligning all members of a supply chain has become critical to achieving supply chain fit

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Challenges

Changing technology and business environment

Customer needs and technology change may force a firm to rethink their supply chain strategy

The environment and sustainability

Growing in relevance and must be accounted for when designing supply chain strategy

Opportunities may require coordination across different members of the supply chain

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Summary of Learning Objectives

Explain why achieving strategic fit is critical to a company’s overall success

Describe how a company achieves strategic fit between its supply chain strategy and its competitive strategy

Discuss the importance of expanding the scope of strategic fit across the supply chain

Describe the major challenges that must be overcome to manage a supply chain successfully

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.

Printed in the United States of America.

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