Supply Chain Performance
Achieving Strategic Fit and Scope
Bent Steenholt Kragelund
[email protected] 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
Achieving Strategic Fit
Strategic fit competitive and supply chain strategies have
aligned goals
1. The competitive strategy and all functional strategies must fit
together to form a coordinated overall strategy.
2. The different functions in a company must appropriately
structure their processes and resources to be able to execute
these strategies successfully.
3. The design of the overall supply chain and the role of each
stage must be aligned to support the supply chain strategy.
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
Example Battery Shop
All the batteries for
your needs
Next day delivery
Free freight
Best prices
What is the
implication for the
supply chain?
How is Strategic Fit Achieved?
1. Understanding the customer and supply chain
uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit
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
Step 1: Understanding the Customer and Supply
Chain Uncertainty
Demand uncertainty uncertainty of customer demand
for a product
Implied demand uncertainty demand uncertainty
imposed on the supply chain because of the customer
needs it seeks to satisfy
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 Increase because the total customer demand is now
product may be acquired
disaggregated over more channels
increases
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
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%
Source: Fischer(1997)
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
Levels of Implied Demand Uncertainty
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
Step 2: Understanding Supply Chain Capabilities
Responsiveness comes
at a cost
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
Responsiveness Spectrum
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
Roles and Allocations
Large scale stores
Limited variety of styles
Large inventory at stores
Decreases implied uncertainty on the
supply chain
Ikea: Responsive
Supplier: Efficient
Roles and Allocations
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
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
Changes Over Product Life Cycle
Beginning stages
Later stages
1. Demand is very uncertain,
and supply may be
unpredictable
1. Demand has become more
certain, and supply is
predictable
2. Margins are often high,
and time is crucial to
gaining sales
2. Margins are lower as a result of
an increase in competitive
pressure
3. Product availability is
crucial to capturing the
market
3. Price becomes a significant
factor in customer choice
4. Cost is often a secondary
consideration
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
Interoperation
Minimize local
cost view
Not aligned
across
functions
Intrafunctional
Minimize
functional
cost view
Align all
operations
within the
function
Interfunctional
Maximize
company
profit view
Align
functional
strategies
within the firm
Intercompany
Maximize
supply chain
surplus
Jointly
planning
Agile
Intercompany
Managing in a
changing
environment
Different Scopes of Strategic Fit Across a Supply Chain
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
Adding flexibility to car manufacturing
Source: http://ing.dk/artikel/132264-se-platformen-der-skal-standardisere-vw
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
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
Exercise
Read the article: The Power of Virtual Integration by Joan Magretta.
Discuss in you groups and answer the following questions
Describe Dells supply chain strategy in 1998
What are the benefits of this strategy?
Can you identify any issues with the strategy?
What does the virtually integrated enterprise mean and what are the benefits to
Dell, Its suppliers and its customers?
Now read the article: What Walmart means to Dell
http://news.cnet.com/What-Wal-Mart-means-to-Dell/2100-1042_3-6186402.html
Which changes does Dell have to make to its supply chain strategy in order to sell
through Walmart?
Is Dell right in returning to the sale of its computers through retail stores ? why/why
not?
