2
Supply Chain
Performance:
Achieving Strategic
Fit and Scope
PowerPoint presentation to accompany
Chopra and Meindl Supply Chain Management, 5e
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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
• In each case, the competitive strategy is defined on how customer
prioritizes product cost , delivery, time, variety and quality.
• 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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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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Achieving Strategic Fit
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.
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How is Strategic Fit Achieved?
1. Understanding the customer and
supply chain uncertainty
2. Understanding the supply chain
3. 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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Implied Uncertainty and Other Attributes
Low Implied High Implied
Uncertainty 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 0% 10% to 25%
markdown
Table 2-2
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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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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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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
• 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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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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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 Maximize performance at a minimum Create modularity to allow
strategy product cost postponement of product differentiation
Lower margins because price is a prime Higher margins because price is not a
Pricing strategy
customer driver prime customer driver
Manufacturing Maintain capacity flexibility to buffer
Lower costs through high utilization
strategy against demand/supply uncertainty
Maintain buffer inventory to deal with
Inventory strategy Minimize inventory to lower cost
demand/supply uncertainty
Reduce aggressively, even if the costs
Lead-time strategy Reduce, but not at the expense of costs
are significant
Select based on speed, flexibility,
Supplier strategy Select based on cost and quality
reliability, and quality
Table 2-4
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Changes Over Product Life Cycle
• Beginning stages
1. Demand is very uncertain, and supply may
be unpredictable
2. Margins are often high, and time is crucial to
gaining sales
3. Product availability is crucial to capturing the
market
4. Cost is often a secondary consideration
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Changes Over Product Life Cycle
• Later stages
1. Demand has become more certain, and
supply is predictable
2. Margins are lower as a result of an increase
in competitive pressure
3. Price becomes a significant factor in
customer choice
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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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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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