Summary of Learning Objectives

1
Summary of Learning Objectives

• Why is achieving strategic fit critical to a
  companys overall success?
• How does a company achieve strategic fit between
  its supply chain strategy and its competitive
  strategy?
• What is the importance of expanding the scope of
  strategic fit across the supply chain?

2
CHAPTER 2SCM - STRATEGIC FIT
CUSTOMERS DEMAND PRODUCTS WITH DIFFERENT
CHARACTERISTICS Cost Customization
Quantity Quality Speed Service Flexibility Fe
atures (C, Q, S, F)2 These requirements can
vary dramatically for customers and products.
Consider some examples.
3
Competitive Supply Chain Strategies

• Competitive strategy defines the target
  market/customer needs.
• Product Development strategy portfolio of new
  products to achieve competitive strategy.
• 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
• Consistency and support between supply chain
  strategy, competitive strategy, and other
  functional strategies is important

4
SCM - STRATEGIC FIT
ACHIEVING FIT - UNDERSTANDING 1. THE
CUSTOMER/PRODUCT REQUIREMENTS CQSF2 ALSO -
IMPLIED DEMAND UNCERTAINTY 2. THE SUPPLY CHAIN -
RESPONSIVE VS. EFFICIENT 3. STRATEGIC FIT - THE
ZONE OF STRATEGIC FIT
5
Achieving Strategic Fit

• Strategic 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
• 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 of strategic fit -- Dell

6
The Value Chain Linking Supply Chain and
Business Strategy
Business Strategy
New Product Strategy
Marketing Strategy
Supply Chain Strategy
New Product Development
Marketing and Sales
Operations
Distribution
Service
Finance, Accounting, Information Technology,
Human Resources
7
Step 1 Understanding the Customer and Supply
Chain Uncertainty

• Identify the needs of the customer segment being
  served
• 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

8
Achieving Strategic Fit

• Why is Implied Demand Uncertainty So Important?
• Understanding the Customer, CQSF2
• Lot size
• Response time
• Service level
• Product variety
• Price
• Innovation

Implied Demand Uncertainty
9
Impact of Customer Needs on Implied Demand
Uncertainty (Table 2.1)
10
Levels of Implied Demand Uncertainty
Detergent Long lead time steel
High Fashion Emergency steel
Customer Need
Price
Responsiveness
Low
High
Implied Demand Uncertainty
11
Correlation Between Implied Demand Uncertainty
and Other Attributes (Table 2.2)
12
SUPPLY CHAINS EFFICIENT VS. RESPONSIVE

• GOAL LOWEST COST
• PRODUCTMAX. PERF. AT MIN COST
• PRICING LOWER PRICE AND MARGIN
• MANU HIGH EFFICIENCY
• INVENT MIN. INVENTORY
• LEADTIME REDUCE LEADTIME
• SUPPLIERS COST/QUALITY
• TRANSPORTATION COST

• QUICK RESPONSE
• ASSEMBE TO ORDER
• HIGHER PRICE AND MARGINS
• FLEX. CAPACITY
• MAINTAIN BUFFER
• REDUCE EVEN WITH HIGHER PRICE
• SPEED, FLEX., QUALITY
• QUICK RESPONSIVIE

13
Step 2 Understanding the Supply Chain

• There is a cost to achieving responsiveness
• Supply chain efficiency cost of making and
  delivering the product to the customer
• Increasing responsiveness results in higher costs
  that lower efficiency
• Figure 2.3 cost-responsiveness efficient
  frontier
• Figure 2.4 supply chain responsiveness spectrum
• Second step to achieving strategic fit is to map
  the supply chain on the responsiveness spectrum

14
Understanding the Supply Chain
Cost-Responsiveness Efficient Frontier (Fig. 2-3)
Responsiveness
BOSE RADIO DELL
High
WAL-MART BARILLA
Low
Cost
High
Low
15
Responsiveness Spectrum (Figure 2.4)
Highly efficient
Highly responsive
Somewhat efficient
Somewhat responsive
Integrated steel mill
Dell
Hanes apparel
Most automotive production
16
Step 3 Achieving Strategic Fit

• All functions in the value chain must support the
  competitive strategy to achieve strategic fit
  Fig. 2.7
• Two extremes Efficient supply chains (Barilla)
  and responsive supply chains (Dell) Table 2.3
• Two 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
Achieving Strategic Fit
18
Achieving Strategic Fit with Same
Firm with Various Products
PRODUCT LINE B CUSTOMER B
PRODUCT LINE A CUSTOMER A
PRODUCT LINE A - CUSTOMER B
PRODUCT LINE B CUSTOMER A
19
Achieving Strategic Fit Product Life Cycle
Progresses/Competition
INTRODUCTION
MATURING COMMODITY
20
Strategic Scope
VERY LOCAL OPTIMAL BY OPERATION W/I
LOCAL OPTIMAL BY FUNCTION
Manufacturer
Distributor
Retailer
Customer
Suppliers
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
FUNCTIONALLY OPTIMAL
21
Intracompany Interfunctional Scope

• All functional strategies within a company are
  developed to support each other and the companys
  competitive strategy
• Strategic fit is expanded to include all
  functions in a firm
• Goal is to maximize company profit
• Figure 2.11

22
Strategic ScopeGLOBALLY OPTIMAL STRATEGY
Manufacturer
Distributor
Retailer
Customer
Suppliers
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
23
Intercompany Interfunctional Scope

• The only positive cash flow for the supply chain
  occurs when the customer pays for the product
  all other cash flows are resettling of accounts
  within the chain and add to total supply chain
  cost
• Supply chain surplus
• Difference between what the customer pays and
  total supply chain cost
• Total profit to be shared among all members of
  the supply chain

24
Intercompany Interfunctional Scope

• Increasing supply chain surplus increases the
  amount to be shared
• All stages coordinate strategy across all
  functions to ensure that they best meet the
  customers needs and maximize supply chain
  surplus
• Also provides more speed by managing the
  interfaces between supply chain stages
• Each company must evaluate its actions in the
  context of the entire supply chain
• Figure 2.12