Title: Supply Chain Performance: Achieving Strategic Fit
1Supply Chain PerformanceAchieving Strategic Fit
2Strategic Decisions
- Strategic Decisions are ones that keep an
organisation matched to its environment. - Motivation
- Assure long term survival
- Ensure profit growth
3The Value Chain in a company
4Competitive Strategy
- A companys competitive strategy defines the set
of customer needs that it seeks to satisfy
through its products and services. - Compaq (immediate availability) vs. Dell
(customisation) - ParkNShop vs. CitiSuper
- Based on the customers priorities
- Targets one or more customer segments
- Aim provide goods/services to satisfy these
customers needs
5Competitive Dimensions
- Cost
- Quality
- Time
- Flexibility/Variety
- Strategic Positioning
- Defines those positions that a firm wants to
occupy in the competitive product space.
6Corporate Strategy, Competitive Priorities and
Functional Inter-relationships
- Market analysis
- segmentation
- needs assessment
Socioeconomic and business environment
- Corporate strategy
- missions
- goals
- distinctive
- Future directions
- global strategy
- new products/services
- Competitive priorities
- cost
- quality
- time
- flexibility
- Capabilities
- current
- needed
- plans
Functional area strategies
7Terry Hill (London Business School) Order
Winners Qualifiers
- Order Qualifiers are those (minimum) criteria
that a company must meet to be considered as a
possible supplier (e.g. ISO 9000). - Order winners are those criteria that wins the
orders. - Invariably due to re-directing competitive
priorities
8Functional Strategies
- Product development
- Product portfolio? Outsourced or internal
development? - Marketing
- Customer segments? Products/price/promotion?
Competitors? - Finance
- Acquisition and allocation of resources
- Supply Chain
- Procurement, production, delivery and service
9Developing an Operations Strategy (Terry Hill)
- 1. Define corporate objectives.
- 2. Determine marketing strategies (strategic
positioning). - 3. Assess how different products qualify in their
respective markets and win orders against
competitors. - 4. Establish appropriate operational processes
for product manufacture and delivery. - 5. Provide the operational infrastructure to
support production/delivery.
10Strategic Fit
- Strategic fit means consistency between the
competitive advantage that a firm seeks and the
process capabilities and managerial policies that
it uses to achieve that advantage. - Key to success
- Competitive strategy and functional strategies
must support each other and fit as a co-ordinated
overall strategy. - Each function must structure its processes to be
able to execute these strategies well.
11Achieving Strategic Fit
- Understand the customer
- Customer needs for targeted segments?
- Define service requirements and desired costs
- Understand the supply chain
- Operational characteristics
- Performance vs. customer needs
- Achieving strategic fit
- Re-structure supply chain
- Alter competitive strategy
12Understanding the customer
- Lot size
- Response time
- Service level
- Product variety
- Price
- Innovation
Implied Demand Uncertainty
13Implied vs. real demand uncertainty
- Implied demand uncertainty is the uncertainty
that exists due to the portion of demand that the
supply chain is required to meet. - Affected by
- Portion of demand (Market segment) handled by
supply chain - Attributes desired by customers
14Implied Uncertainty Spectrum
Low Implied Demand Uncertainty
Somewhat Certain Demand
High Implied Demand Uncertainty
Somewhat Uncertain Demand
Purely functional products
Established products
New models of existing goods
Entirely new products
Crest toothpaste
Gasoline
New Ford Taurus
Palm Pilot
15Relationship between Demand Characteristics and
Implied Demand Uncertainty (Fisher)
16Achieving Strategic Fit
- Understand the customer
- Map where their demand is located on the implied
uncertainty spectrum - Understand the supply chain
- Achieving strategic fit
17Understanding the Supply Chain
- Supply chain responsiveness is its ability to
- Respond to wide range of quantities demanded
- Meet short lead times
- Manufacture large variety of products
- Meet high service level
- Innovate anticipate customers demand
- Responsiveness comes at a cost
18Understanding the Supply Chain
- Supply chain efficiency is the cost of making and
delivering a product to the customer. - Responsiveness cost efficient frontier
- Tradeoff between cost efficiency and
responsiveness gt - Supply chain strategy -gt level of responsiveness
offered
19Responsiveness Spectrum
Highly efficient
Somewhat efficient
Highly responsive
Somewhat Responsive
Advance production schedule low variety or
flexibility
Make-to-stock Long production lead time (months)
Mix model production Production lead time in
weeks
Make-to-order Lead time in days
Automobile production
Dell PC
Glass production
MS underwear
20Achieving Strategic Fit
- Understand the customer
- Map where their demand is located on the implied
uncertainty spectrum - Understand the supply chain
- Map where the supply chain capability is located
on the responsiveness spectrum - Achieving strategic fit
21Achieving Strategic Fit
Responsive Supply Chain
Strategic Fit
Efficient Supply Chain
22Efficient vs. Responsive Supply Chains
23Achieving Strategic Fit
- Understand the customer
- Map where their demand is located on the implied
uncertainty spectrum - Understand the supply chain
- Map where the supply chain capability is located
on the responsiveness spectrum - Achieving strategic fit
- Match supply chain responsiveness to implied
demand uncertainty in zone of strategic fit. - Other functional strategies must also be
coordinated.
24Outputs of Strategy (Terry Hill)
- Review of implications for manufacturing
processes and infrastructure support for current
and future products - Assess degree of match between capabilities and
order-winning and order-qualifying needs - Continual monitor changes in match and mismatch
- Necessary operational re-design, infrastructure
investments, change schedule integrated into
corporate strategy in co-ordination with other
functional strategies
25- There is no SINGLE right supply chain for
everyone - There is only a right supply chain for your given
competitive strategic position.
26Other issues affecting Strategic Fit
- Company offers multiple products to different
customer segments - Grainger machine parts to Boeing, Ford and also
small manufacturers - Fast-moving products warehouses dispersed slow
moving items stored centrally - Product life cycles
- Demand characteristics different at different
stages of life cycle - Competitive strategic positioning will also
change - Supply chain and other functional strategies must
adapt as product enters different stages of its
life cycle - Competitors actions change over time
- New products/services
- Customers expectations changes
27Drivers of Supply Chain Performance
- inventory
- transportation
- facilities
- information
- impact on supply chain performance
- role in competitive strategy
- decision components
28Inventory
- Present throughout the supply chain Raw
materials, work-in-process, finished goods at
manufacturers/distributors/retailers, etc. - Supply Chain role
- Inventory reflects a mismatch of supply and
demand - Purposeful economies-of-scale, anticipate future
demand - Related to throughput and flow time
- Competitive Strategy role
- location and amount of finished goods inventory
impacts product availability (responsiveness) - centralised/distributed storage impacts costs
- Decision Components
- cycle inventory inventory to meet demand
between shipments - safety stock inventory held to meet unexpected
demand - seasonal inventory inventory to meet predictably
variable demand
29Transportation
- Supply Chain role
- Moves product between different stages in a
supply chain - Faster transportation modes decreases flow time
- Competitive Strategy role
- More frequent deliveries increases responsiveness
- Transportation system structure and operation
must match the efficiency-responsiveness balance
to competitive strategic position - Decision Components
- Transportation mode
- air, truck, rail, ship, pipeline, Electronic
delivery - Network design and route selection
- In-house or out-source
30Facilities
- Supply Chain role
- Locations where value-added takes place in a
supply chain - Manufacturing (transformation), Warehousing
(storage) - Competitive Strategy role
- Number and dispersion of warehouses affects costs
- facilities, management, inventory, transportation
- Location proximity to customers affects
responsiveness - Global and local presence affects customers
perception - Decision Components
- Location
- Capacity
- Manufacturing Structure (Process Choices)
- Warehousing Operations
- storage by SKU or job-lots
- cross-docking
31Information
- Supply Chain role
- Information connects the various stages of a
supply chain - Daily operational decisions based on information
about forecasted demand and product availability - Competitive Strategy role
- New info channels (e.g. Internet B2B platforms)
allow customers to design their customised
products (increases responsiveness) - Data collection increases understanding of
customers preference - target market segments
- improves demand forecasts
- Decision Components
- Choice of enabling technologies
- EDI, Internet, ERP (SCM) software, mobile
networks, RFID - Push vs pull supply chains impacts info system
design - Co-ordination and information sharing
- Forecasting
32Major Obstacles to Achieving Fit
- Multiple owners and/or incentives in a supply
chain - Local optimisation and lack of global fit
- Customer fragmentation
- Increased product variety
- Shortening life-cycles
- Increasingly demanding customers
- Increasing implied demand uncertainty
- Higher service expectations
- Globalisation
- Complexity of supply chain
- Increased competition
- Increased difficulty in executing new strategies
33Dealing with obstacles
- Multiple owners
- Contractual co-ordination
- Information co-ordination
- Customer fragmentation
- Mass customisation
- Tailored logistics
- Globalisation
- Global companies, strategic partnerships
- First-mover advantage
- Company culture, investment in human resources
34Summary
- Competitive Strategic Positioning
- Order-winners and qualifiers
- Supply Chain Performance
- Efficiency vs. Responsiveness
- Co-ordinated strategies
- Strategic Fit
- customers implied demand uncertainty spectrum
- supply chain responsiveness-cost spectrum
- Challenges
35References
- Chopra, S. and P. Meindl, Supply Chain
Management Strategy, Planning and Operations,
2nd Edition, Prentice-Hall, 2004. - Marien, E.J., The four supply chain enablers,
Supply Chain Management Review, Mar-Apr, 2000,
60-68. - Hill, T., Manufacturing Strategy Text and Cases,
3rd Edition, McGraw-Hill, 2000. - Fisher, M. L., What is the right supply chain
for your product?, Harvard Business Review,
Mar-Apr 1997.