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Supply Chain Performance: Achieving Strategic Fit

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Title: Supply Chain Performance: Achieving Strategic Fit


1
Supply Chain PerformanceAchieving Strategic Fit
2
Strategic Decisions
  • Strategic Decisions are ones that keep an
    organisation matched to its environment.
  • Motivation
  • Assure long term survival
  • Ensure profit growth

3
The Value Chain in a company
4
Competitive 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

5
Competitive Dimensions
  • Cost
  • Quality
  • Time
  • Flexibility/Variety
  • Strategic Positioning
  • Defines those positions that a firm wants to
    occupy in the competitive product space.

6
Corporate 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
7
Terry 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

8
Functional 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

9
Developing 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.

10
Strategic 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.

11
Achieving 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

12
Understanding the customer
  • Lot size
  • Response time
  • Service level
  • Product variety
  • Price
  • Innovation

Implied Demand Uncertainty
13
Implied 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

14
Implied 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
15
Relationship between Demand Characteristics and
Implied Demand Uncertainty (Fisher)
16
Achieving Strategic Fit
  • Understand the customer
  • Map where their demand is located on the implied
    uncertainty spectrum
  • Understand the supply chain
  • Achieving strategic fit

17
Understanding 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

18
Understanding 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

19
Responsiveness 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
20
Achieving 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

21
Achieving Strategic Fit
Responsive Supply Chain
Strategic Fit
Efficient Supply Chain
22
Efficient vs. Responsive Supply Chains
23
Achieving 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.

24
Outputs 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.

26
Other 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

27
Drivers of Supply Chain Performance
  • inventory
  • transportation
  • facilities
  • information
  • impact on supply chain performance
  • role in competitive strategy
  • decision components

28
Inventory
  • 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

29
Transportation
  • 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

30
Facilities
  • 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

31
Information
  • 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

32
Major 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

33
Dealing 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

34
Summary
  • 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

35
References
  • 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.
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