Chapter 3/4
Supply Chain Strategy Formulation
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -1
Types of Strategies
Market
Penetration
Intensive
Strategies
Market
Development
Product
Development
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -2
Types of Strategies
Concentric
Diversification
Diversification
Strategies
Conglomerate
Diversification
Horizontal
Diversification
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -3
Concentric Diversification Strategies
New & related products/services
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -4
Conglomerate Diversification
Strategies
New & unrelated products/services
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -5
Horizontal Diversification Strategies
New & unrelated products/services for
current customers
Tesfaye Eba, PhD Candidate, PUP
Ch 5 -6
Types of Strategies
Retrenchment
Defensive
Strategies
Divestiture
Liquidation
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -7
Retrenchment Strategies
Regrouping -Cost & asset reduction to reverse
declining sales & profit
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -8
Divestiture Strategies
Selling a division or part of an
organization.
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -9
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -10
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2:
The Matching Stage
Tesfaye Eba, PhD Candidate, PUP
Stage 3:
The Decision Stage
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage
External Factor Evaluation
Matrix (EFE)
Competitive Profile Matrix
(CPM)
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -12
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -13
SWOT Matrix
Strengths – S
Weaknesses – W
List Strengths
List Weaknesses
Opportunities – O
SO Strategies
WO Strategies
List Opportunities
Use strengths to take
advantage of
opportunities
Overcoming weaknesses
by taking advantage of
opportunities
Threats – T
ST Strategies
WT Strategies
List Threats
Use strengths to avoid
threats
Minimize weaknesses and
avoid threats
Leave Blank
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -14
SPACE Matrix
FS
Conservative
Aggressive
+6
+5
+4
+3
+2
+1
CA
IS
-6
-5
-4
-3
-2
-1
+1
-1
+2 +3
+4
+5
+6
-2
-3
-4
Defensive
-5
Competitive
-6
Tesfaye Eba, PhD Candidate, PUP
ES
Ch 4 -15
BCG Matrix
Relative Market Share Position
Industry Sales Growth Rate
High
1.0
Medium
.50
Low
0.0
High
+20
Stars
II
Question Marks
I
Cash Cows
III
Dogs
IV
Medium
0
Low
-20
Tesfaye Eba, PhD Candidate, PUP
Ch 4 -16
BCG Matrix
Question Marks
Low relative market share – compete in highgrowth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies) or
divest
Tesfaye Eba, PhD Candidate, PUP
Ch 6 -17
BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or
strengthen dominant position
Integration strategies, intensive strategies, joint
ventures
Tesfaye Eba, PhD Candidate, PUP
Ch 6 -18
BCG Matrix
Cash Cows
High relative market share, competes in lowgrowth industry
Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible
Product development, concentric diversification
If weakens—retrenchment or divestiture
Tesfaye Eba, PhD Candidate, PUP
Ch 6 -19
BCG Matrix
Dogs
Low relative market share & compete in slow or
no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Tesfaye Eba, PhD Candidate, PUP
Ch 6 -20
RAPID MARKET GROWTH
1.
2.
3.
4.
5.
6.
WEAK
COMPETITIVE
POSITION
1.
2.
3.
4.
5.
Quadrant II
Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation
1.
2.
3.
4.
5.
6.
7.
Quadrant III
Retrenchment
1.
Concentric diversification
2.
Horizontal diversification
3.
Conglomerate
diversification
4.
Liquidation
SLOW MARKET
Tesfaye Eba, PhD Candidate, PUP
Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification
Quadrant IV
Concentric diversification
Horizontal diversification
Conglomerate
diversification
Joint ventures
STRONG
COMPETITIVE
POSITION
GROWTH
Ch 4 -21
Overview of Implementation and
control



Implementation
is,
put
simply,
the
“translation” of strategic, partly generic, longterm goals into operational, specific, shortterm goals.
Is integrating objectives into operations
Plays an important role in the adaptation of
supply chains to “new” supply chain
objectives such as environmental or social
goals.
Ch 4-22
Strategies along a simple supply chain
Strategy level
Strategy type
Strategy type
Competitive strategy
Cost leader
Differentiation strategy
Supply chain strategy
Lean, cost- and
efficiency driven
Agile, service- and
speed-driven
Cross-company
collaboration strategy
Hierarchal control
Long term partnership
Horizontally integrated
networks
Hierarchal control
Short-term partnership
Vertically integrated
network control
Company’s own
sustainability strategy
Defensive
Offensive
Ch 4-23
The need for communication with partners


Executing a supply chain strategy means
dealing with many different entities, both
internally and externally.
Just as it is crucial to align the supply chain
strategy with the business strategy, it is
equally important to execute in a manner
consistent with these different groups or
stakeholders.
Ch 4-25
The need for communication with partners…



The goals of your supply chain components
and those that you deal with must be similar
and conducted at the same speed.
Your organization may be able to move at
speeds other supply chain entities are unable
to maintain, resulting in misalignment and
poor efficiencies.
Good communication can keep the extended
supply chain.
Ch 4 26
Avoiding potential pitfalls

Fortune Magazine reported in a study that
CEO strategy failures occurred primarily (est.
70%) because of failure in execution, not with
the vision and strategy development
Ch 4-27
Avoiding potential pitfalls


“The real problem isn’t the high-concept
boners the boffins love to talk about rather
bad execution.
As simple as that: not getting things done,
being
indecisive,
not
delivering
on
commitments.”
Ch 4-28
Value Added…


Value is only realized when someone
external to an organization creating value is
prepared to pay the price, which equates to
the value placed on the item by the producing
or supplying organization.
Value in a supply chain is not simply the
organizational value but it is the value
created across different organizations that
combine to create the supply chain.
Ch 4-29
Value Added…

In strategic terms supply chains cross
organizational boundaries and are part of a
wider value system.
Ch 4-30
Supply chain metrics



Supply chain metrics can be difficult to define
and even more difficult to measure.
At the highest level, supply chain operations
are expected to contribute to a company’s
financial performance.
Measurement is the only way to understand
whether process performance is improving or
worsening and whether action is required.
Ch 4-31
Measures of supply chain strategy
performance


Performance measurement and management
are necessary to plan actions and monitor
how a selected strategy is realised and the
defined goals achieved.
Performance measurement also provides
information for decision-making at an
operational level and reduces risks
Ch 4-32
Supply Chain Strategy Performance…



Performance measurement is necessary
to manage performance, to take actions
based on data that reflects company
performance and its external impact on
sustainability.
Sustainable development includes not
only economic, but also social and
environmental dimensions.
It is important to stress that ideally the impact of the
WHOLE Supply Chain should be analyzed, not just
the partial impact of a single organization
Ch 4-33
Supply chain strategy performance…


Performance measurement is about putting in
place the right metrics to assess the health of
your supply chain.
Performance management uses those
metrics to support your company’s strategic
objectives.
Ch 4-34
Supply chain strategy performance…

The most effective supply chain performance
management approaches share these
characteristics:
◆ Supply chain metrics are linked to the business strategy.
◆ Supply chain metrics are both balanced and comprehensive.
◆ Supply chain metrics are used as a continuous improvement tool.
◆ Targets are set based on both internal and external benchmarks.
◆ Targets are aggressive but achievable.
◆ Metrics are highly visible and monitored at all levels of the company.
◆ Metrics are implemented via a formal implementation plan.
Ch 4-35
Supply chain strategy performance…





There are four major steps to putting a
performance-management program in place:
Step 1: Set supply chain strategy objectives.
Step 2: Choose supporting metrics and targets
Step 3: Identify supporting initiatives
Step 4: Implement the programs
Ch 4-36
Aligning the supply chain strategy with business
strategy


A supply chain strategy is based on a
company’s overall strategic direction and
core competencies, you’ll need to choose
carefully the metrics that make sense as
signals of performance to your objectives.
The first step in choosing the right metrics is
to assess your company’s supply chain
maturity
Ch 4-37
Challenges towards Supply Chain
Strategy Execution






The company and its organizational culture
play a key role in developing and executing a
supply chain strategy.
The
following
are
some
common
organizational challenges found in many
companies:Lack of ownership
“Tower of Babel” problem
Organizational focus
Extending the Supply Chain
Ch 4-38
Challenges ….




Lack of ownership – many supply chain processes and
value levers do not have an owner in the traditional sense
“Tower of Babel” problem – most organizations across the
enterprise do not speak a common supply chain language
Organizational focus – some managers are functional or
process oriented and do not understand the value levers’
multiple drivers model
Extending the Supply Chain – most supply chain
initiatives involve external parties (trading partners) which
makes strong collaboration a requirement
Ch 4-39
Other Challenges …
Mass customization
 Globalization
 Greening the supply chain

Ch 4-40
Ch 4-41