Supply Chain Performance
Achieving Strategic Fit and Scope
Wike Agustin Prima Dania, STP, M.Eng
World Wide Business
1.
Foodstuffs such as soy sauce, noodle, etc.
2.
Low-end computers for private use with high annual sales.
3.
High-end computers for corporate markets with world-wide
market but low annual sales.
4.
High-end trendy clothing.
Competitive and supply chain strategies
 Company’s competitive strategy defines the set of customer needs that it seeks to
satisfy through its products and services  convenience, availability,
responsiveness, etc
 How the customer priorities product cost, delivery time, variety, and quality.
 Factors that contribute to competitive strategy:
• Level of quality
• Price
• Standard product or customisation
• Delivery time
• Customer support
 Once a competitive strategy has been developed, it is necessary to ensure a
strategic fit between the competitive strategy and the supply chain strategy.
 Relationship between competitive and SC strategies  start with the value chain
The Value Chain in a Company
Finance, Accounting, Information, Technology, Human Resources
NPD
Marketing &
Sales
Operation
Distribution
Service
 NPD: the portfolio of new product that a company will try to develop
 M&S: how the market will be segmented and how the product will be
positioned, priced, and promoted
 Operation: procurement of raw materials, transportation material to and
from company, manufacture of the product or operation
 Distribution: distribution of the product to the customer
 Service: follow up service and specification of whether these process will
be performed in house or out-sourced
Achieving Strategic Fit
 Strategic fit:
 both the competitive and supply chain strategies have aligned goals.
 Consistency between the customer priorities that competitive strategy
hopes to satisfy and the SC capabilities that the SC strategy aims to
build.
A company’s success/failure linked to the following keys:
 The competitive strategy and all function strategies must fit
together to form a coordinated overall strategy
 The different functions in a company must appropriately structure
their processes and resources to be able to execute the strategies
successfully
 The design of the overall SC and the role of each stage must be
aligned to support the SC strategy
3 steps to achieving strategic fit
1. Understanding the customer and SC
uncertainty
 The quantity of the product needed in each lot
 The response time that customers are willing to tolerate
 The variety of product needed
 The service level required
 The price of the product
 The desired rate of innovation in the product
Impact of customer needs on implied demand uncertainty
Customer Need
Range of quantity
required increases
Lead time decreases
Causes Implied Demand
Uncertainty
Increases because a wider range of
the quantity required implies
greater variance in demand
Increases because there is less time
in which to react to orders
Variety of products
required increases
Increases because demand per
product becomes disaggregate
Number of channels
through which product
acquired increases
Rate of innovation
increases
Increases because total customer
demand is now disaggregated over
more channels
Increases because new products
tend to have more uncertain
demand
Increases because the firm now
has to handle surges in demand
Required service level
increases
Low
uncertainty
Predictable
supply and
demand
Salt at a
supermarket
Medium
uncertainty
High
uncertainty
Predictable supply and uncertain
demand or uncertain supply and
predictable demand or somewhat
uncertain supply and demand
An existing
automobile model
Highly uncertain
supply and
demand
A new communication
device
The Implied Uncertainty (Demand and Supply) Spectrum
2. Understanding the SC capabilities
 To understand supply chain is to understand how the firm can
best meet demand in an uncertain environment
 Supply chain can be categorised by 2 factors:
 responsiveness: usually comes at a high cost
 cost efficiency: usually comes at low responsiveness

SC has ability to do:






Respond to wide ranges of quantities demanded
Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a high service level
Handle supply uncertainty
•
Responsiveness, however, comes at a cost To respond to a wider
range of quantities, capacity must be increased, & this leads to a cost
increase.
The relationship between responsiveness and cost is shown below:
Responsiveness
High
Low
High
Cost
Low
Cost-Responsiveness Efficient Frontier
The responsiveness spectrum
Highly
efficient
Production
scheduled
weeks/months in
advance with little
variety or
flexibility
Somewhat
efficient
Somewhat
responsive
Highly
responsive
Traditional make
to stock
manufacturer
with production
lead time of
several weeks
Delivering a
large variety of
products in a
couple of weeks
Changing
merchandise
mix by
location and
time of day
3. Achieving strategic fit
• To achieve strategic fit, the greater the implied uncertainty, the
more responsive the supply chain should be.
• Increasing implied uncertainty from customers and supply sources
is best served by increasing responsiveness from the supply chain.
• Low implied uncertainty can be served by a cost-efficient supply
chain.
• This relationship is represented by the “zone of strategic fit”
illustrated in figure below.
 Examples:
•
•
Constant rate of demand for sugar from highly reliable supplier and
transport
A variety of high fashion products from a range of unreliable suppliers
Responsive Supply
Chain
Responsive
Spectrum
Zone of
Strategic
Fit
Efficient Supply
Chain
Low
Implied
Uncertainty
Spectrum
Finding the- Zone of Strategic Fit
High
Comparison of efficient and responsive supply chain
Efficient SC
Primary goal
Supply demand at the lowest
cost
Product design strategy Maximize performance at a
minimum product cost
Pricing strategy
Responsive SC
Respond quickly to demand
Create modularity to allow
postponement of product
differentiation
Lower margins because price is a Higher margins because price is
prime customer driver
not a prime customer driver
Manufacturing strategy Lower cost through high
utilization
Maintain capacity flexibility to
buffer against demand/supply
uncertainty
Inventory strategy
Minimize inventory to lower
cost
Maintain buffer inventory to
deal with demand/supply
uncertainty
Lead time strategy
Reduce, but not at the expense
of cost
Reduce aggressively, even if the
cost are significant
Supplier strategy
Select based on cost and quality
Select based on speed, flexibility,
Obstacles to achieving strategic fit
 Increasing variety of products
 Decreasing product life cycles
 Increasingly demanding customers
 Fragmentation of SC ownership
 Globalization
 Changing business environment
 Difficulty executing new strategies