Chapter

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Supply Chain Performance:
Achieving Strategic Fit and
Scope

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Learning
Objectives

• Explain why achieving strategic fit is critical to a company’s overall

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success.

• Describe how a company achieves strategic fit between its

supply
chain strategy and its competitive strategy.

• Discuss the importance of expanding the scope of

strategic fit across the supply chain.

• Describe the major challenges that must be overcome to manage a

supply chain successfully.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Competitive and
Supply Chain
Strategies
• Competitive strategy defines the set of customer needs a firm

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seeks to satisfy through its products and services.
• Product development strategy specifies the portfolio of new
products that the company will try to develop.
• Marketing and sales strategy specifies how the market will be
segmented and product will be 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.
• All functional strategies must support one another and the
competitive strategy.
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 The Value Chain

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Figure 2-1

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Achieving Strategic
Fit

• Strategic fit – competitive and supply chain strategies have

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aligned 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.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Achieving Strategic
Fit

• The competitive strategy and all strategies must fit

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functional 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 these
strategies successfully.

• The design of the overall supply chain and the role of each stage
must be aligned to support the supply chain strategy.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 How is Strategic Fit
Achieved?

• Understanding the customer and supply chain

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uncertainty

• Understanding the supply chain

• Achieving strategic fit

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Step 1: Understanding the Customer
and Supply Chain Uncertainty

• Quantity of product needed in each lot

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• Response time customers will tolerate

• Variety of products needed

• Service level required

• Price of the product

• Desired rate of innovation in the product

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Step 1: Understanding the Customer
and Supply Chain Uncertainty

• Demand uncertainty is uncertainty of customer demand for a

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product.

• Implied demand uncertainty – resulting uncertainty for the

supply chain given the portion of the demand the supply chain
must handle and attributes the customer desires.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Customer Needs and Implied Demand
Uncertainty

Customer Need Causes Implied Demand Uncertainty to …

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Range of quantity required increases Increase because a wider range of the quantity required
implies greater variance in demand
Lead time decreases Increase because there is less time in which to react to
orders
Variety of products required Increase because demand per product becomes more
increases disaggregate
Number of channels Increase because the total customer demand is now
through which disaggregated over more channels
product may be acquired Increase because new products tend to have more
increases
uncertain demand
Rate of innovation
Required service level increases Increase because the firm now has to handle unusual
increases
surges in demand

Table 2-1

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Implied Uncertainty and Other
Attributes

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Low Implied High Implied
Uncertainty Uncertainty
Product margin Low High
Average forecast error 10% 40% to 100%
Average stockout rate 1% 10% to 40%
Average forced season-end to
2% 10% to 25%
markdown
0%
Table 2-2

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Implied Uncertainty and Other
Attributes

• Products with uncertain demand are often less mature and

have

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less direct competition. As a result, margins tend to be high.

• Forecasting is more accurate when demand has less uncertainty.

• Increased implied demand uncertainty leads to increased difficulty

in matching supply with demand. For a given product, this dynamic
can lead to either a stockout or an oversupply situation.

• Markdowns are high for products with greater implied demand

uncertainty because oversupply often results.
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Impact of Supply Source
Capability

Supply Source Capability Causes Supply Uncertainty

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to...
Frequent breakdowns Increase
Unpredictable and low yields
Poor quality Increase
Limited supply capacity
Inflexible supply capacity Increase
Evolving production process
Increase
Table 2-3

Increase

Increase
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Levels of Implied Demand Uncertainty

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Figure 2-2

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Step 2: Understanding Supply Chain
Capabilities

• How does the firm best meet demand?

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• Supply chain responsiveness is the ability to
Respond to wide ranges of quantities demanded
Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a very high service level

Contd…

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Step 2: Understanding Supply Chain
Capabilities

• Responsiveness comes at a cost.

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• Supply chain efficiency is the inverse to the cost of making
and delivering the product to the customer.

• The cost-responsiveness efficient frontier curve shows the

lowest possible cost for a given level of responsiveness.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Cost-Responsiveness Efficient Frontier

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Figure 2-3

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Responsiveness
Spectrum

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Figure 2-4

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Step 3: Achieving Strategic
Fit

• Ensure that the degree of supply chain

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responsiveness is consistent with the implied uncertainty.

• Assign roles to different stages of the supply chain that

ensure the appropriate level of responsiveness.

• Ensure that all functions maintain consistent strategies

that support the competitive strategy.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Zone of Strategic
Fit

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Figure 2-5

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Roles and
Allocations

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Figure 2-6

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Efficient and Responsive Supply
Chains
Efficient Supply Chains Responsive Supply Chains

Primary goal Supply demand at the lowest cost Respond quickly to demand

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Create modularity to allow
Product design Maximize performance at a
postponement of product
strategy minimum product cost
differentiation
Lower margins because price is a Higher margins because price is not a
Pricing strategy
prime customer driver prime customer driver
Manufacturin Maintain capacity flexibility to buffer
Lower costs through high utilization
g against demand/supply uncertainty
strategy Maintain buffer inventory to deal with
Inventory strategy Minimize inventory to lower cost
demand/supply uncertainty

Lead-time Reduce, but not at the expense of Reduce aggressively, even if the
strategy costs costs
are significant
Supplier strategy Select based on cost and quality
Select based on speed, flexibility,
reliability, and quality

Table 2-4
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Tailoring the Supply Chain

• Achieve strategic fit while serving many customer segments with a

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variety of products across multiple channels.

• Requires sharing some links in the supply chain with

some
products, while having separate operations for other links.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Changes Over Product Life
Cycle

• Beginning stages:

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Demand is very uncertain, and supply may be unpredictable.
Margins are often high, and time is crucial to gaining sales.
Product availability is crucial to capturing the market.
Cost is often a secondary consideration.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Changes Over Product Life
Cycle

• Later stages:

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Demand has become more certain, and supply is predictable.
Margins are lower as a result of an increase in
competitive pressure.
Price becomes a significant factor in customer choice.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Expanding Strategic
Scope

• Scope of strategic fit – the functions within the firm and stages

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across the supply chain that devise an integrated strategy with an
aligned objective.

• Intraoperation scope – minimize local cost view

Each stage of the supply chain devises strategy independently

Contd…

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Expanding Strategic
Scope

• Intrafunctional view – minimize total functional cost

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Firms align all operations within a function

• Interfunctional scope – maximize company profit

Functional strategies are developed to align with one another and
the competitive strategy

Contd…

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Expanding Strategic
Scope

• Intercompany scope – maximize supply chain surplus

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Supplier and customer work together and share
information to reduce total cost and grow supply chain surplus

• Agile intercompany scope – a firm’s ability to achieve strategic

fit when partnering with supply chain stages that change over time

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Different Scopes of Strategic Fit Across
a Supply Chain

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Figure 2-7

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Challenge
s

• Increasing product variety and shrinking life cycles

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Greater product variety
shorter life cycles and
uncertainty while reducing increase opportunity within
the window
which the supply chain can achieve fit. of

• Globalization and increasing uncertainty

Significant fluctuations in exchange rates, global
demand, and the price of crude oil.

Contd…

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Challenge
s

• Fragmentation of supply chain ownership

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Firms are less vertically integrated
Take advantage of supplier and
customer competencies
they
did not have
New ownership structure makes aligning and
managing the supply chain more difficult
Aligning all members of a supply chain has become critical to
achieving supply chain fit

Contd…
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Challenge
s

• Changing technology and business environment

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Customer needs and technology change may force a
firm to rethink their supply chain strategy

• The environment and sustainability

Growing in relevance and be accounted for
must designing supply chain when
strategy
Opportunities may require coordination across different
members of the supply chain

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Trends in Indian Retail Sector

• What different models of supply chains do you visualize emerging

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in the transforming Indian retail sector?

• What trends do you see in in the emerging Indian supply

chain
models that suggest attempts at achieving proper
strategi conscious fit strategies and supply
c
strategies?between business chain

• How do you see the Indian retail supply chains becoming

role
models for supply chains in other sectors?
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Summary of Learning
Objectives

• Explain why achieving strategic fit is critical to a

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

company’s overall success

• Describe how a company achieves strategic fit between its supply

chain strategy and its competitive strategy

• Discuss the importance of expanding the scope of

strategic fit
across the supply chain

• Describe the major challenges that must be overcome to manage

a supply chain successfully

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra