LSA 2023 Session 2 - Achieving Supply Chain Fit (Before Lecture)
LSA 2023 Session 2 - Achieving Supply Chain Fit (Before Lecture)
LSA 2023 Session 2 - Achieving Supply Chain Fit (Before Lecture)
1. Explain why achieving supply chain fit is critical to a company’s overall success
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Why is supply chain fit
crucial?
Competitive and supply chain strategies
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Competitive and supply chain strategies
Competitive strategy
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The value chain in a company
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Achieving supply chain fit
• Supply chain fit – competitive and supply chain strategies have aligned goals
• For a firm to achieve supply chain fit, it must accomplish the following:
1. The competitive strategy and all functional strategies must be fit together to form a
coordinated overall strategy
2. The different functions in a company must appropriately structure their processes and
resources to be able to execute these strategies successfully
3. The design of the overall supply chain and the role of each stage must be aligned to
support the supply chain strategy
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How is supply chain fit
achieved?
Step 1: Understanding the customers and supply
chain uncertainty
• Must identify the needs of the customer segment being served
• Seven-Eleven (R-kioski) vs. Sam’s Club (Walmart, Prisma)
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Demand and supply uncertainty
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The implied uncertainty (demand and supply)
spectrum
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Step 2: Understanding the supply chain capabilities
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trade-off between cost and responsiveness, a key strategic choice for any supply chain is the level
of responsiveness it seeks to provide.
Cost-responsiveness efficient frontier
Supply chains range from those that focus solely on being responsive to those that focus on
a goal of producing and supplying at the lowest possible cost. Figure 2-4 shows the responsive-
ness spectrum and where some supply chains fall on this spectrum.
• The cost-responsiveness efficient
frontier curve shows the lowest
Cost possible cost for a given level of
Low responsiveness
Firm B
Firm C
Firm A
High
Responsiveness
Low High
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STEP 3: ACHIEVING STRATEGIC FIT After mapping the level of implied uncertainty and
understanding the supply chain position on the responsiveness spectrum, the third and final
step is to ensure that the degree of supply chain responsiveness is consistent with the implied
uncertainty. The goal is to target high responsiveness for a supply chain facing high implied
uncertainty, and efficiency for a supply chain facing low implied uncertainty. 14
For example, the competitive strategy of McMaster-Carr targets customers who value
Step 3: Achieving supply chain fit
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The next step in achieving strategic fit is to assign roles to different stages of the s
chain that ensure the appropriate level of responsiveness. It is important to understand th
Assign different roles
Chapter 2 • Supply Chain Performance: Achieving Strategic Fit and Scope 29
The preceding discussion illustrates that the supply chain can achieve a given level of
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responsiveness by adjusting the roles of each of its stage. Making one stage more responsive
allows other stages to focus on becoming more efficient. The best combination of roles
Efficient and responsive supply chains
Goal / functions Efficient supply chains Responsive supply chains
Primary goal Supply demand at the lowest cost Respond quickly to demand
Product design strategy Maximize performance at a minimum Create modularity to allow postponement of
product cost product differentiation
Pricing strategy Lower margins because price is a prime Higher margins because price is not a prime
customer driver customer driver
Inventory strategy Minimize inventory to lower cost Maintain buffer inventory to deal with
demand/supply uncertainty
Supplier strategy Select based on cost and quality Select based on speed, flexibility, reliability, and
quality
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Tailoring the supply chain
• Achieve supply chain fit while serving many customer segments with a variety of
products
• “One size fits all” supply chain cannot provide supply chain fit
• Tailoring requires sharing operations for some links and separate operations for
other links
• For example, all products may be made on the same line in a plant, but products requiring
high responsiveness may be shipped using a fast expensive mode of transportation, while
products that do not require high responsiveness may be sent by slower and less expensive
means
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Changes over product life cycle
• Beginning stages
• 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
• Later stages
• 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
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Performance effect of
supply chain fit
An empirical investigation
• Primary (survey questionnaire) and secondary (Bloomberg) data yielded a total of 259
firm samples
• Focus on the United States and Western Europe
• Focus on manufacturing industries
• 65% of companies with sales turnover > EUR 1 bn
Source: Wagner, S. M., Grosse-Ruyken, P. T., & Erhun, F. (2012). The link between supply chain fit and financial performance
of the firm. Journal of Operations Management, 30(4), 340-353.
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Industry segments with blue chips
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An empirical investigation - Measures
• Supply chain fiti (SCFi) = Supply and demand uncertaintyi – Supply chain
responsivenessi
• The deviation score captures the degree of misfit on a continuum between a total misfit
and a perfect fit, where lower (higher) values indicate greater fit (misfit)
• Measures of supply and demand uncertainty (for example):
• Average product life-cycle (1: < 6 months – 5: > 5 years)
• Product variety (1: <20 –5: 1000 or more)
• Measures of supply chain responsiveness (for example):
• Improved delivery reliability (1: not important at all – 5: extremely important)
• Maintain buffer inventory of parts or finished goods (1: not important at all – 5: extremely
important)
Source: Wagner et al. (2012)
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An empirical investigation - Results
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Case: Supply Chain Fit
Individual assignment
• Questions? Concerns?
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The Fresh Connection
Supply Chain Strategy and Its Strategic Fit
The Fresh Connection (TFC) Assignment
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Thank you!
Questions?
Dr. Tri M. Tran ([email protected])