Supply Chain

Management
- Session 3
- Jeb
Case study
• We are planning to open a chain of stores under our
brand name and supply to a chain of stores.
• Groceries
• Eatables, packed food
• Dairy
• Meat
• Vegetables
• Supply chain surplus
• We want to derive the value by organized
transportation, bulk negotiation, advanced
inventory control and an all-in-one shopping
experience.
 Chapter 2 : Achieving
Strategic Fit in a Supply Chain
Objective

1. Explain why achieving strategic fit is critical to a company’s overall success.

2. Describe how a company achieves strategic fit between its supply chain strategy and its
competitive strategy.
3. Discuss the importance of expanding the scope of strategic fit across the supply chain.
4. Describe the major challenges that must be overcome to manage a supply chain
successfully.
What is Strategy?
 What is • Strategy refers to a
comprehensive plan designed to
achieve specific long-term goals
Strategy? and objectives.
Competitive and Supply Chain Strategies
• A company’s competitive strategy defines, relative to its competitors, the set of customer
needs that it seeks to satisfy through its products and services.
• The competitive strategy is defined based on how the customer prioritizes product cost,
delivery time, variety, and quality.
• A firm’s competitive strategy will be defined based on its customers’ priorities.
• Competitive strategy targets one or more customer segments and aims to provide products
and services that satisfy these customers’ needs.
Android Competitive Strategy

To utilize the design capabilities of all

top phone manufacturers to design a
competitive product.

Google has liberal and partnership-

oriented strategy
Apple competitive
strategy

• To make a well-knit integrated product

whose software works well with the
hardware.

• Apple wants control over all aspects of

design to give the best consumer
experience
Achieving Strategic fit
• Strategic fit requires that both the competitive and supply chain strategies of a company
have aligned goals. It refers to consistency between the customer priorities that the
competitive strategy hopes to satisfy and the supply chain capabilities that the supply
chain strategy aims to build. For a company to achieve strategic fit, it must accomplish
the following:
1. The competitive strategy and all functional strategies must fit together to form a
coordinated overall strategy. Each functional strategy must support other functional
strategies and help a firm reach its competitive strategy goal.
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.
 Achieving
Strategic fit
How is strategic fit achieved?

Understanding the Customer and Supply Chain Uncertainty.

Understanding the Supply Chain Capabilities.

Achieving Strategic Fit.

How is strategic fit achieved?
1. Understanding the Customer and Supply Chain Uncertainty: First, a company must understand
the customer needs for each targeted segment and the uncertainty these needs impose on the
supply chain. These needs help the company define the desired cost and service requirements. The
supply chain uncertainty helps the company identify the extent of the unpredictability of demand,
disruption, and delay that the supply chain must be prepared for.
2. Understanding the Supply Chain Capabilities: Each of the many types of supply chains is
designed to perform different tasks well. A company must understand what its supply chain is
designed to do well.
3. Achieving Strategic Fit: If a mismatch exists between what the supply chain does particularly
well and the desired customer needs, the company will either need to restructure the supply chain
to support the competitive strategy or alter its competitive strategy.
STEP 1: UNDERSTANDING THE
CUSTOMER AND SUPPLY
CHAIN UNCERTAINTY

• The quantity of product needed in each

lot
• The response time that customers are
willing to tolerate
• The variety of products needed
• The service level required
• The price of the product
• The desired rate of innovation in the
product
Table 2.2(Previous slide)
Products with uncertain demand are often less mature and have 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. Increased implied demand uncertainty thus leads to both higher oversupply and a
higher stockout rate.

Markdowns are high for products with greater implied demand

uncertainty because oversupply often results.
Summary – Understanding
the customer and supply
chain uncertainty

• The first step in achieving

strategic fit between
competitive and supply chain
strategies is to understand
customers and supply chain
uncertainty. Uncertainty from
the customer and the supply
chain can be combined and
mapped on the implied
uncertainty spectrum.
STEP 2: UNDERSTANDING
THE SUPPLY CHAIN
CAPABILITIES

• How does the firm best meet

demand in that uncertain
environment?
• Creating strategic fit is all
about creating a supply chain
strategy that best meets the
demand a company has
targeted given the uncertainty
it faces.
Supply chain responsiveness

Respond to wide
Meet short lead Handle a large
ranges of quantities
times variety of products
demanded

Build highly Meet a high service Handle supply

innovative products level uncertainty
• Responsiveness, however, comes at a cost. For instance,
to respond to a wider range of quantities demanded,
capacity must be increased, which increases costs. This
increase in cost leads to the second definition: Supply
chain efficiency is the inverse of the cost of making and
delivering a product to the customer. Increases in cost
lower efficiency. For every strategic choice to increase
responsiveness, there are additional costs that lower
efficiency.
Summary –
Understanding the
supply chain capabilites

• The second step in

achieving strategic fit
between competitive and
supply chain strategies is
to understand the supply
chain and map it on the
responsiveness spectrum.
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.
Zone of strategic fit
• Increasing implied uncertainty from customers and supply sources is best served by increasing responsiveness
from the supply chain. This relationship is represented by the “zone of strategic fit” illustrated in Figure 2-5.
For a high level of performance, companies should move their competitive strategy (and resulting implied
uncertainty) and supply chain strategy (and resulting responsiveness) toward the zone of strategic fit.

• The next step in achieving strategic fit is to assign roles to different stages of the supply
• chain that ensure the appropriate level of responsiveness. It is important to understand that the
• desired level of responsiveness required across the supply chain may be attained by assigning
• different levels of responsiveness and efficiency to each stage of the supply chain
Summary –
Achieving strategic
fit
• The final step in achieving
strategic fit is to match supply
chain responsiveness with the
implied uncertainty from demand
and supply. The supply chain
design and all functional
strategies within the firm must
also support the supply chain’s
level of responsiveness.
Tailoring the Supply Chain for Strategic Fit
• When devising supply chain strategy in cases where the products sold
and the customer segments served have different implied demand
uncertainty, the key issue for a company is to design a tailored supply
chain that is able to be efficient when implied uncertainty is low and
responsive when it is high. By tailoring its supply chain, a company
can provide responsiveness to fast-growing products, customer
segments, and channels while maintaining low cost for mature, stable
products and customer segments.
• Tailoring the supply chain requires sharing some links in the supply
chain with some products, while having separate operations for other
links.
Product life
cycle
Towards beginning stages of Product life cycle

1. Demand is very uncertain, and supply may be unpredictable.

2. Margins are often high, and time is crucial to gaining sales.
3. Product availability is crucial to capturing the market.
4. Cost is often a secondary consideration.
Towards later in the product life cycle
1. Demand has become more certain, and supply is predictable.
2. Margins are lower as a result of an increase in competitive pressure.
3. Price becomes a significant factor in customer choice.
EXPANDING STRATEGIC SCOPE
• Intraoperation Scope: The Minimize Local Cost View
• The intraoperation scope has each stage of the supply chain devising strategy independently.
In such a setting, the resulting collection of strategies typically does not align, resulting in
conflict.
• Intrafunctional Scope: The Minimize Functional Cost View
• With the intrafunctional view, firms attempted to align all operations within a function. All
supply chain functions including sourcing, manufacturing, warehousing, and transportation
had to align their strategy to minimize total functional cost.
• Product could be sourced from a higher-cost local supplier because the resulting decrease in
inventory and transportation costs more than compensated for the higher unit cost.
• Interfunctional Scope: The Maximize Company Profit View
• With the interfunctional scope, the goal is to maximize company profit. To achieve this goal,
all functional strategies are developed to align with one another and the competitive strategy.
EXPANDING STRATEGIC SCOPE
• Intercompany Scope: The Maximize Supply Chain Surplus View
• Instead of just forcing the inventory onto the weaker party, the two parties work together to
reduce the amount of inventory required.
• By working together and sharing information, they can reduce inventories and total cost, thus
growing the supply chain surplus. The higher the supply chain surplus, the more competitive
the supply chain is.
• Agile Intercompany Scope
• we have discussed strategic fit in a static context; that is, the players in a supply chain and the
customer needs do not change over time. In reality, the situation is much more dynamic.
Product life cycles are getting shorter, and companies must satisfy the changing needs of
individual customers. A company may have to partner with many firms, depending on the
product being produced and the customer being served. The strategy and operations at firms
must be agile enough to maintain strategic fit in a changing environment.
Scope
• The intercompany scope of strategic fit is essential today
because the competitive playing field has shifted from
company versus company to supply chain versus supply
chain. A company’s partners in the supply chain may well
determine the company’s success, as the company is
intimately tied to its supply chain.
2.4 CHALLENGES TO ACHIEVING AND
MAINTAINING STRATEGIC FIT
• Increasing Product Variety and Shrinking Life Cycles
• Globalization and Increasing Uncertainty
• Fragmentation of Supply Chain Ownership
• Changing Technology and Business Environment
• The Environment and Sustainability

• Many challenges, such as rising product variety and shorter life cycles, have made it
increasingly difficult for supply chains to achieve strategic fit. Overcoming these
challenges offers a tremendous opportunity for firms to use supply chain management to
gain competitive advantage.
Summary of Chapter 2
1. Explain why achieving strategic fit is critical to a company’s overall success.
A lack of strategic fit between the competitive and supply chain strategies can result in the supply chain taking actions that are not consistent with
customer needs, leading to a reduction in supply chain surplus and decreasing supply chain profitability. Strategic fit requires that all functions
within a firm and stages in the supply chain target the same goal, one that is consistent with customer needs.

2. Describe how a company achieves strategic fit between its supply chain strategy and its competitive strategy.
To achieve strategic fit, a company must first understand the needs of the customers being served, understand the uncertainty of the supply chain, and
identify the implied uncertainty. The second step is to understand the supply chain’s capabilities in terms of efficiency and responsiveness. The key
to strategic fit is ensuring that supply chain responsiveness is consistent with customer needs, supply capabilities, and the resulting implied
uncertainty. Tailoring the supply chain is essential to achieving strategic fit when supplying a wide variety of customers with many products through
different channels.

3. Discuss the importance of expanding the scope of strategic fit across the supply chain.
The scope of strategic fit refers to the functions and stages within a supply chain that coordinate strategy and target a common goal. When the scope
is narrow, individual functions try to optimize their performance based on their own goals. This practice often results in conflictingactions that
reduce the supply chain surplus. As the scope of strategic fit is enlarged to include the entire supply chain, actions are evaluated based on their
impact on overall supply chain performance, which helps increase supply chain surplus.

4. Describe the major challenges that must be overcome to manage a supply chain successfully.
Globalization, increasing product variety, decreasing product life cycles, fragmentation of supply chains, changing technologies, and an increased
focus on sustainability represent significant challenges to achieving strategic fit. They also represent great opportunities for firms that can
successfully address these challenges with their supply chain strategy.
Thank you