Supply Chain

Strategies, fit & obstacles

Dr.S.Yogananthan
Content
 Competitive Strategies
 Strategic fit
 Obstacles
Competitive Strategy
Competitive Strategy
 A competitive strategy consists of moves to
◦ Attract customers
◦ Withstand competitive pressures
◦ Strengthen an organization’s market position
 The objective of a competitive strategy is to generate a
competitive advantage, increase the loyalty of customers and
beat competitors
 A competitive strategy is narrower in scope than a business
strategy
 Five competitive strategies are
◦ Overall low-cost leadership strategy
◦ Best cost provider strategy
◦ Broad differentiation strategy
◦ Focused low-cost strategy
◦ Focused differentiation strategy
Supply Chain & Competitive
Strategy
Content
1. Supply chain and competitive strategy
2. Empirical results – Top management must be concerned
1. Supply chain and competitive
strategy – Achieving strategic fit
A "typical" value chain
Competitive strategy

Product
Supply chain strategy Marketing and
development
sales strategy
strategy

New Marketing
Purchasing
product Operations Distribution and
and Supply
development sales

Support: Finance, accounting, information technology, human resources

 Consistency and support between competitive strategy, supply chain strategy,

and other functional strategies is important
Achieving strategic fit
 Strategic fit
◦ Consistency between customer priorities of the
competitive strategy and supply chain capabilities
specified by the supply chain strategy
◦ Competitive and supply chain strategies have the
same 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
How is strategic fit achieved?
 Step 1 : Understanding the customer and
supply chain uncertainty

 Step 2: Understanding the supply chain

 Step 3: Achieving strategic fit

1

Understanding customer needs

 Identification of the needs of the customer segment
being served, based on individual attributes such as
◦ Quantity of products needed per lot
◦ Response time customers will tolerate
◦ Variety of products needed
◦ Service level required
◦ Price of the product
◦ Desired rate of innovation in the product
 Needs of customers within a particular segment: very
similar
 Needs of customers in different segments: very
different
Impact of customer needs on implied
demand uncertainty
Causes implied demand uncertainty to
Customer need
increase because …

… a wider range of quantity implies greater

Range of quantity increases
variance in demand

Lead time decreases … there is less time to react to orders

… demand per product becomes more

Variety of products required increases
disaggregated

… firm now has to handle unusual surges in

Required service level increases
demand

Number of channels through which products may … total customer demand is now disaggregated
be acquired increases over more channels

… new products tend to have more uncertain

Rate of innovation increases
demand
2

Understanding the supply chain

 After understanding implied demand uncertainty, the next question is:
How does the firm best meet demand?

 Dimension describing the supply chain is supply chain responsiveness

 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

 Increasing responsiveness results in higher costs that lower supply chain

efficiency (i.e., cost of making and delivering the product to the customer)
3

Achieving strategic fit

 Goal is to ensure that what the supply chain does well
is consistent with target customer's needs
 All functions in the supply chain must support the
competitive strategy to achieve strategic fit, e.g.
◦ Purchasing and supply
◦ Operations
◦ Distribution

 Two key points

◦ There is no right supply chain strategy independent of
competitive strategy
◦ There is a right supply chain strategy for a given competitive
strategy
Achieving strategic fit
Responsive
supply chain

fit
g ic
Responsiveness a te
str
spectrum of
one
Z

Efficient
supply chain

Predictable demand Implied uncertainty Unpredictable demand

(functional products) spectrum (innovative products)
Design principles: Comparison of
efficient and responsive supply chains
Criterion Efficient Responsive

Primary goal Lowest cost Quick response

Integral design to minimize Modular design to allow

Product design strategy
product cost postponement

Pricing strategy Lower margins Higher margins

Manufacturing strategy High utilization Capacity flexibility

Inventory strategy Minimize inventory Buffer inventory

Reduce but not at expense of Aggressively reduce even if

Lead time strategy
greater cost costs are significant

Supplier selection strategy "Sufficient" quality and cost Speed, flexibility, quality

Greater reliance on low cost Greater reliance on responsive

Transportation strategy
modes (fast) modes

Source: Fisher (1997)

Supply Chain Drivers and Obstacles

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Outline
 Drivers of supply chain performance
 A framework for structuring drivers
 Facilities
 Inventory
 Transportation
 Information
 Sourcing
 Pricing
 Obstacles to achieving fit

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Drivers of Supply Chain Performance
 Facilities
◦ places where inventory is stored, assembled, or fabricated
◦ production sites and storage sites
 Inventory
◦ raw materials, WIP, finished goods within a supply chain
◦ inventory policies
 Transportation
◦ moving inventory from point to point in a supply chain
◦ combinations of transportation modes and routes
 Information
◦ data and analysis regarding inventory, transportation, facilities throughout
the supply chain
◦ potentially the biggest driver of supply chain performance
 Sourcing
◦ functions a firm performs and functions that are outsourced
 Pricing
◦ Price associated with goods and services provided by a firm to the supply
chain
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A Framework for
Structuring Drivers
Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers

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Facilities
 Role in the supply chain
◦ the “where” of the supply chain
◦ manufacturing or storage (warehouses)
 Role in the competitive strategy
◦ economies of scale (efficiency priority)
◦ larger number of smaller facilities (responsiveness
priority)
 Example 3.1: Toyota and Honda
 Components of facilities decisions

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Sourcing
 Role in the supply chain
 Role in the competitive strategy
 Components of sourcing decisions

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Sourcing: Role in
the Supply Chain
 Set of business processes required to
purchase goods and services in a supply
chain
 Supplier selection, single vs. multiple

suppliers, contract negotiation

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Sourcing:
Role in the Competitive Strategy
 Sourcing decisions are crucial because they
affect the level of efficiency and
responsiveness in a supply chain
 In-house vs. outsource decisions- improving

efficiency and responsiveness

 Example 3.6: Cisco

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Sourcing Process
 Once a decision to outsource has been made,
the sourcing process includes

Supplier
Supplier Sourcing
selection
scoring Design planning
and Procurement
and collaboration and
contract
assessment analysis
negotiation
Sourcing Process

 Supplier scoring and assessment Supplier

scoring
and
◦ Process used to rate suppliers assessment

 Supplier selection Supplier

selection
◦ Choose the appropriate supplier(s) and
contract
negotiation
 Design collaboration
◦ Work together with supplier when designing components Design
collaborati
for the final product
 Procurement
◦ Process placing orders and receiving orders from Procureme

supplier(s)
 Sourcing planning and analysis Sourcing
planning
and
◦ Analyze spending across various suppliers, identify analysis

opportunities for decreasing cost

Sourcing Process

Supplier
Supplier Sourcing
selection
scoring Design planning
and Procurement
and collaboration and
contract
assessment analysis
negotiation
Supplier scoring and assessment
 Common fundamental mistake when
choosing a supplier
◦ Only focus on quoted price

Supplier performance should be compared on

the basis of the supplier’s impact on total cost
Obstacles to Achieving
Strategic Fit
 Increasing variety of products
 Decreasing product life cycles
 Increasingly demanding customers
 Fragmentation of supply chain ownership
 Globalization
 Difficulty executing new strategies

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Reference
 Leeds business school, University of
Colorado, Lecture 23, web based material.
 Prof. Dr. Stephan M. Wagner,Chair of

Logistics Management Swiss Federal Institute

of Technology Zurich (ETH Zurich)
 Chopra, Chapter 3, Supply chain

management, prentice hall, 2007 edition.