What is the right supply chain for your product? A simple framework can help you figure out the answer. Source: Wharton/ Marshall Fisher

Functional Product >> Efficient Supply Chain Innovative Product >> Responsive Supply Chain

Efficient production Soup is a price-sensitive functional good. What’s wrong with gaining market share by cutting prices sometimes? Price cutting distorts sales, demand Manufacturing has to support peak demands to avoid shortages, and underproduction the rest of the time Distorted peak demands mean more expensive running costs and raises base prices of goods. Is this efficient?

Soup is a price-sensitive functional good. What’s wrong with gaining market share by cutting prices sometimes?

Price cutting distorts sales, demand

Manufacturing has to support peak demands to avoid shortages, and underproduction the rest of the time

Distorted peak demands mean more expensive running costs and raises base prices of goods.

Is this efficient?

Can there be innovation in canned soup? Consumers demand new flavors once in a while New packaging may improve sales Ready-to-eat “gourmet” soups Pull-top cans “ Cup at hand” drinkable cup of soup

Consumers demand new flavors once in a while

New packaging may improve sales

Ready-to-eat “gourmet” soups

Pull-top cans

“ Cup at hand” drinkable cup of soup

Making Innovative soup ELP strategies flatten demand to match capacity with sales Lower costs /prices raise weekly sales Innovations scaled gradually New flavors / products gradually rolled into replenishment stream Slow moving flavors gradually rolled back minimal added inventory costs Balance between innovative and functional mean higher overall profits and lower costs

ELP strategies

flatten demand to match capacity with sales

Lower costs /prices raise weekly sales

Innovations scaled gradually

New flavors / products gradually rolled into replenishment stream

Slow moving flavors gradually rolled back

minimal added inventory costs

Balance between innovative and functional mean higher overall profits and lower costs

Are skis functional? Sport Obermeyer like fashion goods? High peak demand Short product lifespans High product diversity High markup Does it matter how low costs are if you don’t make the sale?

Sport Obermeyer like fashion goods?

High peak demand

Short product lifespans

High product diversity

High markup

Does it matter how low costs are if you don’t make the sale?

Innovative skis Fast supply most important Locally rational cost savings kill profits USPS Mail instead of FedEx? Saving $15 bucks costs company $25K per day EDI replenishment reduces lost sales

Fast supply most important

Locally rational cost savings kill profits

USPS Mail instead of FedEx? Saving $15 bucks costs company $25K per day

EDI replenishment reduces lost sales

What are automobiles? JIT manufacturing shaves inventories down to hours instead of days or weeks. Missed shipments mean factory shuts down Factories build remotely on cheap land nobody else wants. Who cares? Car dealerships built on small, expensive lots convenient to buyers Thousands of variations possible Impulse buyers move on rather than wait 8 weeks for customized car from factory Cars sit on lots for average of 3 months Car companies don’t make money until car is sold.

JIT manufacturing shaves inventories down to hours instead of days or weeks.

Missed shipments mean factory shuts down

Factories build remotely on cheap land nobody else wants. Who cares?

Car dealerships built on small, expensive lots convenient to buyers

Thousands of variations possible

Impulse buyers move on rather than wait 8 weeks for customized car from factory

Cars sit on lots for average of 3 months

Car companies don’t make money until car is sold.

Where they fall… Functional Innovative Efficient (Match) Campbell Soup (Mismatch) Big 3 Auto Responsive (Mismatch) Automobiles before Henry Ford? (Match) Sport Obermeyer National Bicycle

Questions? ELP seems obvious. But aren’t sales and loss leader strategies addictive? Think of streaming next quarter sales to this quarter. Where does it end? Is it obvious to pick responsive or efficient supply chain characteristics? Do you always have to decide? Can you have both?

ELP seems obvious. But aren’t sales and loss leader strategies addictive?

Think of streaming next quarter sales to this quarter. Where does it end?

Is it obvious to pick responsive or efficient supply chain characteristics?

Do you always have to decide? Can you have both?