Summary of Learning Objectives <ul><li>Why is achieving strategic fit critical to a company’s overall success? </li></ul><...
CHAPTER 2 SCM - STRATEGIC FIT CUSTOMERS DEMAND PRODUCTS WITH DIFFERENT CHARACTERISTICS  –  Cost    Customization  Quantity...
Competitive & Supply Chain Strategies <ul><li>Competitive strategy: defines the target market/customer needs. </li></ul><u...
SCM - STRATEGIC FIT ACHIEVING FIT - UNDERSTANDING: 1. THE CUSTOMER/PRODUCT REQUIREMENTS –  CQSF 2 ALSO - IMPLIED DEMAND UN...
Achieving Strategic Fit <ul><li>Strategic fit:   </li></ul><ul><ul><li>Consistency between customer priorities of competit...
The Value Chain: Linking Supply Chain and Business Strategy New Product Development Marketing and Sales Operations Distrib...
Step 1:  Understanding the Customer and Supply Chain Uncertainty <ul><li>Identify the needs of the customer segment being ...
Achieving Strategic Fit <ul><li>Why is Implied Demand Uncertainty So Important? </li></ul><ul><li>Understanding the Custom...
Impact of Customer Needs on Implied Demand Uncertainty (Table 2.1) Firm now has to handle unusual surges in demand Require...
Levels of Implied Demand Uncertainty Low High Price Responsiveness Customer Need Implied Demand Uncertainty Detergent Long...
Correlation Between Implied Demand Uncertainty and Other Attributes (Table 2.2) 10%-25% 0% Avg. forced season-end markdown...
  SUPPLY CHAINS  EFFICIENT VS. RESPONSIVE  <ul><li>GOAL:  LOWEST COST </li></ul><ul><li>PRODUCT: MAX. PERF. AT MIN COST </...
Step 2: Understanding the  Supply Chain <ul><li>There is a cost to achieving responsiveness </li></ul><ul><li>Supply chain...
Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier (Fig. 2-3) High Low Low High Responsiveness Cost BO...
Responsiveness Spectrum  (Figure 2.4) Integrated steel mill Dell Highly efficient Highly responsive Somewhat efficient Som...
Step 3: Achieving Strategic Fit <ul><li>All functions in the value chain must support the competitive strategy to achieve ...
Achieving Strategic Fit Implied uncertainty spectrum Responsive supply chain Efficient supply chain Certain demand Uncerta...
Achieving Strategic Fit with  Same Firm with Various Products PRODUCT LINE A  CUSTOMER A PRODUCT LINE A - CUSTOMER B PRODU...
Achieving Strategic Fit  Product Life Cycle Progresses/Competition INTRODUCTION MATURING COMMODITY Implied uncertainty spe...
Strategic Scope Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Product Dev. Strategy Supply Cha...
Intracompany  Interfunctional Scope <ul><li>All functional strategies within a company are developed to support each other...
Strategic Scope GLOBALLY OPTIMAL STRATEGY Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Produc...
Intercompany  Interfunctional Scope <ul><li>The only positive cash flow for the supply chain occurs when the customer pays...
Intercompany  Interfunctional Scope <ul><li>Increasing supply chain surplus increases the amount to be shared </li></ul><u...
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Chopra3 ppt ch02

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  • Strategic scope must cover all boxes, at least at the supply chain end. Each stage must have fit across its vertical boxes and supply chain strategy spanning all players. This fit allows the countering of multiple owners and helps avoid local optimization.
  • Strategic scope must cover all boxes, at least at the supply chain end. Each stage must have fit across its vertical boxes and supply chain strategy spanning all players. This fit allows the countering of multiple owners and helps avoid local optimization.
  • Chopra3 ppt ch02

    1. 1. Summary of Learning Objectives <ul><li>Why is achieving strategic fit critical to a company’s overall success? </li></ul><ul><li>How does a company achieve strategic fit between its supply chain strategy and its competitive strategy? </li></ul><ul><li>What is the importance of expanding the scope of strategic fit across the supply chain? </li></ul>
    2. 2. CHAPTER 2 SCM - STRATEGIC FIT CUSTOMERS DEMAND PRODUCTS WITH DIFFERENT CHARACTERISTICS – Cost Customization Quantity Quality Speed Service Flexibility Features (C, Q, S, F) 2 These requirements can vary dramatically for customers and products. Consider some examples.
    3. 3. Competitive & Supply Chain Strategies <ul><li>Competitive strategy: defines the target market/customer needs. </li></ul><ul><li>Product Development strategy: portfolio of new products to achieve competitive strategy. </li></ul><ul><li>Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted </li></ul><ul><li>Supply chain strategy: </li></ul><ul><ul><li>determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product </li></ul></ul><ul><ul><li>Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important </li></ul></ul>
    4. 4. SCM - STRATEGIC FIT ACHIEVING FIT - UNDERSTANDING: 1. THE CUSTOMER/PRODUCT REQUIREMENTS – CQSF 2 ALSO - IMPLIED DEMAND UNCERTAINTY 2. THE SUPPLY CHAIN - RESPONSIVE VS. EFFICIENT 3. STRATEGIC FIT - THE ZONE OF STRATEGIC FIT
    5. 5. Achieving Strategic Fit <ul><li>Strategic fit: </li></ul><ul><ul><li>Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy </li></ul></ul><ul><ul><li>Competitive and supply chain strategies have the same goals </li></ul></ul><ul><li>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 </li></ul><ul><li>Example of strategic fit -- Dell </li></ul>
    6. 6. The Value Chain: Linking Supply Chain and Business Strategy New Product Development Marketing and Sales Operations Distribution Service Finance, Accounting, Information Technology, Human Resources Business Strategy New Product Strategy Marketing Strategy Supply Chain Strategy
    7. 7. Step 1: Understanding the Customer and Supply Chain Uncertainty <ul><li>Identify the needs of the customer segment being served </li></ul><ul><li>Quantity of product needed in each lot </li></ul><ul><li>Response time customers will tolerate </li></ul><ul><li>Variety of products needed </li></ul><ul><li>Service level required </li></ul><ul><li>Price of the product </li></ul><ul><li>Desired rate of innovation in the product </li></ul>
    8. 8. Achieving Strategic Fit <ul><li>Why is Implied Demand Uncertainty So Important? </li></ul><ul><li>Understanding the Customer, CQSF 2 </li></ul><ul><ul><li>Lot size </li></ul></ul><ul><ul><li>Response time </li></ul></ul><ul><ul><li>Service level </li></ul></ul><ul><ul><li>Product variety </li></ul></ul><ul><ul><li>Price </li></ul></ul><ul><ul><li>Innovation </li></ul></ul>Implied Demand Uncertainty
    9. 9. Impact of Customer Needs on Implied Demand Uncertainty (Table 2.1) Firm now has to handle unusual surges in demand Required service level increases New products tend to have more uncertain demand Rate of innovation increases Total customer demand is now disaggregated over more channels Number of channels increases Demand per product becomes more disaggregated Variety of products required increases Less time to react to orders Lead time decreases Wider range of quantity implies greater variance in demand Range of quantity increases Causes implied demand uncertainty to increase because … Customer Need
    10. 10. Levels of Implied Demand Uncertainty Low High Price Responsiveness Customer Need Implied Demand Uncertainty Detergent Long lead time steel High Fashion Emergency steel
    11. 11. Correlation Between Implied Demand Uncertainty and Other Attributes (Table 2.2) 10%-25% 0% Avg. forced season-end markdown 10%-40% 1%-2% Avg. stockout rate 40%-100% 10% Avg. forecast error High Low Profit margin High Implied Uncertainty Low Implied Uncertainty Attribute
    12. 12. SUPPLY CHAINS EFFICIENT VS. RESPONSIVE <ul><li>GOAL: LOWEST COST </li></ul><ul><li>PRODUCT: MAX. PERF. AT MIN COST </li></ul><ul><li>PRICING: LOWER PRICE AND MARGIN </li></ul><ul><li>MANU: HIGH EFFICIENCY </li></ul><ul><li>INVENT: MIN. INVENTORY </li></ul><ul><li>LEADTIME: REDUCE LEADTIME </li></ul><ul><li>SUPPLIERS: COST/QUALITY </li></ul><ul><li>TRANSPORTATION: COST </li></ul><ul><li>QUICK RESPONSE </li></ul><ul><li>ASSEMBE TO ORDER </li></ul><ul><li>HIGHER PRICE AND MARGINS </li></ul><ul><li>FLEX. CAPACITY </li></ul><ul><li>MAINTAIN BUFFER </li></ul><ul><li>REDUCE EVEN WITH HIGHER PRICE </li></ul><ul><li>SPEED, FLEX., QUALITY </li></ul><ul><li>QUICK& RESPONSIVIE </li></ul>
    13. 13. Step 2: Understanding the Supply Chain <ul><li>There is a cost to achieving responsiveness </li></ul><ul><li>Supply chain efficiency: cost of making and delivering the product to the customer </li></ul><ul><li>Increasing responsiveness results in higher costs that lower efficiency </li></ul><ul><li>Figure 2.3: cost-responsiveness efficient frontier </li></ul><ul><li>Figure 2.4: supply chain responsiveness spectrum </li></ul><ul><li>Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum </li></ul>
    14. 14. Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier (Fig. 2-3) High Low Low High Responsiveness Cost BOSE RADIO DELL WAL-MART BARILLA
    15. 15. Responsiveness Spectrum (Figure 2.4) Integrated steel mill Dell Highly efficient Highly responsive Somewhat efficient Somewhat responsive Hanes apparel Most automotive production
    16. 16. Step 3: Achieving Strategic Fit <ul><li>All functions in the value chain must support the competitive strategy to achieve strategic fit – Fig. 2.7 </li></ul><ul><li>Two extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell) – Table 2.3 </li></ul><ul><li>Two key points </li></ul><ul><ul><li>there is no right supply chain strategy independent of competitive strategy </li></ul></ul><ul><ul><li>there is a right supply chain strategy for a given competitive strategy </li></ul></ul>
    17. 17. Achieving Strategic Fit Implied uncertainty spectrum Responsive supply chain Efficient supply chain Certain demand Uncertain demand Responsiveness spectrum Zone of Strategic Fit
    18. 18. Achieving Strategic Fit with Same Firm with Various Products PRODUCT LINE A CUSTOMER A PRODUCT LINE A - CUSTOMER B PRODUCT LINE B CUSTOMER B PRODUCT LINE B CUSTOMER A Implied uncertainty spectrum Responsive supply chain Efficient supply chain Certain demand Uncertain demand Responsiveness spectrum Zone of Strategic Fit
    19. 19. Achieving Strategic Fit Product Life Cycle Progresses/Competition INTRODUCTION MATURING COMMODITY Implied uncertainty spectrum Responsive supply chain Efficient supply chain Certain demand Uncertain demand Responsiveness spectrum Zone of Strategic Fit
    20. 20. Strategic Scope Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy VERY LOCAL OPTIMAL BY OPERATION W/I LOCAL OPTIMAL BY FUNCTION FUNCTIONALLY OPTIMAL
    21. 21. Intracompany Interfunctional Scope <ul><li>All functional strategies within a company are developed to support each other and the company’s competitive strategy </li></ul><ul><li>Strategic fit is expanded to include all functions in a firm </li></ul><ul><li>Goal is to maximize company profit </li></ul><ul><li>Figure 2.11 </li></ul>
    22. 22. Strategic Scope GLOBALLY OPTIMAL STRATEGY Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy
    23. 23. Intercompany Interfunctional Scope <ul><li>The only positive cash flow for the supply chain occurs when the customer pays for the product – all other cash flows are resettling of accounts within the chain and add to total supply chain cost </li></ul><ul><li>Supply chain surplus </li></ul><ul><ul><li>Difference between what the customer pays and total supply chain cost </li></ul></ul><ul><ul><li>Total profit to be shared among all members of the supply chain </li></ul></ul>
    24. 24. Intercompany Interfunctional Scope <ul><li>Increasing supply chain surplus increases the amount to be shared </li></ul><ul><li>All stages coordinate strategy across all functions to ensure that they best meet the customer’s needs and maximize supply chain surplus </li></ul><ul><li>Also provides more speed by managing the interfaces between supply chain stages </li></ul><ul><li>Each company must evaluate its actions in the context of the entire supply chain </li></ul><ul><li>Figure 2.12 </li></ul>
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