1. Competitive and supply chain strategies 2. Introduction – Strategic fit 3. How is strategic fit achieved?

1. ACHIEVING
STRATEGIC FIT
AND SCOPE
BY:
Shipra Chaudhary
012BIM050
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2. Outline
 Competitive and supply chain strategies
 Introduction – Strategic fit
 How is strategic fit achieved?
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3. Competitive and Supply Chain
Strategies
 Competitive strategy (of an organization)
– Defines the set of customer needs a firm seeks to satisfy
through its products and services, relative to its competitor
 Examples
– Wal-Mart
• High availability of variety of products of reasonable quality
• Low price
– McMaster-Carr (MRO)
• More than 500,000 different products (through a catalog and Web)
• Convenience, availability, responsiveness
• Not competing based on low price
– Blue Nile vs. Zales
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4. Competitive and Supply Chain
Strategies
 Functional strategies
 Product development strategy
• Specifies the portfolio of new products that the company will try to
develop
 Marketing and sales strategy
• Specifies how the market will be segmented and product positioned,
priced, and promoted
 Supply chain strategy
• Determines the nature of material procurement, transportation of
materials, manufacture of product or creation of service, distribution
of product
• Supplier strategy, operations strategy, logistics strategy
 Consistency and support between supply chain strategy,
competitive strategy, and other functional strategies is important
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5. Achieving Strategic Fit
 Strategic fit
 Consistency between customer priorities of 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
 e.g., Dell’s competitive strategy before and after 2007
 Strategic fit is achieved with three steps, namely:
 Step 1: Understanding the customer and supply chain
uncertainty
 Step 2: Understanding the supply chain
 Step 3: Achieving strategic fit
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6. How is Strategic Fit Achieved?
 Step 1: Understanding the customer and supply
chain uncertainty
 Identify the needs of the customer segment being served
• Quantity of product needed in each lot
• Response time customers will tolerate
• Variety of products needed
• Service level required
• Price of the product
• Desired rate of innovation in the product
 Understanding the customer
• Demand uncertainty: uncertainty of customer demand for a product
• Implied demand uncertainty: resulting uncertainty for the supply
chain given the portion of the demand the supply chain must handle
and attributes the customer desires
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7. How is Strategic Fit Achieved?
 Step 1: Understanding the uncertainty (cont’d)
 Impact of customer needs on implied demand uncertainty
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Customer Need
Causes implied demand uncertainty
to increase because …
Range of quantity required increases Wider range of quantity required implies
greater variance in demand
Less time to react to orders
Lead time decreases Demand per product becomes more
disaggregated
Variety of products required increases Total customer demand is now
disaggregated over more channels
Number of channels through which
product may be acquired increases
New products tend to have more
uncertain demand
Rate of innovation increases Firm now has to handle unusual surges
in demand
Required service level increases Firm now has to handle unusual surges
in demand

8. How is Strategic Fit Achieved?
 Step 1: Understanding the uncertainty (cont’d)
 Supply uncertainty
• Uncertainty resulting from the capability of the supply chain
 Impact of supply source capability on supply uncertainty
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Supply Source Capability Causes Supply Uncertainty to ...
Frequent breakdown Increase
Unpredictable and low yields Increase
Poor quality Increase
Limited supply capacity Increase
Inflexible supply capacity Increase
Evolving production process Increase

9. How is Strategic Fit Achieved?
 Step 1: Understanding the uncertainty (cont’d)
 Levels of implied demand uncertainty
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10. How is Strategic Fit Achieved?
 Step 2: Understanding the supply chain
 How does the firm best meet demand in uncertain environment?
 Dimension describing the supply chain is supply chain
responsiveness
 Supply chain responsiveness -- ability to
• respond to fluctuations in demand
• meet short lead times
• handle a large variety of products
• build highly innovative products
• meet a very high service level
• handle supply uncertainty
 There is a cost to achieving responsiveness!
 Supply chain efficiency
• Cost of making and delivering the product to the customer
• Increasing responsiveness results in higher costs that lower
efficiency02/29/16 10

11. How is Strategic Fit Achieved?
 Step 2: Understanding the supply chain
 Cost-responsiveness efficient frontier
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12. How is Strategic Fit Achieved?
 Step 2: Understanding the supply chain
 Responsiveness spectrum
• e.g., Seven-Eleven Japan, Sam’s Club
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13. How is Strategic Fit Achieved?
 Step 3: Achieving strategic fit
 Match supply chain responsiveness with implied uncertainty
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Implied
uncertainty
spectrum
Responsive
supply chain
Efficient
supply chain
Certain
demand
Uncertain
demand
Responsivene
ss spectrum Zone of
Strategic Fit
Implied
uncertainty
spectrum
Responsive
supply chain
Efficient
supply chain
Certain
demand
Uncertain
demand
Responsivene
ss spectrum Zone of
Strategic Fit

14. How is Strategic Fit Achieved?
 Step 3: Achieving strategic fit (cont’d)
 Different roles and allocations of implied uncertainty
• One stage more responsive  other stages more efficient
• e.g., IKEA and England, Inc
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15. How is Strategic Fit Achieved?
 Step 3: Achieving strategic fit (cont’d)
 Comparison of efficient and responsive supply chain
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Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow
postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at expense
of greater cost
Aggressively reduce even if
costs are significant
Supplier selection strategy Cost and low quality Speed, flexibility, quality
Transportation strategy Greater reliance on low
cost modes
Greater reliance on
responsive (fast) modes

16. How is Strategic Fit Achieved?
 It sounds easy, but in reality quite difficult!
1.There is no supply chain strategy that is always right
2. There is a right supply chain strategy for a given competitive
strategy.
 Commitment by top executives!
• Without proper communication between groups and coordination
by high-level management, strategies are not likely to achieve
strategic fit.
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17. Thank You!!
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