This document covers key concepts in supply chain management including strategic fit, competitive priorities, and achieving alignment between customer demand and supply chain responsiveness. It discusses mapping customers' implied demand uncertainty and a supply chain's cost-responsiveness capabilities. Strategic fit is achieved by matching supply chain responsiveness to implied demand uncertainty. The document also addresses challenges to strategic fit, e-commerce strategies, and drivers of supply chain performance like inventory, transportation and facilities.

1. SEG 4610 Supply Chain Management 1
Supply Chain Performance:
Achieving Strategic Fit and
Scope

2. SEG 4610 Supply Chain Management 2
Strategic Decisions
 Strategic Decisions are ones that keep
an organisation matched to its
environment.
 Motivation:
 Assure long term survival
 Ensure profit growth

3. SEG 4610 Supply Chain Management 3
The Value Chain in a company
New
Product
Develop-
ment
Marketing
and
Sales
Operations Distribution Service
Supply Chain Strategy
Finance, accounting, Info Technologies, human resources

4. SEG 4610 Supply Chain Management 4
Competitive Strategy
A company’s competitive strategy defines the set of
customer needs that it seeks to satisfy through its
products and services.
 Compaq (immediate availability) vs. Dell (customisation)
 Park’N’Shop vs. CitiSuper
 Based on the customers’ priorities
 Targets one or more customer segments
 Aim: provide goods/services to satisfy these
customers’ needs

5. SEG 4610 Supply Chain Management 5
Competitive Dimensions
 Cost
 Quality
 Time
 Flexibility/Variety
 Strategic Positioning
 Defines those positions that a firm wants to
occupy in the competitive product space.

6. SEG 4610 Supply Chain Management 6
Corporate Strategy, Competitive Priorities and
Functional Inter-relationships
Market analysis
•segmentation
•needs assessment
Socioeconomic
and business
environment
Corporate strategy
•missions
•goals
•distinctive
Future directions
•global strategy
•new products/services
Competitive priorities
•cost
•quality
•time
•flexibility
Capabilities
•current
•needed
•plans
Functional area strategies

7. SEG 4610 Supply Chain Management 7
Terry Hill (London Business School):
Order Winners & Qualifiers
 Order Qualifiers are those (minimum)
criteria that a company must meet to be
considered as a possible supplier (e.g.
ISO 9000).
 Order winners are those criteria that
wins the orders.
 Invariably due to re-directing competitive
priorities

8. SEG 4610 Supply Chain Management 8
Functional Strategies
 Product development
 Product portfolio? Outsourced or internal
development?
 Marketing
 Customer segments? Products/price/promotion?
Competitors?
 Finance
 Acquisition and allocation of resources
 Supply Chain
 Procurement, production, delivery and service

9. SEG 4610 Supply Chain Management 9
Developing an Operations
Strategy (Terry Hill)
1. Define corporate objectives.
2. Determine marketing strategies (strategic
positioning).
3. Assess how different products qualify in their
respective markets and win orders against
competitors.
4. Establish appropriate operational processes
for product manufacture and delivery.
5. Provide the operational infrastructure to
support production/delivery.

10. SEG 4610 Supply Chain Management 10
Strategic Fit
Strategic fit means consistency between the
competitive advantage that a firm seeks and
the process capabilities and managerial
policies that it uses to achieve that advantage.
 Key to success:
 Competitive strategy and functional strategies must
support each other and fit as a co-ordinated overall
strategy.
 Each function must structure its processes to be
able to execute these strategies well.

11. SEG 4610 Supply Chain Management 11
Achieving Strategic Fit
1. Understand the customer
 Customer needs for targeted segments?
 Define service requirements and desired costs
2. Understand the supply chain
 Operational characteristics
 Performance vs. customer needs
3. Achieving strategic fit
 Re-structure supply chain
 Alter competitive strategy

12. SEG 4610 Supply Chain Management 12
Understanding the customer
 Lot size
 Response time
 Service level
 Product variety
 Price
 Innovation

13. SEG 4610 Supply Chain Management 13
Implied vs. “real” demand uncertainty
 Implied demand uncertainty is the
uncertainty that exists due to the portion
of demand that the supply chain is
required to meet.
 Affected by:
 Portion of demand (Market segment)
handled by supply chain
 Attributes desired by customers

14. SEG 4610 Supply Chain Management 14
Implied Uncertainty Spectrum
Low Implied
Demand
Uncertainty
Somewhat
Certain
Demand
High Implied
Demand
Uncertainty
Somewhat
Uncertain
Demand
Purely
functional
products
Established
products
New models
of existing
goods
Entirely
new
products
Gasoline Crest
toothpaste
New Ford
Taurus
Palm Pilot

15. SEG 4610 Supply Chain Management 15
Relationship between Demand Characteristics
and Implied Demand Uncertainty (Fisher)
Attribute Low Implied
Uncertainty
High Implied
Uncertainty
Profit margin Low High
Average forecast
error
10% 40% to 100%
Average
stockout rate
1% to 2% 10% to 40%
Average forced
end-of-season
markdown
0% 10% to 25%

16. SEG 4610 Supply Chain Management 16
Achieving Strategic Fit
1. Understand the customer
 Map where their demand is located on the
implied uncertainty spectrum
2. Understand the supply chain
3. Achieving strategic fit

17. SEG 4610 Supply Chain Management 17
Understanding the Supply Chain
 Supply chain responsiveness is its ability
to:
 Respond to wide range of quantities demanded
 Meet short lead times
 Manufacture large variety of products
 Meet high service level
 Innovate – anticipate customers’ demand
 Responsiveness comes at a cost …

18. SEG 4610 Supply Chain Management 18
Understanding the Supply Chain
 Supply chain efficiency is the cost of
making and delivering a product to the
customer.
 Responsiveness – cost efficient frontier
 Tradeoff between cost efficiency and
responsiveness =>
 Supply chain strategy -> level of
responsiveness offered

19. SEG 4610 Supply Chain Management 19
Responsiveness Spectrum
Highly
efficient
Somewhat
efficient
Highly
responsive
Somewhat
Responsive
Advance
production
schedule;
low variety
or flexibility
Make-to-
stock;
Long
production
lead time
(months)
Mix model
production;
Production
lead time in
weeks
Make-to-
order;
Lead time
in days
Glass
production
M&S
underwear
Automobile
production
Dell PC

20. SEG 4610 Supply Chain Management 20
Achieving Strategic Fit
1. Understand the customer
 Map where their demand is located on the
implied uncertainty spectrum
2. Understand the supply chain
 Map where the supply chain capability is
located on the responsiveness spectrum
3. Achieving strategic fit

21. SEG 4610 Supply Chain Management 21
Achieving Strategic Fit
Certain
demand
Uncertain
demand
Efficient
Supply Chain
Responsive
Supply Chain

22. SEG 4610 Supply Chain Management 22
Efficient vs. Responsive Supply Chains
Strategy Efficient Supply Chains Responsive Supply Chains
Primary goal Meet (predictable) demand at
low cost
Respond quickly to demand
Product design Max performance at min cost Flexible design
(modularity, mix-&-match)
Pricing Lower margin Higher margin
Manufacturing High facility utilisation
(low average cost)
Capacity flexibility and cushion
Inventory Minimise inventory levels Maintain buffer inventory to meet
unexpected demand
Lead Time Reduce, but not at the
expense of production costs
Aggressively reduce
Supplier Select based on cost and
quality
Select based on speed, flexibility
and quality
Transportation Low costs modes Responsive and speedy modes

23. SEG 4610 Supply Chain Management 23
Achieving Strategic Fit
1. Understand the customer
 Map where their demand is located on the
implied uncertainty spectrum
2. Understand the supply chain
 Map where the supply chain capability is
located on the responsiveness spectrum
3. Achieving strategic fit
 Match supply chain responsiveness to implied
demand uncertainty in zone of strategic fit.
 Other functional strategies must also be
coordinated.

24. SEG 4610 Supply Chain Management 24
Outputs of Strategy (Terry Hill)
 Review of implications for manufacturing
processes and infrastructure support for
current and future products
 Assess degree of match between capabilities
and order-winning and order-qualifying needs
 Continual monitor changes in match and
mismatch
 Necessary operational re-design,
infrastructure investments, change schedule
integrated into corporate strategy in co-
ordination with other functional strategies

25. SEG 4610 Supply Chain Management 25
 There is no SINGLE right supply chain
for everyone …
 There is only a right supply chain for
your given competitive strategic
position.

26. SEG 4610 Supply Chain Management 26
Other issues affecting Strategic Fit
 Company offers multiple products to different
customer segments
 Grainger: machine parts to Boeing, Ford and also small
manufacturers
 Fast-moving products warehouses dispersed; slow moving
items stored centrally
 Product life cycles
 Demand characteristics different at different stages of life
cycle
 Competitive strategic positioning will also change
 Supply chain and other functional strategies must adapt as
product enters different stages of its life cycle
 Competitors’ actions change over time
 New products/services
 Customers’ expectations changes

27. SEG 4610 Supply Chain Management 27
Strategic Scope
Suppliers Manufacturers Distributors Retailers Customers
Competitive
Strategy
Product
Development
Strategy
Supply Chain
Strategy
Marketing
Strategy

28. SEG 4610 Supply Chain Management 28
Expanding Strategic Scope
 Intra-company intra-operations scope: minimize local costs
 Intra-company intra-functional scope: minimize functional
costs
 Intra-company inter-functional scope: Maximize company
profits
 Inter-company inter-functional scope: Maximize supply chain
surplus
 The inter-company view essential as competition is
not company vs company ,but supply chain vs supply
chain
 The broader inter-company scope increases the size
of the surplus to be shared among all stages of the
supply chain

29. SEG 4610 Supply Chain Management 29
Drivers of Supply Chain Performance
 inventory
 transportation
 facilities
 information
 impact on supply chain performance
 role in competitive strategy
 decision components
Efficiency Responsiveness

30. SEG 4610 Supply Chain Management 30
Inventory
 Present throughout the supply chain: Raw materials, work-in-
process, finished goods at manufacturers/distributors/retailers, etc.
 Supply Chain role:
 Inventory reflects a mismatch of supply and demand
 Purposeful: economies-of-scale, anticipate future demand
 Related to throughput and “flow time”
 Competitive Strategy role:
 location and amount of finished goods inventory impacts product
availability (responsiveness)
 centralised/distributed storage impacts costs
 Decision Components:
 cycle inventory : inventory to meet demand between shipments
 safety stock: inventory held to meet unexpected demand
 seasonal inventory: inventory to meet predictably variable demand

31. SEG 4610 Supply Chain Management 31
Transportation
 Supply Chain role:
 Moves product between different stages in a supply chain
 Faster transportation modes decreases “flow time”
 Competitive Strategy role:
 More frequent deliveries increases responsiveness
 Transportation system structure and operation must match the
efficiency-responsiveness balance to competitive strategic
position
 Decision Components:
 Transportation mode:
 air, truck, rail, ship, pipeline, Electronic delivery
 Network design and route selection
 In-house or out-source

32. SEG 4610 Supply Chain Management 32
Facilities
 Supply Chain role:
 Locations where “value-added” takes place in a supply chain
 Manufacturing (transformation), Warehousing (storage)
 Competitive Strategy role:
 Number and dispersion of warehouses affects costs
 facilities, management, inventory, transportation
 Location proximity to customers affects responsiveness
 Global and local presence affects customers’ perception
 Decision Components:
 Location
 Capacity
 Manufacturing Structure (Process Choices)
 Warehousing Operations
 storage by SKU or job-lots
 cross-docking

33. SEG 4610 Supply Chain Management 33
Information
 Supply Chain role:
 Information connects the various stages of a supply chain
 Daily operational decisions based on information about forecasted
demand and product availability
 Competitive Strategy role:
 New info channels (e.g. Internet B2B platforms) allow customers to
design their customised products (increases responsiveness)
 Data collection increases understanding of customers’ preference
 target market segments
 improves demand forecasts
 Decision Components:
 Choice of enabling technologies
 EDI, Internet, ERP (SCM) software
 Push vs pull supply chains impacts info system design
 Co-ordination and information sharing
 Forecasting

34. SEG 4610 Supply Chain Management 34
Major Obstacles to Achieving Fit
 Multiple owners and/or incentives in a supply chain
 Local optimisation and lack of global fit
 Customer fragmentation
 Increased product variety
 Shortening life-cycles
 Increasingly demanding customers
 Increasing implied demand uncertainty
 Higher service expectations
 Globalisation
 Complexity of supply chain
 Increased competition
 Increased difficulty in executing new strategies

35. SEG 4610 Supply Chain Management 35
Dealing with obstacles
 Multiple owners
 Contractual co-ordination
 Information co-ordination
 Customer fragmentation
 Mass customisation
 Tailored logistics
 Globalisation
 Global companies, strategic partnerships
 First-mover advantage
 Company culture, investment in human resources

36. SEG 4610 Supply Chain Management 36
E-Commerce Strategy
 What is E-commerce?
Commerce transacted over the Internet
 Product information
 Order placement and/or negotiation
 Order tracking
 Order fulfilment
 Payment

37. SEG 4610 Supply Chain Management 37
Revenue Impact of E-Commerce
 Length of supply chain
 Product Info
 Time to market
 Price/Contract Negotiation
 Order placement and tracking
 Order fulfilment
 Payment

38. SEG 4610 Supply Chain Management 38
Cost Impact of E-Commerce
 Facility
 Site and processing costs
 Inventory
 Levels and kinds
 Transportation
 Inbound/out bound logistics
 Infrastructure
 Information Sharing
 Co-ordination

39. SEG 4610 Supply Chain Management 39
Summary
 Competitive Strategic Positioning
 Order-winners and qualifiers
 Supply Chain Performance
 Efficiency vs Responsiveness
 Co-ordinated strategies
 Strategic Fit
 customers: implied demand uncertainty spectrum
 supply chain: responsiveness-cost spectrum
 Challenges
 E-commerce

40. SEG 4610 Supply Chain Management 40
References
Fisher, M. L., ‘What is the right supply chain for
your product?’, Harvard Business Review,
Mar-Apr 1997.
Marien, E.J., ‘The four supply chain enablers’,
Supply Chain Management Review, Mar-Apr,
2000, 60-68.
Hill, T., Manufacturing Operations Strategy: Text
and Cases, McGraw-Hill, 2009.