Supply Chain Management Lecture 2 – Supply Chain Strategy Alexa Kirkaldy.

Supply Chain Management Lecture 2 –

Supply Chain Strategy

Alexa Kirkaldy

Lecture 2 - Learning ObjectivesOn completion you will be able to:

• Recognise the differences between strategic planning, strategic management, descriptive and prescriptive approaches and different levels of strategy

• Be aware that realised strategies are consequences of both planned and unplanned strategic processes

• Recognise the implications for tax optimisation on strategy & structure

The Business or Strategic

Planning Process

MissionAims Objective

External AnalysisPorter’s 5 forces

PEST

Internal Analysis

SWOTStrength:

WeaknessInternal to firm

Opportunity: Threat

External to firm

Chelsom, Payne and Reavill, “Management for Engineers, Scientists and

Technologists”, 2nd Edition, Wiley, 2004, p.

434.

Define Alternatives

Implement

Assumptions PLANNING GAP

Strategic fit and strategic choice

Objectives

Strategy and programme formulation

Implementation

Feedback and control

Analyse CurrentSituation & Gaps

Choose Strategy

The objective of a strategic plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives.

But is the term strategy used consistently?

• The Greek word ‘stratego’ means “to plan the destruction of one’s enemies through the effective use of resources”

(cited in Fawcett S.E., Ellram L.M., Ogden J.A. (2007) Supply Chain Management, page 13)

• Descriptive approaches to strategy focus on what has been and try to explain it (academic approach)

• Prescriptive approaches to strategy make statements about what strategy ought to be (practitioner approach)

So What is Strategy?• Many definitions…• Concerns both the organisation and its environment• Is complex• Affects the welfare of the organisation• Is both content and process• Is not purely deliberate• Involves different thought processes (conceptual &

analytical)• …… Exists on different levels

Tony Hines, “Supply Chain Strategies”, 2004, Elsevier, page 35

Levels of Strategy

Functional/operationalstrategy

Supply chain strategy

Cost leadership,Differentiation or

Focus strategy

Corporatestrategy

Businessstrategy

Competitive strategies Cost

Flexibility

Speed of delivery

Delivery reliability

Quality & reliability

Responsiveness

What the employees see

What the customers, suppliers & competitors see

Developing a strategy means making decisions

• Environmental positioning– Internal/External

• Resources– People/process/technology/assets/materials/money

• Objectives– Unifying vision

• Feedback– Dynamic response

Adapted from Fawcett S.E., Ellram L.M., Ogden J.A. (2007) Supply Chain Management, page 14, 15

SCM influence on 4 decision areasStrategy decision area

Common strategic posture Supply chain enabled perspective

Environment React to environmental changes (threats)Independent environmental scanning

View change as opportunityLeverage SC relationships to anticipate, define and respond

Resources Manage firm-specific resourcesBuy best inputsMaintain good supplier relationships

Develop unique, boundary spanning capabilitiesDevelop & manage supplier capabilitiesLeverage customer resourcesBuild world class SC team

Objectives Deliver customer satisfactionAchieve sustainable competitive advantageAchieve profitabilityAchieve growth in stock price

Help the SC satisfy end customer needsHelp 1st-tier customers become more competitiveBuild continuous improvement based advantageAchieve sustained profitability

Feedback Measure internal activity performanceMonitor supplier performanceOne-way flow of information from customers to suppliers

Measure process and SC performanceShare performance data to drive learningTwo-way information & idea sharing with customers and suppliers

Fawcett S.E., Ellram L.M., Ogden J.A. (2007) Supply Chain Management, page 17

Supply Chain Strategy - Strategic Fit

Return on Investment

0

20

40

60

80

100

0 10 20 30 40 50 60 70 80 90 100

RO

I

Differentiatedstrategy

Stuck in the middle

Low cost

Tony Hines, “Supply Chain Strategies”, 2004, Elsevier, pages 57, 62

Competitive strategy

- Lowest cost producer

Marketing strategy

- Compete on price

- Leverage volume

Supply chain strategy- Efficient

Product strategy

- lowest possible cost

LOW COST

Levels of Strategic Planning• Corporate

• The decisions and plans that answer the questions of:• ‘What business are we in?’• ‘How should resources be allocated among the businesses / business

areas?

• Business Unit

• Strategy defines the plans of a particular business unit to support corporate strategy

• Function

• Plans to show how each of the functional areas contribute to the overall business strategy

• and look at how internal resources are allocated

Supply Strategy

Supply Objectives Organisational Objectives

Supply Strategy Organisational Strategy

Current Needs Future Needs

Current Markets Future Markets

Supply Strategy and Organsiational Strategy

Supply Strategy Links Current and Future Markets to Current and Future Needs

Strategic Planning in Supply Management

• Assurance of supply• Cost reduction• Supply chain support strategies• Environmental change strategies• Competitive edge strategies• Risk management strategies

Supply Strategy Questions – 5 W’s

• What– Make or buy– Standard versus special

• Quality– Quality versus cost– Supplier involvement

• How much– Large versus small quantities (inventories)

Supply Strategy Questions

• Who– Centralized or decentralized– Quality of staff– Top management involvement

• When– Now versus later– Forward buy

• What Price– Premium, standard, lower– Cost-based, market-based– Lease/make/buy


• Where– Local, regional– Domestic, international– Large versus small– Multiple versus sole source– High versus low supplier turnover– Supplier relations– Supplier certification– Supplier ownership


• How– Systems and procedures– Computerization– Negotiations– Competitive bids– Fixed bids– Blanket orders/open

orders– Group buying

• MRP

• Long-term contracts

• Ethics

• Aggressive or passive

• Purchasing research

• Value analysis


• Why?

– Objectives congruent

– Market reasons

– Internal reasons

1) Outside supply

2) Inside supply

Tax Optimisation & Impact on Supply Chain Costs and Structure

Jespersen B.D. * Skjott-Larsen T. “Supply Chain Management”, Copenhagen Business School Press, 2005, p.64

Parent Company

Tax OptimisationProfit Sharing between Principal and Agent

BasicProfit

Moveableprofit


Production

BasicProfit

Moveableprofit

Sales

Moveableprofit

production

Moveableprofitsales

Principal

Tax Optimisation Responsibility Split

Responsibility Before restructuring

After restructuring

Who owns the inventory? Local Central planning / Principal

Who owns the customer? Local Local

Who decides about inventory & replenishment?

Local Principal

Who decides what to order from suppliers?

Local Principal

Who decides what is to be manufactured?

Local Principal

Where is the support unit placed?

Local Shared service centre

Who is responsible for profit?

Local Regional management


Case Studies and Next Lecture

• Read the case study on SCM – Strategic Alignment & Fit

• Download and read the written notes on strategy

• Read the articles on tax optimisation

• Understand order winners and order qualifiers

Order Winners and Qualifiers

Refers to how internal operational capabilities are converted to criteria that may lead to competitive advantage and market success

• An order qualifier is a characteristic of a product or service that is required in order for the product/service to even be considered by a customer.

• An order winner is a characteristic that will win the bid or customer's purchase.

Firms must provide the qualifiers in order to get into or stay in a market. To provide qualifiers, they need only to be as good as their competitors. Failure to do so may result in lost sales.

To provide order winners, firms must be better than their competitors.

It is important to note that order qualifiers are not less important than order winners; they are just different.

Lecture 2, Key Points• Despite strategy being a very common word in business there is no

consensus on its meaning. Academics have developed two main approaches to strategy. Prescriptive approaches make statements about what strategy ought to be, whereas descriptive approaches focus on what has been.

• Despite a formal approach to strategic planning, often led from the top of an organisation only some of the intended strategies will develop into deliberate strategies and actually be realized. However, emergent strategies can develop from anywhere in the organisation and will also be realised.

• In large firms with a strategic business unit structure strategies traditionally fall into three levels; corporate, business and functional/operational. This is often what employees see as the firm’s strategies.

Lecture 2, Key Points

• One of the biggest challenges is to ensure that all the various levels of strategy in your firm, and throughout key members of the chain, are consistent and aligned. Supply strategy has to be aligned with corporate strategy

• The case study illustrates the problems of co-ordinating, communicating and agreeing what the important order winners are throughout a supply chain.

• Finally the lecture considers the impact of tax optimisation on supply chain structure. Tax is just another cost in the chain and to reduce total cost it may be worthwhile managing with a sub-optimal supply chain structural design.

Supply Chain Management Lecture 2 – Supply Chain Strategy Alexa Kirkaldy.

Documents

Transcript of Supply Chain Management Lecture 2 – Supply Chain Strategy Alexa Kirkaldy.