Supply Chain Performance

COSC 643

Sungchul Hong

Competitive and Supply Chain Strategies

• A company’s competitive strategy defines the set of customer needs that is seeks to satisfy through its products and services.

• Example – Wal-Mart aims to provide high

availability of a variety of reasonable quality products at low prices.

– McMaster-Carr: It guarantees product availability and delivery within a day.

Competitive and Supply Chain Strategies

• A product development strategy specifies the portfolio of new products that a company will try to develop.

• It also dictates whether the development effort will be made internally or outsourced.

• A marketing strategy specifies how the market will be segmented and the product positioned, priced, and promoted.

Competitive and Supply Chain Strategies

• A supply chain strategy determines the nature of procurement of raw materials, transportation of materials to and from the company, manufacture of the product or operation to provide the service, and distribution of the product to the customer, along with any follow-service.

Competitive and Supply Chain Strategies

• Supply chain strategy includes what many traditionally call supplier strategy, operations strategy, and logistics strategy.

The Value Chain in a Company

Achieving Strategic Fit

• Strategic fit means that both the competitive and supply chain strategies have the same goal.

• Consistency between the customer priorities that the competitive strategy is designed to satisfy and the supply chain capabilities that the supply chain strategy aims to build

Competitive Strategy

• The competitive strategy and all functional strategies must fit together to form a coordinated overall strategy.

• Each functional strategy must support other functional strategies and help a firm reach its competitive strategy goal.

Achieving Strategic Fit

• The different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully.

How Is Strategic Fit Achieved?

• Understanding the customer.

• Understanding the supply chain.

• Achieving strategic fit.

The Implied Uncertainty Spectrum

Cost-Responsiveness Efficient Frontier

Understanding the Supply Chain

Achieving Strategic Fit

• A company may fail either because of a lack of strategic fit or because its processes and resources do not provide the capabilities to support the desired strategic fit.

Finding the Zone of Strategic Fit

The Responsiveness Spectrum

• Highly efficient– Integrated steel mills: Production scheduled weeks or

months in advance with little variety or flexibility.

• Somewhat efficient– A traditional make-to-stock manufacturer with

production lead time of several weeks.

• Somewhat responsive– Most automotive production

• Highly responsive– Dell: Custom made PCs and servers in a few days.

How Is Strategic Fit Achieved?

• Understanding the customer • Understanding the supply chain.• Achieving strategic fit.

Understanding the Customer

• The quantity of the product needed in each lot.

• The response time that customers are willing to tolerate.

• The variety of products needed.• The service level required.• The price of the product.• The desired rate of innovation in the

product.

Understanding the Supply Chain

• Respond to wide range of quantities demanded

• Meet short lead time.• Handle a large variety of products.• Building highly innovative products• Meet a very high service level.

Achieving Strategic Fit

• Ensure that what the supply chain does particularly well is consistent with the targeted customer’s needs.

• Example– Customization, PCs delivered within

days, reasonable price– c.f.) pasta

Multiple Products and Customer Segments

• In case a firm sells multiple products and serves customer segments with very different needs, the different products and segments have different implied demand uncertainty.

• When devising supply chain strategy in these cases, the key issue for a company is to create a supply chain that balances efficiency and responsiveness given its portfolio of products and customer segments.

Product Life Cycle

• As products go through their life cycles, the demand characteristics and the needs of the customer segments being served change.

• Beginning stages • Commodity product stage

Beginning stages

• Demand is very uncertain.

• Margins are often high, and time is crucial to gaining sales.

• Product availability is crucial to capturing the market.

• Cost is often of secondary consideration

Commodity product stage

• Demand has become more certain.

• Margins are lower due to an increase in competitors and more competitive pressure.

• Price becomes a significant factor in customer choice.