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Summary of Learning Objectives Why is achieving strategic fit critical to a company’s overall success? How does a company achieve strategic fit between its supply chain strategy and its competitive strategy? What is the importance of expanding the scope of strategic fit across the supply chain?

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Summary of Learning Objectives

  • Why is achieving strategic fit critical to a company’s overall success?

  • How does a company achieve strategic fit between its supply chain strategy and its competitive strategy?

  • What is the importance of expanding the scope of strategic fit across the supply chain?


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CHAPTER 2SCM - 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.


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Competitive & Supply Chain Strategies

  • Competitive strategy: defines the target market/customer needs.

  • Product Development strategy: portfolio of new products to achieve competitive strategy.

  • 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

    • Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important


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SCM - STRATEGIC FIT

ACHIEVING FIT - UNDERSTANDING:

1. THE CUSTOMER/PRODUCT REQUIREMENTS – CQSF2

ALSO - IMPLIED DEMAND UNCERTAINTY

2. THE SUPPLY CHAIN -

RESPONSIVE VS. EFFICIENT

3. STRATEGIC FIT -

THE ZONE OF STRATEGIC FIT


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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 or because its processes and resources do not provide the capabilities to execute the desired strategy

  • Example of strategic fit -- Dell


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The Value Chain: Linking Supply Chain and Business Strategy

Business Strategy

New Product

Strategy

Marketing

Strategy

Supply Chain Strategy

New

Product

Development

Marketing

and

Sales

Operations

Distribution

Service

Finance, Accounting, Information Technology, Human Resources


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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


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Achieving Strategic Fit Uncertainty

  • Why is Implied Demand Uncertainty So Important?

  • Understanding the Customer, CQSF2

    • Lot size

    • Response time

    • Service level

    • Product variety

    • Price

    • Innovation

Implied

Demand

Uncertainty



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Levels of Implied Demand Uncertainty (Table 2.1)

Detergent

Long lead time steel

High Fashion

Emergency steel

Customer Need

Price

Responsiveness

Low

High

Implied Demand Uncertainty



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GOAL: Attributes (Table 2.2) LOWEST COST

PRODUCT:MAX. PERF. AT MIN COST

PRICING: LOWER PRICE AND MARGIN

MANU: HIGH EFFICIENCY

INVENT: MIN. INVENTORY

LEADTIME: REDUCE LEADTIME

SUPPLIERS: COST/QUALITY

TRANSPORTATION: COST

QUICK RESPONSE

ASSEMBE TO ORDER

HIGHER PRICE AND MARGINS

FLEX. CAPACITY

MAINTAIN BUFFER

REDUCE EVEN WITH HIGHER PRICE

SPEED, FLEX., QUALITY

QUICK& RESPONSIVIE

SUPPLY CHAINS EFFICIENT VS. RESPONSIVE


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Step 2: Understanding the Attributes (Table 2.2)Supply Chain

  • 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 efficiency

  • Figure 2.3: cost-responsiveness efficient frontier

  • Figure 2.4: supply chain responsiveness spectrum

  • Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum


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Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier (Fig. 2-3)

Responsiveness

BOSE RADIO DELL

High

WAL-MART BARILLA

Low

Cost

High

Low


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Responsiveness Spectrum Efficient Frontier (Fig. 2-3)(Figure 2.4)

Highly

efficient

Somewhat

efficient

Somewhat

responsive

Highly

responsive

Hanes

apparel

Most

automotive

production

Dell

Integrated

steel mill


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Step 3: Achieving Strategic Fit Efficient Frontier (Fig. 2-3)

  • All functions in the value chain must support the competitive strategy to achieve strategic fit – Fig. 2.7

  • Two extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell) – Table 2.3

  • Two key points

    • there is no right supply chain strategy independent of competitive strategy

    • there is a right supply chain strategy for a given competitive strategy


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Responsive supply chain Efficient Frontier (Fig. 2-3)

Responsiveness spectrum

Zone of Strategic Fit

Efficient supply chain

Certain demand

Implied uncertainty spectrum

Uncertain demand

Achieving Strategic Fit


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Responsive supply chain Efficient Frontier (Fig. 2-3)

Responsiveness spectrum

Zone of Strategic Fit

Efficient supply chain

Certain demand

Implied uncertainty spectrum

Uncertain demand

Achieving Strategic Fit with Same Firm with Various Products

PRODUCT LINE B CUSTOMER B

PRODUCT LINE A CUSTOMER A

PRODUCT LINE A - CUSTOMER B

PRODUCT LINE B CUSTOMER A


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Responsive supply chain Efficient Frontier (Fig. 2-3)

Responsiveness spectrum

Zone of Strategic Fit

Efficient supply chain

Certain demand

Implied uncertainty spectrum

Uncertain demand

Achieving Strategic Fit Product Life Cycle Progresses/Competition

INTRODUCTION

MATURING COMMODITY


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VERY LOCAL OPTIMAL BY OPERATION W/I Efficient Frontier (Fig. 2-3)

Strategic Scope

LOCAL OPTIMAL BY FUNCTION

Manufacturer

Distributor

Retailer

Customer

Suppliers

Competitive Strategy

Product Dev. Strategy

Supply Chain Strategy

Marketing Strategy

FUNCTIONALLY OPTIMAL


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Intracompany Efficient Frontier (Fig. 2-3)Interfunctional Scope

  • All functional strategies within a company are developed to support each other and the company’s competitive strategy

  • Strategic fit is expanded to include all functions in a firm

  • Goal is to maximize company profit

  • Figure 2.11


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Strategic Scope Efficient Frontier (Fig. 2-3)GLOBALLY OPTIMAL STRATEGY

Manufacturer

Distributor

Retailer

Customer

Suppliers

Competitive Strategy

Product Dev. Strategy

Supply Chain Strategy

Marketing Strategy


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Intercompany Efficient Frontier (Fig. 2-3)Interfunctional Scope

  • 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

  • Supply chain surplus

    • Difference between what the customer pays and total supply chain cost

    • Total profit to be shared among all members of the supply chain


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Intercompany Efficient Frontier (Fig. 2-3)Interfunctional Scope

  • Increasing supply chain surplus increases the amount to be shared

  • All stages coordinate strategy across all functions to ensure that they best meet the customer’s needs and maximize supply chain surplus

  • Also provides more speed by managing the interfaces between supply chain stages

  • Each company must evaluate its actions in the context of the entire supply chain

  • Figure 2.12


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