Supply Chain Performance: Achieving Strategic Fit and Scope

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

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

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

12. Understanding the customer • Lot size • Response time • Service level • Product variety • Price • Innovation Implied Demand Uncertainty 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 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 Crest toothpaste Gasoline New Ford Taurus Palm Pilot Supply Chain Management

15. Relationship between Demand Characteristics and Implied Demand Uncertainty (Fisher) Supply Chain Management

16. Achieving Strategic Fit • Understand the customer • Map where their demand is located on the implied uncertainty spectrum • Understand the supply chain • Achieving strategic fit 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 … 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 Supply Chain Management

19. Responsiveness Spectrum Highly efficient Somewhat efficient Somewhat Responsive Highly 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 Automobile production Dell PC Glass production M&S underwear Supply Chain Management

20. Achieving Strategic Fit • Understand the customer • Map where their demand is located on the implied uncertainty spectrum • Understand the supply chain • Map where the supply chain capability is located on the responsiveness spectrum • Achieving strategic fit Supply Chain Management

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

22. Efficient vs. Responsive Supply Chains Supply Chain Management

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

27. Strategic Scope 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 Supply Chain Management

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