Supply Chain Management: Strategy, Planning, and Operation

10/19/2021
Supply Chain Management: Strategy, Planning,

and Operation
Chapter 2
Achieving Strategic Fit and Scope
Competitive and Supply Chain Strategies

• Competitive strategy defines the set of customer needs a company
seeks to satisfy through its products and services
• Product development strategy specifies the portfolio of new
products that the company will try to develop
• 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, follow-up service, whether
processes will be in-house or outsourced
• All functional strategies must support one another and the
competitive strategy
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The Value Chain
Figure 2-1 The Value Chain in a Company
Achieving Strategic Fit
• Strategic fit – competitive and supply chain strategies

have aligned goals
• A company may fail because of a lack of strategic fit or
because its overall supply chain design, processes, and
resources do not provide the capabilities to support the
desired strategy
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How Is Strategic Fit Achieved?
1. Understanding the customer and supply chain

uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit
Step 1: Understanding the Customer and

Supply Chain Uncertainty (1 of 2)
• Quantity of product needed in each lot

• Response time customers are willing to tolerate
• Variety of products needed
• Service level required
• Price of the product
• Desired rate of innovation in the product
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Step 1: Understanding the Customer and

Supply Chain Uncertainty (2 of 2)
• Demand uncertainty – uncertainty of customer demand

for a product
• Implied demand uncertainty – resulting uncertainty for
only the portion of the demand that the supply chain
plans to satisfy based on the attributes the customer
desires
Customer Needs and Implied Demand

Uncertainty
Table 2-1 Impact of Customer Needs on Implied Demand

Uncertainty
Customer Need Causes Implied Demand Uncertainty to …
Range of quantity required increases Increase because a wider range of the quantity required
implies greater variance in demand
Lead time decreases Increase because there is less time in which to react to
orders
Variety of products required increases Increase because demand per product becomes less
predictable
Required service level increases Increase because the firm now has to handle unusual
surges in demand
Rate of innovation increases Increase because new products tend to have more
uncertain demand
Number of channels through which Increase because the total customer demand per channel
product may be acquired increases becomes less predictable
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Implied Uncertainty and Other

Attributes (1 of 2)
1. Products with uncertain demand are often less mature

and have less direct competition. As a result, margins
tend to be high.
2. Forecasting is more accurate when demand has less
uncertainty.
3. Increased implied demand uncertainty leads to
increased difficulty in matching supply with demand. For
a given product, this dynamic can lead to either a
stockout or an oversupply situation.
4. Markdowns are high for products with greater implied
demand uncertainty because oversupply often results.
Implied Uncertainty and Other

Attributes (2 of 2)
Table 2-2 Correlation Between Implied Demand

Uncertainty and Other Attributes
Blank Low Implied High Implied

Uncertainty Uncertainty
Product margin Low High
Average forecast error 10% 40% to 100%
Average stockout rate 1% to 2% 10% to 40%
Average forced season-end markdown 0% 10% to 25%
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Impact of Supply Source Capability
Table 2-3 Impact of Supply Source Capability on Supply

Uncertainty
Supply Source Capability Causes Supply Uncertainty to...
Frequent breakdowns Increase

Unpredictable and low yields Increase
Poor quality Increase
Limited supply capacity Increase
Inflexible supply capacity Increase
Evolving production process Increase
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Implied Uncertainty (Demand and Supply)

Spectrum
Figure 2-2 The Implied Uncertainty (Demand and Supply) Spectrum
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Step 2: Understanding Supply Chain

Capabilities (1 of 2)
• How does the firm best meet demand?

• Supply chain responsiveness is the ability to
– Respond to wide ranges of quantities demanded
– Meet short lead times
– Handle a large variety of products
– Build highly innovative products
– Meet a high service level
– Handle supply uncertainty
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Step 2: Understanding Supply Chain

Capabilities (2 of 2)
• Responsiveness comes at a cost

• Supply chain efficiency is the inverse to the cost of
making and delivering the product to the customer
• The cost-responsiveness efficient frontier curve
shows the lowest possible cost for a given level of
responsiveness
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Cost-Responsiveness Efficient Frontier
Figure 2-3 Cost-Responsiveness Efficient Frontier
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Responsiveness Spectrum
Figure 2-4 The Responsiveness Spectrum
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Step 3: Achieving Strategic Fit
• Ensure that the degree of supply chain responsiveness is

consistent with the implied uncertainty
• Assign roles to different stages of the supply chain that
ensure the appropriate level of responsiveness
• Ensure that all functions maintain consistent strategies
that support the competitive strategy
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Zone of Strategic Fit
Figure 2-5 Finding the Zone of Strategic Fit
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Roles and Allocations
Figure 2-6 Different Roles and Allocations of Implied Uncertainty for a

Given Level of Supply Chain Responsiveness
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Tailoring the Supply Chain
• Achieve strategic fit while serving many customer

segments with a variety of products across multiple
channels
• Requires sharing operations for some links in the supply
chain, while having separate operations for other links
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Supply Chain Levers
• Five basic levers to deal with uncertainty

– Capacity, combination of excess capacity and flexible
capacity
– Inventory, one of the most common levers used in
practice to deal with uncertainty
– Time, combination of speedy supply and the
willingness of customers to wait
– Information, appropriate information can help a supply
chain reduce uncertainty
– Price, prices of products and services that vary over
time
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Supply Chain Uncertainty
Figure 2-7 Five Key Levers to Deal with Supply Chain Uncertainty
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Case Study: The Demise of Blockbuster
1. In what ways did Blockbuster achieve better

strategic fit than local stores?
2. How much implied uncertainty do Netflix and
Redbox face? What levers do they use to deal with
this uncertainty?
3. How did Netflix and Redbox achieve better strategic
fit than Blockbuster?
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10/19/2021

Supply Chain Management: Strategy, Planning,

Achieving Strategic Fit and Scope

Competitive and Supply Chain Strategies

The Value Chain

Figure 2-1 The Value Chain in a Company

Achieving Strategic Fit

• Strategic fit – competitive and supply chain strategies

How Is Strategic Fit Achieved?

1. Understanding the customer and supply chain

Step 1: Understanding the Customer and

• Quantity of product needed in each lot

Step 1: Understanding the Customer and

• Demand uncertainty – uncertainty of customer demand

Customer Needs and Implied Demand

Table 2-1 Impact of Customer Needs on Implied Demand

Implied Uncertainty and Other

1. Products with uncertain demand are often less mature

Implied Uncertainty and Other

Table 2-2 Correlation Between Implied Demand

Blank Low Implied High Implied

Impact of Supply Source Capability

Table 2-3 Impact of Supply Source Capability on Supply

Supply Source Capability Causes Supply Uncertainty to...

Frequent breakdowns Increase

Implied Uncertainty (Demand and Supply)

Figure 2-2 The Implied Uncertainty (Demand and Supply) Spectrum

Step 2: Understanding Supply Chain

• How does the firm best meet demand?

Step 2: Understanding Supply Chain

• Responsiveness comes at a cost

Cost-Responsiveness Efficient Frontier

Figure 2-3 Cost-Responsiveness Efficient Frontier

Figure 2-4 The Responsiveness Spectrum

Step 3: Achieving Strategic Fit

• Ensure that the degree of supply chain responsiveness is

Zone of Strategic Fit

Figure 2-5 Finding the Zone of Strategic Fit

Roles and Allocations

Figure 2-6 Different Roles and Allocations of Implied Uncertainty for a

Tailoring the Supply Chain

• Achieve strategic fit while serving many customer

Supply Chain Levers

• Five basic levers to deal with uncertainty

Supply Chain Uncertainty

Case Study: The Demise of Blockbuster

1. In what ways did Blockbuster achieve better

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