Supply Chain Performance:

Achieving Strategic Fit

and Scope (2)

Source:
• Supply Chain Management, Strategy, Planning and Operation, Sunil Chopra, Pete
Meindl, 6th Edition, Copyright @ Pearson Education Limited 2016
• Operations Management, William J. Stevenson, 13th Edition,
Copyright © 2018 by McGraw-Hill Education
Source: http://utminers.utep.edu/solis/chopra_&_meindl_powerpoint_files.htm
 Learning Objectives
Supply Chain Performance: Achieving
Strategic Fit and Scope

 Explain why achieving strategic fit is critical to a

company’s overall success.
 Supply chain strategy and its competitive strategy
 Supply Chain Challenges
 Competitive and Supply
Chain Strategies
• Competitive strategy defines the set of customer needs a firm
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
• All functional strategies must support one another and the
competitive strategy
 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 processes and
resources do not provide the capabilities
to execute the desired strategy
 Achieving Strategic Fit
1. The competitive strategy and all functional
strategies must fit together to form a
coordinated overall strategy.
2. The different functions in a company must
appropriately structure their processes and
resources to be able to execute these
strategies successfully.
3. The design of the overall supply chain and the
role of each stage must be aligned to support
the supply chain strategy.
How is Strategic Fit Achieved?
1. Understanding the customer and
supply chain uncertainty
2. Understanding the supply chain
3. Achieving strategic fit
Step 1: Understanding the Customer and
Supply Chain Uncertainty

• 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
Step 1: Understanding the Customer and
Supply Chain Uncertainty

• Demand uncertainty – uncertainty of

customer demand for a product
• Implied demand uncertainty – resulting
uncertainty for the supply chain given
the portion of the demand the supply
chain must handle and attributes the
customer desires
 Customer Needs and 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 more
disaggregate
Number of channels through which Increase because the total customer demand is now
product may be acquired increases disaggregated over more channels
Rate of innovation increases Increase because new products tend to have more
uncertain demand
Required service level increases Increase because the firm now has to handle unusual
surges in demand
Levels of Implied Demand Uncertainty
 Step 2: Understanding Supply Chain
Capabilities
• 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 very high service level
 Step 2: Understanding Supply Chain
Capabilities
• 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
Cost-Responsiveness Efficient Frontier
Responsiveness Spectrum
 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
Zone of Strategic Fit
 Efficient and Responsive Supply Chains
Efficient Supply Chains Responsive Supply Chains

Primary goal Supply demand at the lowest cost Respond quickly to demand

Product design Maximize performance at a minimum Create modularity to allow

strategy product cost postponement of product differentiation

Lower margins because price is a prime Higher margins because price is not a
Pricing strategy
customer driver prime customer driver
Manufacturing Maintain capacity flexibility to buffer
Lower costs through high utilization
strategy against demand/supply uncertainty
Maintain buffer inventory to deal with
Inventory strategy Minimize inventory to lower cost
demand/supply uncertainty

Reduce aggressively, even if the costs

Lead-time strategy Reduce, but not at the expense of costs
are significant

Select based on speed, flexibility,

Supplier strategy Select based on cost and quality
reliability, and quality
 Supply Chain Challenges
Increasing product variety and shrinking life
cycles
Greater product variety and shorter life cycles increase
uncertainty while reducing the window of opportunity
within which the supply chain can achieve fit
Globalization and increasing uncertainty
Significant fluctuations in exchange rates, global
demand, and the price of crude oil
 Supply Chain Challenges
Fragmentation of supply chain ownership
Firms are less vertically integrated
Take advantage of supplier and customer competencies
they did not have
New ownership structure makes aligning and managing
the supply chain more difficult
Aligning all members of a supply chain has become
critical to achieving supply chain fit
 Supply Chain Challenges
Changing technology and business
environment
Customer needs and technology change may force a
firm to rethink their supply chain strategy
The environment and sustainability
Growing in relevance and must be accounted for when
designing supply chain strategy
Opportunities may require coordination across different
members of the supply chain
 Discussion Questions
Supply Chain Macro Processes in a Firm

Customer Relationship Management (CRM) – all processes at the

interface between the firm and its customers

Internal Supply Chain Management (ISCM) - all processes that are

internal to the firm

Supplier Relationship Management (SRM) – all processes at the

interface between the firm and its suppliers

Within a firm, all supply chain activities belong to one of three macro processes.
Integration among the three macro processes is crucial for successful supply chain
management.

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 2-21

 Discussion Questions - IDW
1. How would you characterize the competitive strategy of a high-
end department store chain such as Printemps? What are the
key customer needs that Printemps aims to fill?

2. A successful company needs to strike a balance between

responsiveness and efficiency. Discuss how companies
should prepare for globalization in terms of responsiveness.

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 2-22