Ch. 2: Achieving Strategic Fit in a Supply Chain
cost-responsiveness efficient frontier
a curve that shows the lowest possible cost for a given level of responsiveness
agile intercompany scope
a firm's ability to achieve strategic fit when partnering with supply chain stages that change over time
supply chain strategy
determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product
Strategic fit - competitive and supply chain strategies have aligned goals Different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully Supply chain - Design of chain and the roles at each stage must align to this strategy 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
explain how to achieve strategic fit
1. Understanding the customer and supply chain uncertainty 2. Understanding the supply chain capabilities
how is strategic fit achieved?
interfunctional scope
maximize company profit (Common inventories, work procedures, etc.) ◦ Functional strategies are developed to align with one another and the competitive strategy
intercompany scope
maximize supply chain surplus ◦ Supplier and customer work together and share information to reduce total cost and grow supply chain surplus
intraoperation scope
minimize local cost view - Each stage of the supply chain devises strategy independently
intrafunctional view
minimize total functional cost (Ex: Purchasing) ◦ Firms align all operations within a function
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
marketing and sales strategy
specifies how the market will be segmented and product positioned, priced, and promoted
product development strategy
specifies the portfolio of new products that the company will try to develop
scope of strategic fit
the functions within the firm and stages across the supply chain that devise an integrated strategy with an aligned objective
competitive strategy
the set of customer needs a firm seeks to satisfy through its products and services
demand uncertainty
uncertainty of customer demand for a product Cars: think about how many types of individual models your company should produce
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 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 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
what are some challenges in expanding strategic scope
o Capacity, combination of excess capacity and flexible capacity o Inventory, one of the most common levers used in practice to deal with uncertainty o Time, combination of speedy supply and the willingness of customers to wait o Information, appropriate information can help a supply chain reduce uncertainty o Price, prices of products and services that vary over time
what are the 5 basic supply chain levers of dealing with uncertainty?
1. Demand is very uncertain, and supply may be unpredictable 2. Margins are often high, and time is crucial to gaining sales 3. Product availability is crucial to capturing the market 4. Cost is often a secondary consideration
what are the beginning stages of a product life cycle?
1. Demand has become more certain, and supply is predictable 2. Margins are lower as a result of an increase in competitive pressure 3. Price becomes a significant factor in customer choice
what are the later stages of a product life cycle?
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
what is step one to achieving strategic fit?
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
what is step three to achieving strategic fit?
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 Responsiveness comes at a cost Supply chain efficiency is the inverse to the cost of making and delivering the product to the customer
what is step two to achieving strategic fit?
