Supply Chain Performance

Outline
 Competitive and supply chain strategies
 Achieving strategic fit
 A framework for structuring drivers
 Supply chain drivers
What is the right supply chain
for your product(s)?

Competitive and Supply

Chain Strategies

Competitive strategy: defines the set of

customer needs a firm seeks to satisfy
through its products and services
 The Value Chain: Linking Supply Chain
and Business Strategy
Business Strategy

New Product Marketing

Strategy Strategy
Supply Chain Strategy

New Marketing
Product and Operations Distribution Service
Development Sales

Finance, Accounting, Information Technology, Human Resources

Competitive Strategy
 Wal Mart
 High availability of a variety of reasonable
quality products at low prices
 Dell
 Customization and variety at a reasonable
cost with customer having to wait
approximately 1 week to get their product
 Seven Eleven
 Provide convenience and sufficient variety of
product for customers who are in a hurry
 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

Achieving Strategic Fit

 Steps
 Understanding the customer
 Understanding the supply chain
 Matching customers’ attributes with supply
chain’s capability

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 Understanding the customer
7 Eleven Japan and NTUC Warehouse Club

 7 Eleven  NTUC Warehouse

 Convenience Club
 Nearby & sufficient  Low price
variety  Less variety
 Customers are in a  Purchase large
hurry package sizes
 Willing to spent time
getting there

Published: 12:38 PM, December 8,

2014
SINGAPORE — A first membership-
only retail warehouse in Singapore
that encourages bulk purchases for
groceries and household
consumables was launched by
NTUC FairPrice (FairPrice) this
morning (Dec 8).
Located a stone’s throw away from
Joo Koon MRT Station, Warehouse
Club (WHC) is situated at the second
NTUC FairPrice and third level of FairPrice Hub at 1,
Joo Koon Circle.
launches The 80,000 square feet mega retail
Warehouse Club store carries a product range of
4,000 exclusive items that are
specially packed in bulk for the WHC.
10
 Understanding the customer

Attributes or Priorities
 Price
 Response time Implied
 Service level Demand
 Lot size Uncertainty
 Product variety
 Innovation

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
 Prob Density Funct
Demand uncertainty

#demands to handle in a particular day

Competitive Strategy

Lot size of varying sizes Uniform Lot sizes

Quick response time Long response time
Very high service level Moderate service level
High variety of product Low variety of product

Implied Demand Uncertainty 13

The Implied Uncertainty Spectrum

Low implied Somewhat Somewhat High implied

demand certain uncertain demand
uncertainty demand demand uncertainty

Purely Established New models Entirely new

functional goods: crest of existing products: the
products: toothpaste goods: new introduction of
gasoline Ford Taurus the smartphones
Correlation Between Implied Demand Uncertainty
and Other Attributes

Attribute Low Implied High Implied

Uncertainty Uncertainty
Product margin Low High

Avg. forecast 10% 40%-100%

error
Avg. stockout rate 1%-2% 10%-40%

Avg. forced 0% 10%-25%

season-end
markdown

Supply Chain Performance

 Responsiveness
 Critical Spare Parts (Aircraft spare parts,
medical equipment parts, server parts)
 Innovative electronic product

 Efficiency
 Major grocery store eg NTUC
 Comparison of Efficient and Responsive
Supply Chains
Efficient
Primary goal Lowest cost
Product design strategy Min product cost
Pricing strategy Lower margins
Mfg strategy High utilization
Inventory strategy Minimize inventory
Lead time strategy Reduce but not at expense
of greater cost
Supplier selection strategy Cost and low quality
Transportation strategy Greater reliance on low cost
modes
Responsive
Quick response
Modularity to allow
postponement
Higher margins
Capacity flexibility
Buffer inventory
Aggressively reduce even if
costs are significant
Speed, flexibility, quality
Greater reliance on
responsive (fast) modes

Cost-Responsiveness Efficient Frontier

Showing the lowest possible cost for a given level of
responsiveness
Responsiveness

High

Supply Chain B

Supply Chain A

Low
Cost
High Low
 Cost-Responsiveness Efficient Frontier
Responsiveness

High
Future Frontier

Current Frontier
Supply chain A

Low
Cost
High Low

Achieving Strategic Fit

Responsive
supply chain

Responsivenes
s spectrum

Efficient
supply chain

Certain Implied Uncertain

demand uncertainty demand
spectrum
 Product life cycle
 Product demand characteristics and needs of a customer
segment change as product goes through its life cycle
 Supply chain strategy must evolve with the life cycle
 Early: uncertain demand, high margins, product availability is
most important, cost is secondary
 Late: predictable demand, lower margins, price is important
 As product matures, corresponding supply chain strategy
should, in general, move from responsiveness to being
efficiency

22
 Case Discussion
 Dell whose business is in consumer e-
business is now selling its computers
through retailers like WalMart in US, Gome
Electrical Appliance Holdings in China,
Carrefour in Europe, Bic Camera in Japan,
and the Croma chain of electronics stores in
India’s Tata group. Based from the lecture
on competitive and supply chain strategies,
why do you think Dell is selling its
computers through retailers?
23

Supply Chain Drivers

 Six major drivers – inventory,
transportation, facilities, information,
sourcing and pricing:
 determine the supply chain’s performance in
terms of responsiveness and efficiency
 determine whether strategic fit is achieved
within the supply chain
 A Framework for
Structuring Drivers

Facilities
 Role in the supply chain
 the “where” of the supply chain

 manufacturing or storage (warehouses)

 Role in the competitive strategy

 economies of scale (efficiency priority)

 larger number of smaller facilities (responsiveness priority)

Where inventory needs to be for a 5 day order response
time - typical results --> 2 DCs

Customer
DC

Where inventory needs to be for a same day / next day

order response time - typical results --> 26 DCs

Customer
DC
 Inventory: Role in the Supply
Chain
 Role in the supply chain
 Mismatch between supply and demand

 Source of cost and influence on responsiveness

 Role in the competitive strategy

 If responsiveness is a strategic competitive priority, a
firm can locate larger amounts of inventory closer to
customers
 If cost is more important, inventory can be reduced to
make the firm more efficient

Nordstrom is one of the nation’s

leading fashion retailers, offering a
wide variety of fine quality apparel,
shoes and accessories for men,
women and children at stores
across the country. We remain
committed to the simple idea our
company was founded on, earning
the trust of our customers, one at
a time
 Transportation: Role in
the Supply Chain
 Role in the supply chain
 Moves the product between stages in the supply chain

 Role in the competitive strategy

 If responsiveness is a strategic competitive priority, then
faster transportation modes can provide greater
responsiveness to customers who are willing to pay for it

32
 Next Day Delivery
City 1 City 5

City 2 City 6

City 3 City 7

City 4 City 8

33

Hub and Spoke

Systems

Seattle Detroit

San
New York
Francisco
Boston
Los Angeles

San Diego Memphis

Atlanta

Phoenix Orlando

Miami
Dallas
 Hub and Spoke Systems
Seattle
Detroit
San Francisco New York

Boston
Los Angeles

San Diego Memphis

Atlanta

Phoenix Orlando

Miami
Dallas

Information: Role in
the Supply Chain
 Role in the supply chain
 The connection between the various stages in the supply
chain – allows coordination between stages
 Crucial to daily operation of each stage in a supply chain –
e.g., production scheduling, inventory levels
 Role in the competitive strategy
 Supply chain to become more efficient and more
responsive at the same time reduces the need for a trade-
off
 Warehouse Visibility

Sourcing
 Role in the supply chain
 Sourcing decisions are crucial because they affect the level
of efficiency and responsiveness in a supply chain
 Role in the competitive strategy
 Sourcing decisions are crucial because they affect the level
of efficiency and responsiveness in a supply chain
 In-house vs. outsource decisions- improving efficiency and
responsiveness
 Pricing
 Role in the supply chain
 Pricing determines the amount to charge customers in a
supply chain
 Pricing strategies can be used to match demand and
supply
 Role in the competitive strategy
 Firms can utilize optimal pricing strategies to improve
efficiency and responsiveness
 Low price and low product availability; vary prices by
response times

Supply Chain Drivers

 Wal Mart – mass merchandizing store

 Dell
 Less Than Container Load
(LCL)

Supplier 1
Walmart 1

Supplier 2
Walmart 2

Supplier 3

Walmart 3

Supplier 4 Within a same region

Walmart 1
Walmart 2 -- Consolidation
Walmart 3

Supplier 1
Suppliers 1,2,3 & 4
consolidation Walmart 1

Supplier 2
DC
Walmart 2
Cross-Dock

Supplier 3 Breakbulk, Sort

and Consolidation
Walmart 3

Supplier 4 Within a same region

Supplier 1
Walmart 1

Long Haul
Supplier 2
DC DC Walmart 2
Cross-Dock Cross-Dock

Supplier 3
Walmart 3

Supplier 4
Within a same region Within a same region

High availability of a variety of reasonable quality

products at low prices
Supplier 1

Supplier 2 DC Long Haul Store 1

Cross-Dock FCL

Store 2
Supplier 3 DC
Cross-Dock
Store 3
Supplier 4

DC
Cross-Dock Store 5
DC
Cross-Dock
DC Store 6
Cross-Dock
Store 4
 Push/Pull View of
Supply Chain Processes
 Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
 Pull

 Push

 Push/pull boundary separates push

processes from pull processes

Push/Pull View of
Supply Chain Processes
 Useful in considering strategic decisions relating to
supply chain design – more global view of how
supply chain processes relate to customer orders
 Example
 NTUC

 Dell

 The relative proportion of push and pull processes

can have an impact on supply chain performance
 NTUC Supply Chain

Pull Process Customer Order Cycle NTUC

Customer order
arrives
Replenishment Cycle Supplier/
and Manufacturing Cycle Manufacturer
Push Process

Procurement Cycle Supplier

Dell

Customer

Pull Process Customer Order and

and Manufacturing Cycle
Customer order Manufacturing
arrives (Dell)
Procurement Cycle
Push Process
Supplier
Customization and variety at a reasonable cost
with customer having to wait approximately 1
week to get their product

Direct Shipment
Master Board

Dell Assembly Website

Hard disk Customer wants
Plant or Phone To buy computer

Customer’s Order
SRAM

Push Process Pull Process Direct sales to customers: Dell

FRIDAY , OCTOBER 23, 2015 THE STRAITS TIMES

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TUESDAY , NOVEMBER 10, 2015 THE STRAITS TIMES

51

Latest move to
boost productivity

52
 Glimpse of the Future

53

Summary
 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 are the major drivers of supply chain
performance?
 What is the role of each driver in creating strategic fit
between supply chain strategy and competitive
strategy (or between implied demand uncertainty and
supply chain responsiveness)?