Achieving 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

© 2004 Prentice-Hall, Inc. 2-1

 Step 1: Understanding the Customer
and Supply Chain Uncertainty
 Identify the needs of the customer segment being
served by the following attributes:
– 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

© 2004 Prentice-Hall, Inc. 2-2

1. Understanding the Customer and
Supply Chain Uncertainty
• Understanding customer (demand) uncertainty
– Demand varies along certain attributes
• Quantity in each lot, response time, variety of products
needed, service, price, innovation, etc
– Implied demand uncertainty
• Demand uncertainty due to the portion of demand that the supply chain
is targeting, not the entire demand

Customer need Causes implied demand uncertainty to…

Range of quantity increases Increase
Response time decreases Increase
Variety of products increases Increase
Number of channels through which Increase
product may be aquired increases
Rate of innovation increases Increase
Required service level increases Increase
1. Understanding the Customer and
Supply Chain Uncertainty
• Understanding supply uncertainty
– Supply uncertainty is strongly affected by the life-cycle position of
the product. New products being introduced have higher supply
uncertainty than mature products

Supply source capability Causes supply uncertainty to…

Frequent breakdowns Increase
Unpredictable and low yields Increase
Poor quality Increase
Limited suppy capacity Increase
Infexible supply capacity Increase
Evolving production process Increase
2. Understanding the Supply Chain
Capabilities
• Supply chain capabilities
– Supply chain responsiveness
• Respond to wide ranges of quantity demanded, meet short
lead times, large variety, innovative products, high service
level, etc
– Supply chain efficiency (low cost)

Highly Somewhat Somewhat Highly

efficient efficient responsive responsive

Integrated steel Hanes apparel Most automotive Seven-Eleven

mills production Japan
Achieving Strategic Fit
• Strategic fit
– Given a competitive strategy, what should a company’s supply chain
do particularly well?
• Wal-Mart
– Everyday low prices (low cost retailer for a wide variety of products)
– Buys from low cost producers, owns its infrastructure and
distribution network
• Coors
– The coldest tasting beer in the world, brewed with Rocky Mountain
spring water
– Refrigerated transport, main facility near Rocky Mountains
• Dell
– Custom-made computer systems at a reasonable cost
– Online ordering, no middle-man
Achieving Strategic Fit

What is the right supply chain for

your product?
Responsive
supply chain

Cost-effective
supply chain
Implied demand
uncertainty
Low High
(functional products) (innovative products)
 The Value Chain: Linking Supply
Chain and Business Strategy
Competitive Strategy

New Product Marketing

Strategy Strategy
Supply Chain Strategy

New Marketing
Product and Operations Distribution Service
Development Sales

Finance, Accounting, Information Technology, Human Resources

© 2004 Prentice-Hall, Inc. 2-8