Corporate Strategy

and its Connection to

Supply Chain Management

Sharfuddin Lisan
BBA,BA(Hons)English, DSC,DHRM,MA, MHRM(DU),
PGDSCM, MBA(SCM)-Canada
,lisanbd@ymail.com, info@bihrm.org
01731822888

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Fit Between Corporate and Functional
Strategies (Chopra & Meindl)

Corporate Competitive Strategy

Product Supply Chain Marketing

Development or Operations and Sales
Strategy Strategy Strategy

Information Technology Strategy

Finance Strategy

Human Resources Strategy

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Corporate Mission
 The mission of the organization
 defines its purpose, i.e., what it contributes to society
 states the rationale for its existence
 provides boundaries and focus
 defines the concept(s) around which the company can rally

 Functional areas and business processes define their missions such

that they support the overall corporate mission in a cooperative
and synergistic manner.

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Corporate Mission Examples

 Merck:The mission of Merck is to provide society with superior products and

services-innovations and solutions that improve the quality of life and satisfy
customer needs-to provide employees with meaningful work and advancement
opportunities and investors with a superior rate of return.
 FedEx: FedEx is committed to our People-Service-Profit philosophy. We will
produce outstanding financial returns by providing totally reliable,
competitively superior, global air-ground transportation of high-priority goods
and documents that require rapid, time-certain delivery. Equally important,
positive control of each package will be maintained utilizing real time electronic
tracking and tracing systems. A complete record of each shipment and delivery
will be presented with our request for payment. We will be helpful, courteous,
and professional for each other, and the public. We will strive to have a
completely satisfied customer at the end of each transaction.

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Defining the Corporate Strategy
Responsiveness (Reliability; Quickness; Flexibility;
e.g., Dell, Overnight Delivery Services)

Competitive Advantage through which

the company market share is attracted

Cost Leadership (Price;

e.g., Wal-Mart, Southwest
Airlines, Generic Drugs)

Differentiation (Quality; Uniqueness;

e.g., Luxury cars, Fashion Industry,
Brand Name Drugs)

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Defining the Corporate Strategy
 Corporate Strategy:The organization’s positioning in terms of
 responsiveness,
 cost leadership and
 product differentiation
requirements, i.e., the sought competitive advantage(s).

 The corporate strategy dictates the detailed strategies for each functional area
(i.e., Operations, Finance, Marketing) but it is also affected by those areas.

 Collectively, all these strategies seek to exploit (external) opportunities and

(internal) strengths, neutralize (external) threats, and address (internal)
weaknesses

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Factors affecting Corporate Strategy
 External
 Emerging strengths and weaknesses of competitors => new threats and
opportunities, respectively
 New industry entrants
 Development of substitute products
 Development of new technologies
 Legal developments (e.g., environmental concerns and regulations)
 Economic and political developments (e.g., new international agreements,
political crises)

 Internal
 Company politics and restructuring
 Modified relationships with customers and suppliers
 Product Life Cycle

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Strategy and Issues during a Product’s Life
(J. Heizer & B. Render, “Operations Management”, Prentice Hall)

Introduction Growth Maturity Decline

• Best period to •Practical to •Poor time to change •Cost control
increase market change price or image, price or critical
share quality
quality image
•R&D engineering •Strengthen •Competitive costs
critical niche become critical
•Defend market Sales
position

Time
• Frequent product •Forecasting •Standardization - •Little product
and process critical minor product differentiation
changes •Products and changes •Overcapacity in
•Short production process reliability •Optimum capacity the industry
runs •Increase capacity •Process stability •Reduce capacity
•High production •Shift towards •Long production and eventually
costs product focus runs prune line to
•Limited models •Enhance eliminate items not
•Attention to distribution returning good
quality margin

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 The “zone of strategic fit”
(adapted from Chopra & Meindl)
Responsive
Supply Chain

Responsiveness
Spectrum

Efficient
Supply Chain
Certain Implied Uncertain
Demand Uncertainty Demand
Spectrum

Implied Demand Uncertainty: The uncertainty that exists due to the portion of
Demand that the supply chain is required to meet.

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The operations frontier, trade-offs,
and the operational effectiveness
Responsiveness

Cost Leadership

Differentiation

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PC SUPPLY CHAINS

Customer Customer
PULL

Virtual Integration
Distribution
Channels
PULL
Dell
PUSH
Manufacturer

PUSH
Suppliers
Suppliers

Typical PC Supply Chain Dell Supply Chain

(Compaq, HP, IBM, etc.)

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The CSF’s underlying Dell’s
competitive advantage

 Very high product (configurable) variety – mass customization!

 Direct fulfillment - no intermediaries
 No production launch until customer order booked (pure pull!)
 Very low finished goods inventory (costs) – high inventory turns
(raw material inventory influenced by “recommended
configurations”)
 High velocity material flows & fulfillment

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Emerging factors and trends enabling Dell’s
strategy
 The commoditization of the PC industry
 Standardized and interchangeable components
 Emergence of reliable manufacturing service providers
 Recent advances in Supply Chain Management
 Information Technology (IT) platforms that allow the effective and efficient
information exchange and coordination across the entire supply chain
 3rd party logistics service providers
 Emerging emphasis on virtual rather than vertical company integration

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 The primary “drivers” for achieving
strategic fit in Supply Chain Strategy
(adapted from Chopra & Meindl)

Corporate Strategy

Supply Chain Strategy

Efficiency Responsiveness

Market
Facilities Inventory Transportation Information
Segmentation

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 The role of Facilities
 Facilities:The locations where inventory is
 processed and transformed into another state (manufacturing) or
 staged before being shipped to the next stage (warehousing)
 In general, centralization boosts efficiency, while decentralization boosts responsiveness (but
not always…)
 Primary decisions:
 Location
 Proximity to the customer
 Proximity to resources
 Access to markets (ability to circumvent quotas and tariffs)
 Infrastructure
 Operational costs and tax incentives
 Capacity
 Capital cost vs. responsiveness
 Operations Methodology for Manufacturing Facilities
 Product vs. functional focus
 Flexible vs. dedicated capacity
 Warehousing methodology
 SKU-based storage
 Job lot storage
 Cross-docking

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 The role of Inventory
 Primary inventory components:
 Raw Material
 Work In Process (WIP)
 Finished Goods
 It exists because of the finiteness of the production and transportation rates (Little’s
Law: I=TH*T)
 Types of Inventory
 Cycle Inventory: It is incurred in an effort to control the impact of “fixed” ordering and set-up
costs.
 Safety Inventory: It is used to deal with the randomness in the experienced demand; it is set
so that it meets the supply chain to meet some “service level” (i.e., control the probability that
no stock-out will be experienced at any replenishment cycle).
 Seasonal Inventory: It is used to help the supply chain deal with predictable variability in
demand.
 Opportunistic Inventory: Takes advantage of “bargains”.
 Sourcing: Determine the set of suppliers / subcontractors to be used, and develop the
contracts that will govern the relationship.

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 The role of Transportation
 Transportation:The SC element that moves product between its different stages.
 Primary decisions:
 Mode(s) of Transportation
 Air: fastest but most expensive
 Truck: Relatively quick, inexpensive and very flexible mode
 Rail: Inexpensive mode to be used for large quantities
 Ship: Slowest but often the most economical choice for large overseas shipments
 Pipeline: Used (primarily) for oil and gas
 Electronic transportation: for goods as music and movies
 Route and Network Selection
 Inhouse or Oursource to some 3PL provider

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 The role of Information
 Information exchange is necessary for the most extensive modes of coordination sought
in contemporary supply chains. It allows the supply chain to improve simultaneously its
efficiency and responsiveness.
 Information-related decisions
 Push vs. pull
 Extent and modes of information sharing and coordination
 Forecasting and Aggregate Planning schemes
 Pricing and revenue management policies
 Enabling Technologies:
 Electronic Data Interchange (EDI): Enables paperless transactions, primarily for “backend” operations of
the SC.
 The Internet and the WWW.
 Enterprise Resource Planning (ERP): enables transactional tracking and global visibility of information
in the SC.
 Supply Chain Management (SCM) software: decision support tools.

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Current Trends and Challenges in the SCM
 Increasing variety of products
 Decreasing product life cycles
 Increasingly demanding customers
 Fragmentation of Supply Chain Ownership: vertical vs. virtual
integration
 Globalization and Market Segmentation
 “Closed Loop” SC

Production Distribution Consumption Retrieval

Disassembly/ Reverse Logistics and

Disposal
Reprocessing Re-manufacturing network

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