WHAT IS THE RIGHT SUPPLY

CHAIN FOR YOUR PRODUCT?

POINTS FOR DISCUSSION
 Introduction
 Nature of product
 Devising ideal SC strategy
 Efficient supply of functional products
 Responsive supply of innovative products
 Conclusion

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INTRODUCTION
 Technology & brainpower has not improved SC
performance
 Framework to decide the best SC
 Consider nature of demand for product before
devising SC strategy
 Match type of product and type of SC

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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

 All functional strategies support the above

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COMPETITIVE AND SUPPLY
CHAIN STRATEGIES
 Competitive strategy
 Defines the set of customer needs a firm seeks to satisfy
through its products and services

 Supply chain strategy

 determines the nature of material procurement,
transportation of materials, manufacture of product or
creation of service, distribution of product

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NATURE OF PRODUCT
 Functional or innovative?
 Functional
 Stable, predictable demand
 Long life cycles
 Low profit margins
 Innovative
 Uncertain demand
 Short life cycles
 High profit margins
 Physically same products can be either functional or 6
innovative

CUSTOMER NEED
Range of quantity required
increases
Lead time decreases
Variety of products required
increases
Number of channels increases
Rate of innovation increases
Required service level increases
Causes demand uncertainty
to increase because …
Greater variance in demand
Less time to react to orders
Demand per product becomes
more disaggregated
Total customer demand is now
disaggregated over more
channels
New products tend to have more
uncertain demand
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Firm now has to handle unusual
surges in demand
SUPPLY UNCERTAINTY
Supply source incapability like

 Frequent breakdowns
 Unpredictable & low yields
 Poor quality
 Limited or inflexible supply capacity
 Evolving production process

causes supply uncertainty to increase

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IMPLIED UNCERTAINTY SPECTRUM

Highly
Predictable
uncertain
supply &
Mix supply &
demand
Demand

Salt at a Existing New

supermarket automobile communication
model device

Price Responsiveness
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Customer Need
SUPPLY CHAIN FUNCTIONS
 Physical function
 Conversion, storage &transportation between points
in SC
 Efficiency
 More important for functional products
 Market mediation function
 Matching supply with demand
 Responsiveness
 More important for innovative products
 Sport Obermeyer vs. Campbell Soup 10
SUPPLY CHAIN EFFICIENCY VS.
RESPONSIVENESS
 Supply chain responsiveness -- 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
 Handle supply uncertainty

 Supply chain efficiency

 cost of making and delivering the product to the
customer

 Increasing responsiveness results in higher costs

that lower efficiency 11
COST-RESPONSIVENESS EFFICIENT
FRONTIER

High Responsiveness

Low
Cost12
High Low
RESPONSIVENESS SPECTRUM

Highly Somewhat Somewhat Highly

efficient efficient responsive responsive

Integrated Ready-made Most Dell

steel mill garments automotive
production

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ACHIEVING STRATEGIC FIT
 Ensure that what the supply chain does well is
consistent with target customer’s needs

 All functions in the chain must support the

competitive strategy to achieve strategic fit

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 UNCERTAINTY/ RESPONSIVENESS MAP
Responsive
supply chain

Responsiveness
spectrum

Efficient
supply chain

Certain Implied Uncertain 15

demand uncertainty demand
spectrum
DEVISING IDEAL SC STRATEGY
 Understand type of product
 Functional or innovative

 Understand supply chain capabilities

 Efficient or responsive

 Correct any mismatch

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TYPE OF PRODUCTS
Functional Innovative
products products
Attribute (predictable (unpredictable
demand) demand)
PLC > 2 yrs 3 months to 1 yr

Contribution margin 5-20% 20-60%

Product variety Low (10-20) High (millions)

Avg. forecast error 10% 40%-100%

Avg. stock out rate 1%-2% 10%-40%

Avg. forced season-end 0% 10%-25%

markdown
6mth-1yr 1day-2wks 17
Lead time for make to
order product
 SUPPLY CHAIN CAPABILITIES
Efficient Responsive

Primary goal Lowest cost Quick response

Product design strategy Max performance & Min Modularity to allow
product cost postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time focus Reduce but not at Aggressively reduce even
expense of greater cost if costs are significant
Supplier selection Cost and low quality Speed, flexibility, quality
strategy 18
Transportation strategy Greater reliance on low Greater reliance on
cost modes responsive (fast) modes
MATCHING SUPPLY CHAIN WITH PRODUCT

Functional Innovative
Products Products
Efficient Match Mismatch

Supply
Chain
Responsive Mismatch Match

Supply
Chain 19
GETTING OUT OF UPPER RH CELL
 Efficient supply of innovative products
 Automobile industry

 Computer industry

 Move down
 Move left
 Toothpaste

 Functional cars

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EFFICIENT SUPPLY OF FUNCTIONAL
PRODUCTS

 Campbell soup
 Continuous replenishment program

 EDI links with retailers

 Showed negative impact of price promotions viz.

forward buying

 Everyday low price

 Improved service (in-stock availability)

 Improved efficiency (reduction of retailers inventory)

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EFFICIENT SUPPLY OF FUNCTIONAL
PRODUCTS

 Partners can interact to cut costs

 Get higher profits for the chain of price sensitive
products
 Cooperation & competition?
 Share cost information

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RESPONSIVE SUPPLY OF INNOVATIVE
PRODUCTS

 Accept, reduce, avoid and hedge against

uncertainty
 Mass customization at National Bicycles Japan

 Accurate response at Sport Obermeyer

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OTHER ISSUES AFFECTING STRATEGIC FIT
 Multiple products and customer segments
 How many supply chains?

 Product life cycle

 Technological changes
 As product goes through the life cycle, supply chain
changes from one emphasizing responsiveness to one
emphasizing efficiency

 Competitive changes over time

 Mass customization

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CONCLUSION
 There is no right supply chain strategy
independent of competitive strategy
 There is a right supply chain strategy for a given
competitive strategy

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