ACHIEVING STRATEGIC FIT

Competitive strategy

Set of customer priorities that company needs to satisfy through its products and services. Dells competitive strategy:
Build-to-order. Customization. Variety

at reasonable cost. One week waiting time for customers.

Gateway (Selling PCs through retailers)

Low

variety. Low customization. Same day delivery.

Relationship between Competitive & Supply Chain Strategies

Finance, Accounting, Information Technology, Human Resources

Specification Generate Transform s for the demand by inputs to product. publicizing outputs to the create the customers product. priorities. Customers input back to new product development .

Either takes the product to the customer or brings customers to the product.

Responds to customer requests during or after the sale

Supply Chain Strategy

Supply Chain Strategy: determines the nature of procurement of raw materials, transportation of materials to and from the company, manufacture of the product or operation to provide the service, and distribution of the products to the customer, along with any follow up service and specification of whether these processes will be performed in-house or outsourced.
Ciscos

decision to outsource manufacturing & assembling. Dells decision to sell direct. Gateways decision to start selling through retailers.

Supply Chain Strategy

Supply chain strategy also include:

Design

decisions regarding inventory, transportation, operating facilities and information flows

Functional strategies must complement each other:

Marketing

strategy. Product development strategy. Operations and distribution strategy.

Achieving Strategic Fit

For a company to be successful, its supply chain strategy and competitive strategy must fit together. Competitive & supply chain strategies must have aligned goals. The companys success is linked to:
Competitive

and all functional strategies must fit together. Each functional strategy must support other functional strategies. Processes and resources shall be structured to be able to execute these strategies. Design of overall supply chain and role of each stage must be aligned to support the supply chain strategy.

How Strategic Fit is Achieved

Supply chain capabilities must support its ability to satisfy the targeted customer segments. Three basic steps to achieve strategic fit:
Understanding

the customer and supply chain uncertainty. Understanding the supply chain capabilities. Achieving strategic fit.

Step 1: Understanding the Customer & Supply Chain Uncertainty

Customer demand from difference segments varies along several attributes:

The

quantity of product needed in each lot. The response time that customers are willing to tolerate. The variety of products needed. The service level required. The price of the product. The desired rate of innovation in the product.

Customers in a particular segment tend

Implied Demand Uncertainty

Implied demand uncertainty is the demand uncertainty due to the portion of demand that the supply chain is targeting, not the entire demand.
Demand

uncertainty reflects the uncertainty of customer demand for a product. Implied demand uncertainty, is the resulting uncertainty for only the portion of the demand that the supply chain plans to satisfy.

Implied Demand Uncertainty

Impact of Customer Needs on Implied Demand Uncertainty:

The

following customer needs cause implied demand uncertainty to Increase:

Range

of quantity required increases. Lead time decreases. Variety of products required increases. Number of channels through which product may be acquired increases. Rate of innovation increases. Required service level increases.

Implied Demand Uncertainty

Correlation between Implied Demand Uncertainty and Other Attributes
Low Implied Uncertainty Product Margin Average Forecast Error Average Stock-out Rate Average forced Season-end Markdown Low 10% 1% to 2% 0% High 40% to 100% 10% to 40% 10% to 25% High Implied Uncertainty

Supply Chain Uncertainty

Along with demand uncertainty, its important to consider uncertainty resulting from the capability of the Supply Chain. Supply uncertainty increases due to following reasons:
Frequent

breakdowns. Unpredictable and low yields. Poor quality. Limited supply capacity. Inflexible supply capacity. Evolving production process.

Implied Uncertainty (Demand & Supply)

Predictab le Supply and Demand Predictable Supply and Uncertain Demand or Uncertain Supply and Predictable Demand or somewhat Uncertain Supply and Demand An existing Automobi le Model Highly Uncertain Supply and Demand

Salt at a Super Market

A new Communica tion Device

Step 2: Understanding the Supply Chain Capabilities

How does the firm best meet demand in that uncertain environment. Characteristics of a Responsive Supply Chain:
Respond

to wide ranges of quantities demanded. Meet short lead times. Handle a large variety of products. Build highly innovative products. Meet a high service level. Handle supply uncertainty.

Supply Chain Capabilities

Responsiveness comes at a cost. Responsiveness and Efficiency are inversely proportional. Key strategic choice:
Level

of responsiveness a supply chain seeks to provide.

Supply Chain Capabilities

Responsivene ss High

Low High Cost Low

The Responsiveness Spectrum

Integrate d steel mills Make-toStock Manufactu rer Most Automoti ve Productio n Seven-Eleven Japan

Highly efficient

Somewhat Efficient

Somewhat Responsiv e

Highly Responsiv e

Step 3: Achieving Strategic Fit

Step 1: mapping the level of implied uncertainty. Step 2: Understanding the supply chain position on responsiveness spectrum. Step 3: Ensure that the degree of supply chain responsiveness is consistent with implied uncertainty.
High

responsiveness for a supply chain facing high implied uncertainty. Efficiency for a supply chain facing low implied uncertainty.

Zone of Strategic Fit

Responsive Supply Chain

Responsiven ess Spectrum

Fit ic eg t tra S of e on Z

Efficient Supply Chain Certain Demand Implied Uncertainty Uncertain Demand