Summary of Learning Objectives

1. Summary of Learning Objectives • 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 is the importance of expanding the scope of strategic fit across the supply chain?

2. CHAPTER 2SCM - STRATEGIC FIT CUSTOMERS DEMAND PRODUCTS WITH DIFFERENT CHARACTERISTICS – Cost Customization Quantity Quality Speed Service Flexibility Features (C, Q, S, F)2 These requirements can vary dramatically for customers and products. Consider some examples.

3. Competitive & Supply Chain Strategies • Competitive strategy: defines the target market/customer needs. • Product Development strategy: portfolio of new products to achieve competitive strategy. • Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted • Supply chain strategy: • determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product • Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important

4. SCM - STRATEGIC FIT ACHIEVING FIT - UNDERSTANDING: 1. THE CUSTOMER/PRODUCT REQUIREMENTS – CQSF2 ALSO - IMPLIED DEMAND UNCERTAINTY 2. THE SUPPLY CHAIN - RESPONSIVE VS. EFFICIENT 3. STRATEGIC FIT - THE ZONE OF STRATEGIC FIT

5. 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 • A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy • Example of strategic fit -- Dell

6. The Value Chain: Linking Supply Chain and Business Strategy Business Strategy New Product Strategy Marketing Strategy Supply Chain Strategy New Product Development Marketing and Sales Operations Distribution Service Finance, Accounting, Information Technology, Human Resources

7. Step 1: Understanding the Customer and Supply Chain Uncertainty • Identify the needs of the customer segment being served • 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

8. Achieving Strategic Fit • Why is Implied Demand Uncertainty So Important? • Understanding the Customer, CQSF2 • Lot size • Response time • Service level • Product variety • Price • Innovation Implied Demand Uncertainty

9. Impact of Customer Needs on Implied Demand Uncertainty (Table 2.1)

10. Levels of Implied Demand Uncertainty Detergent Long lead time steel High Fashion Emergency steel Customer Need Price Responsiveness Low High Implied Demand Uncertainty

11. Correlation Between Implied Demand Uncertainty and Other Attributes (Table 2.2)

12. GOAL: LOWEST COST PRODUCT:MAX. PERF. AT MIN COST PRICING: LOWER PRICE AND MARGIN MANU: HIGH EFFICIENCY INVENT: MIN. INVENTORY LEADTIME: REDUCE LEADTIME SUPPLIERS: COST/QUALITY TRANSPORTATION: COST QUICK RESPONSE ASSEMBE TO ORDER HIGHER PRICE AND MARGINS FLEX. CAPACITY MAINTAIN BUFFER REDUCE EVEN WITH HIGHER PRICE SPEED, FLEX., QUALITY QUICK& RESPONSIVIE SUPPLY CHAINS EFFICIENT VS. RESPONSIVE

13. Step 2: Understanding the Supply Chain • There is a cost to achieving responsiveness • Supply chain efficiency: cost of making and delivering the product to the customer • Increasing responsiveness results in higher costs that lower efficiency • Figure 2.3: cost-responsiveness efficient frontier • Figure 2.4: supply chain responsiveness spectrum • Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum

14. Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier (Fig. 2-3) Responsiveness BOSE RADIO DELL High WAL-MART BARILLA Low Cost High Low

15. Responsiveness Spectrum (Figure 2.4) Highly efficient Somewhat efficient Somewhat responsive Highly responsive Hanes apparel Most automotive production Dell Integrated steel mill

16. Step 3: Achieving Strategic Fit • All functions in the value chain must support the competitive strategy to achieve strategic fit – Fig. 2.7 • Two extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell) – Table 2.3 • Two key points • there is no right supply chain strategy independent of competitive strategy • there is a right supply chain strategy for a given competitive strategy

17. Responsive supply chain Responsiveness spectrum Zone of Strategic Fit Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand Achieving Strategic Fit

18. Responsive supply chain Responsiveness spectrum Zone of Strategic Fit Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand Achieving Strategic Fit with Same Firm with Various Products PRODUCT LINE B CUSTOMER B PRODUCT LINE A CUSTOMER A PRODUCT LINE A - CUSTOMER B PRODUCT LINE B CUSTOMER A

19. Responsive supply chain Responsiveness spectrum Zone of Strategic Fit Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand Achieving Strategic Fit Product Life Cycle Progresses/Competition INTRODUCTION MATURING COMMODITY

20. VERY LOCAL OPTIMAL BY OPERATION W/I Strategic Scope LOCAL OPTIMAL BY FUNCTION Manufacturer Distributor Retailer Customer Suppliers Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy FUNCTIONALLY OPTIMAL

21. Intracompany Interfunctional Scope • All functional strategies within a company are developed to support each other and the company’s competitive strategy • Strategic fit is expanded to include all functions in a firm • Goal is to maximize company profit • Figure 2.11

22. Strategic ScopeGLOBALLY OPTIMAL STRATEGY Manufacturer Distributor Retailer Customer Suppliers Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy

23. Intercompany Interfunctional Scope • The only positive cash flow for the supply chain occurs when the customer pays for the product – all other cash flows are resettling of accounts within the chain and add to total supply chain cost • Supply chain surplus • Difference between what the customer pays and total supply chain cost • Total profit to be shared among all members of the supply chain

24. Intercompany Interfunctional Scope • Increasing supply chain surplus increases the amount to be shared • All stages coordinate strategy across all functions to ensure that they best meet the customer’s needs and maximize supply chain surplus • Also provides more speed by managing the interfaces between supply chain stages • Each company must evaluate its actions in the context of the entire supply chain • Figure 2.12