Why do we need a

Supply Chain Strategy?

Dr Ben Skipper
Supply Chain 460
Global Supply Chain Strategy
Topic 1: SCM as a core competence
Topic 2: Matching SC Strategy to Product Demand
Reading 1: What Everyone Needs

• Non-supply chain managers need to understand SCM

because they directly influence its success or failure
• There are conflicting views of what SCM is…
• Supply initiatives are directly tied to organizational
objectives and success
• Supply chain understanding must cross functions, since
SC processes cross functions
• Having a true “Supply Chain Orientation” can be a core
competency of a company and help reach objectives
Reading 1: What Everyone Needs

• Broad objectives of Supply Chain Mgt

• Risk Management
• Risk areas include Quality, Design, cost, availability,
manufacturability, supply, financial, legal, environmental, safety
• Risk Prevention…through supplier development, info sharing, etc
• Risk Management…through safety stock, multiple supply
sources
• Relationship Management
• Different relationships require different levels of attention,
information sharing, and collaboration
• Exhibit 3: quadrants
Reading 1: What Everyone Needs

• Broad objectives of Supply Chain Mgt (cont)

• Tradeoffs (5 common) in Exhibit 4
• Lot size vs. Inventory
• Inventory vs. Transportation cost
• Lead time vs. Transportation cost
• Product variety vs. Inventory cost
• Cost vs. Customer Service
Reading 1: What Everyone Needs

• 4 pillars of Supply Chain Excellence enable

and support the ability to achieve the broad
objectives of Supply Chain Management
• Human Resources
• Organizational Design
• Information Technology
• Organizational Measurement
Reading 2: “What is the right supply chain for
your product?”

• A first step to develop an effective supply chain is

to consider the nature of demand for each product
• Product life cycle
• Demand predictability (variability)
• Product variety
• Market standards for lead-time and service level
• Products are either “Functional” or “Innovative”
• Each category requires a different type of supply chain
Reading 2: “What is the right supply chain for your product?”

• “Functional” products satisfy basic needs, don’t change

much over time, stable predictable demand, long life-cycles
and low profit margins
• “Innovative” products change more rapidly, have unstable
demand, shorter life-cycles and require a different type of
supply chain to “match demand”
• To avoid low margin, companies introduce innovations in
fashion and technology
• They may also innovate with normally functional
products…Starbucks coffee, Ben & Jerry’s ice cream
Reading 2: “What is the right supply chain for your product?”

• “Functional” products are best suited for an “Efficient”

supply chain
• Low cost, high utilization, high turns, minimize inventory,
minimize lead times that don’t impact cost and select suppliers
based on cost and quality
• “Innovative” products are best suited for a “Responsive”
supply chain
• Deploy excess buffer capacity, strategically position finished
goods and parts inventory to react to spikes in demand,
aggressively cut lead times, use postponement, and select
suppliers based on flexibility and speed
Reading 2: “What is the right supply chain for your product?”

• The most common “mismatch” is trying to

execute an Efficient supply chain with an
Innovative product
• Rewards for improving responsiveness are usually much greater than those for becoming more efficient , for innovative
products
• Companies cling to familiar measures such as “utilization” and “inventory turns”, and assume “Lean” techniques will
work for all products
• Sometimes the market will allow a company to supply an innovative product with an unresponsive supply chain;
customer must accept long lead-times
• Discussion of stockout sensitivity, competitors and alternative products
• Don’t create uncertainty where it doesn’t exist; do accept uncertainty where it
exists and build strategies to reduce, avoid, and hedge against it…
Questions?