SUPPLY CHAIN PERFORMANCE

Achieving Strategic Fit and Scope

The Value Chain in Company

Finance, Accounting, Information Technology, Human Resources

New
Product Marketing Distribution
Operations Service
Introduction and Sales

•Portfolio of •Market •Raw materials- •Distribution •After sales

new product segmentation procurement & and delivery services
transportation of product(s)
•Product
•Internally/
positioning, •Manufacture to customer
outsourced pricing and
promotion

Supply Chain Strategy = Supplier Strategy + Operations

Kripa Shanker IIT Kanpur Strategy + Logistics Strategy 1
 Implied Demand Uncertainty
Demand Uncertainty : uncertainty of customer demand
Implied Demand Uncertainty : resulting uncertainty for only the portion
of demand relevant to the supply chain
Customer Need Implied Demand Uncertainty
Range of quantity ↑ ↑
Lead time ↓ ↑
Number of channels ↑ ↑
Rate of innovation ↑ ↑
Required service level ↑ ↑
Demand Attribute Implied Demand Uncertainty
Low High
Product margin Low High
Average forecast error 10% 40% to 100%
Average stock out rate 1% to 2% 10% to 40%
Average forced seasoned 0% 10% to 25%
markdown
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 SUPPLY CHAIN PERFORMANCE
Achieving Strategic Fit and Scope
Achieving Strategic Fit
Step 1 : Understanding Customer and Supply Chain Uncertainty
{7-11} and {Sam’s}
• The quantity of the product needed in each lot
repair a production line vs constructing a new line
• The response time that customers are willing to tolerate
emergency vs regular
• The variety of products needed
emergency single order for multiple items vs regular
• The service level required
emergency single order for multiple items vs regular
• The price of product
emergency vs regular
• The desired rate of innovation in the product
high tech store vs regular
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 Implied Supply Uncertainty
Supply Source Capability Implied Supply Uncertainty
Frequent breakdowns ↑
Unpredictable and low yield ↑
Poor quality ↑
Limited supply capacity ↑
Inflexible supply capacity ↑
Evolving production process ↑

Implied Demand and Supply Uncertainty Spectrum

Predictable supply and uncertain
Predictable supply demand or uncertain supply and Highly uncertain
and demand predictable demand or somewhat supply and demand
uncertain supply and demand

(Salt at a (An existing (A new communication

supermarket) automobile model) device)

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 Achieving Strategic Fit
Step 2 : Understanding the Supply Chain
Supply Chain Responsiveness
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 a product to the customer
Responsiveness
High

Low
High Low Cost

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 Efficiency Responsiveness Spectrum

Highly efficient Somewhat Somewhat Highly

efficient responsive responsive

(Integrated steel (A traditional make- (Most automotive (Custom made PCs

mills : production to-order production : and servers in a few
scheduled weeks or manufacturer with delivering a large days)
months in advance production lead variety of products
with little variety or time of weeks) in a couple of
flexibility) weeks)

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 Achieving Strategic Fit
Step 3 : Achieving Strategic Fit

Responsive
Supply Chain

Responsiveness
Spectrum

Efficient
Supply Chain
Certain Implied Uncertain
Demand Uncertainty Demand
Spectrum

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 Achieving Strategic Fit

Competitive Strategy

Supply Chain Strategy

Product •Manufacturing Marketing
•Inventory
Development •Lead time and Sales
Strategy •Purchasing Strategy
•Transportation

Information Technology Strategy

Finance Strategy
Human Resource Strategy

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 Comparison of Efficient and Responsive Supply Chain
Efficient Chain Responsive Chain
Primary goal Supply demand at the lowest cost Respond quickly to the demand
Product design Maximize performance at a Create modularity to allow
strategy minimum product cost postponement of product
differentiation
Pricing strategy Lower margins because price is a Higher margins because price is not a
prime customer driver prime customer driver
Manufacturing Lower cost through high utilization Maintain capacity flexibility to buffer
strategy against demand/supply uncertainty
Inventory strategy Minimize inventory to lower cost Maintain buffer inventory against
demand/supply uncertainty
Lead time Reduce but not at the expense of Aggressively reduce even if the costs
strategy costs are significant
Supplier strategy Select based on cost and quality Select based on speed, flexibility,
reliability, and quality
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 Achieving Strategic Fit
Other Issues
•Multiple Products and Customer Segments
•Product Life Cycle
•Competitive Changes Over Time
Multiple Products and Customer Segments

Multiple

Customer
Multiple
Segments
Supplier Products

•Departmental Store Seasonal jackets (↑), Socks (↓)

•Levis Staruss Customized jeans (↑) , Standard-sized jeans (↓)
•WW Garinger MRO products {Ford, Boeing} [price]
{small manufacturers and contractors} [responsive]

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 Achieving Strategic Fit
Multiple Products and Customer Segments
•Set up independent supply chain each different product or customer segment
(if each segment is large enough to support a dedicated supply chain
•Tailor the supply chain (sharing some links in the supply chain with some product
while having separate operations for other links) to best meet the needs of each
products’ demand
For example,
•Products manufactured made on the same line in the plant but shipped using
different modes depending on responsiveness needs
•Products requiring high responsiveness may be manufactured using a flexible
process while others requiring less responsiveness can be made using less
responsive but more efficient process. Mode of transportation may be the same.
•Some products may be stored at regional warehouses (fast moving) and some at
centralized warehouse far from customers (slow moving).

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 Achieving Strategic Fit
Product Life Cycle
Sales

Time

As the product life cycle progresses,

• Demand characteristics and needs of customer segments change
• Product and production technologies mature and hence supply characteristics change.
High tech products are more prone to lifecycle swings over a compressed time
span

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 Product Life Cycle

Sales

Time

• Only the leading edge of customers is • Product becomes commodity and market is
interested saturated
• Demand is very uncertain and supply may be • Demand has become more certain and supply
unpredictable is predictable
• Margins are often high and time is crucial to • Margins are lower due to increase in
gaining sales competition
• Product availability is crucial to gaining sales • Price becomes a significant factor in customer
• Cost is often of secondary consideration choice
►High implied uncertainty ►Low implied uncertainty
► ► Responsiveness is the most important ► ► Efficiency is the most important
characteristic characteristic
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 Achieving Strategic Fit
Changes in Supply Chain Strategy Over a Product Life Cycle

Responsive
Supply Chain

Responsiveness
Spectrum

Efficient
Supply Chain

Product Implied Product

Maturity Uncertainty Introduction
Spectrum
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 SUPPLY CHAIN PERFORMANCE
Expanding Strategic Scope
Intracompany Intraoperation Scope : The Minimize Local Cost View
An Example of Minimizing Transportation Cost

Suppliers Manufacturer Distributor Retailer Customer

Competitive
Strategy
Product
Development
Strategy
Supply Chain
Strategy
Marketing
Strategy
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