Supply Chain Performance

Achieving Strategic Fit & Scope

By Muhammad Hashim Khan

Competitive Strategy
• The set of customers needs that it seeks to
satisfy through it products & services
– Wal-Mart aims to provide high availability of
variety of reasonable quality products at low
prices.
– Dell has stressed on customization & variety at
reasonable cost.
– McMaster Carrs sells maintenance, repair &
operations (MRO) it offers over 200,000 products
Strategic Fit

• The both the competitive and supply chain

strategies have the same goals.
• It refers to consistency btw the customer
priorities that the competitive strategy
hopes to satisfy and the supply chain
capabilities that the supply chain strategy
aims to build.
Drivers of Supply Chain
Performance
• Facilities
• Inventory
• Transportation
• Informational
FACILITIES
• The places in the supply chain network where
products is stored, assembled, or fabricated
• Two major types of facilities are
– Production sites
– Storage sites
• Role in the Supply Chain.
– Facilities they are the location to or from which inventory
is transported. Within a facility, inventory is either
processed or transformed into another state
(manufacturing) or it is stored before being shipped to
next stage (Warehousing)
FACILITIES CONT…..

• Role in the competitive Strategy

– E.g companies can gain economies of scale when a
product is produced in one location
• Increased efficiency. Cost reduction,
• Low responsiveness, increased transportation cost.
• Example Honda & Toyota
– Goal of opening manufacturing facilities in every market
that they enter. Protecting from currency fluctuation,
trade barriers, and increases responsiveness.
FACILITIES CONT…..

• Components of Facilities Decisions\

– Location: whether centralized to gain
economies of scale or decentralized to become
more responsive. The companies must also
consider the Characteristics of local area,
quality of workers, cost of workers,
infrastructure, tax affects etc
– Capacity: Excess capacity allows to respond
to wide swings in demand, costs money
therefore decreases efficiency
FACILITIES CONT…..

• Operation Methodology: companies must

decide whether to design a facility with a
product focus or functional focus.
– Product focus: performs many diff functions in
producing single type of product (e.g fabrication,
assembly)
– Functional focus: performs few functions in
producing many types of products (e.g only
fabrication or only assembly)
FACILITIES CONT…..
• Warehousing Methodology
– Stock keeping units (SKU) storage: A traditional
warehouse that store all of one type of product together.
efficient way.
– Job lot storage: all diff types of products needed to
perform a particular job or satisfy a particular type of
customer are stored together. Requires more space.
– Cross Docking: Pioneered by Wal-Mart in which goods
are not actually warehoused in a facility. From factory to
customers store, the inventory is broken into smaller lots
& quickly loaded onto store bound trucks that carry a
variety of products.
INVENTORY

Is all raw materials, work in process, and

finished goods within a supply chain. It is
an important supply chain driver, bcoz
changing inventory polices dramatically
alter the supply chain’s efficiency &
responsiveness. E.g Clothing retailer
> inventory > responsiveness
> Inventory < efficiency.
INVENTORY CONT…..

• Role is the competitive strategy: if a

firms competitive strategy requires a very
high level of responsiveness, it can be
achieved by locating large inventory close
to the customer. Conversely a company
can also use inventory to make it self
more efficient by reducing inventory
through centralized stocking.
INVENTORY CONT…..

• Components of inventory decisions:

– Cycle inventory: is the average amount of
inventory used to satisfy demand btw receipt
of supplier shipments. Large lots in order to
gain economies of scale in production,
transportation, or purchasing process.
– Safety Inventory: is held in case of demand
exceeds expectations. E.g 45 days of inventory
in medicine field.
INVENTORY CONT…..

• Seasonal Inventory: that is built up to

counter predictable variability in demand.
• Sourcing: is the set of business processes
required to purchase goods & services.
Managers must first decide the tasks that
will outsourced & those that will be
performed within the firm. Must gather the
portfolio of suppliers, & select the best
one.
TRANSPORTATION

Transportation entails moving inventory from

point to point in the supply chain. It can take
the form of many combinations modes &
rotes each with its own performance
characteristics. E.g using fedEx for mail
delivery more responsiveness & less
efficient. Faster the transportation greater
will be the responsiveness.
TRANSPORTATION

• Role in the competitive strategy: if a

firms competitive strategy targets a
customer that demand is very high level of
responsiveness and that customer is willing
to pay for this responsiveness. The
opposite is true as well. The company can
use transportation to lower the cost of the
product at the expense of responsiveness.
Components of Transportation Decisions: the companies
must analyze when designing & operating a supply chain.
Mode of transportation.
•Air: the fastest & most expensive mode
•Truck: a relatively quick and inexpensive mode with
high level of flexibility.
•Rail: An inexpensive mode used for larger
quantities.
•Ship: The slowest mode but often the only
economical choice for large overseas shipments
•Pipeline: used primarily to transport oil & gas.
•Electronic transportation. The newest mode that
“transports” goods such as music, previously sent
solely by physical modes. Via the internet.
INFORMATION

• It consist of data & analysis concerning facilities,

inventory, transportation & customer throughout
the supply chain. Is potentially the biggest driver
of performance in the supply chain.
• Role in the Supply Chain
– Its act as a bridge btw the supply chain’s various
stages, in order to increase the efficiency.
– Its also important for the daily operations of each
stage in a supply chain.
INFORMATION

• Role in the competitive Strategy

– Information helps in reducing cost &
improving responsiveness.
– Investment in the information helps them to
respond more quickly to their customers.
– E.g Wal-Mart, Getz Pharma, PSO etc invested
in MPR & ERP.
– E.g Dell directly takes order from the
customer through their web site.
INFORMATION

• Components of Information Decisions

– Coordination & Information Sharing:
Coordination occurs when all the diff stages of
a supply chain work towards the objective of
maximizing total supply chain profitability.
– Lack of coordination can result in a significant
loss of supply chain.
– Each stage should share appropriate
information with each other.
INFORMATION
• Forecasting & Aggregate Planning.
– Forecasting is the art & science of making projection about the
future demand & conditions. Using sophisticated techniques to
estimate future sales or market conditions.
– Aggregate planning transform the forecast into plans of activity
to satisfy the projected demand. It should be shared with all
members of supply chain.
• Pricing & Revenue Management.
– Demand & supply info is a fundamental input into the pricing
decision. Must consider the cost of supply in order to run
promotions schemes.
– Revenue Management is the use of differential pricing over time
or customer segments to maximize profit from a limited set of
supply chain strategy.
INFORMATION
• Enabling Technologies. Manager must decide which
technology should use & how to integrate these
technologies in supply chain. Some of these technologies
include
– EDI (Electronic Data Interchange) it allows paperless purchase
orders. Decreases time, accurate.
– Internet it convey much more info and visibility than EDI.
– ERP (Enterprise Resource Planning) systems provide the
transactional tracking & global visibility of information. It allows
intelligent decisions to be made. It improve the quality of its
operational decisions.
– SCM (Supply Chain management) software adds a higher layer
to ERP systems.
OBSTACLES TO ACHIEVING
STRATEGIC FIT
• Increasing Variety of Products: products that were
formally quite generic are now more customized. E.g
Pc’s , Laptops, cell Phones etc
• Decreasing Product Life Cycle: in addition of
increasing variety of product types, the life cycle of
products has been shrinking. Etc automobiles, cell
phones, From years to months. Decrease in product
lifecycle makes difficult to achieve strategic fit .
• Increasingly Demanding customer: Customers
consistently demanding improvement, if they not get the
improvement they move on to new or substitute product
or supplier. Wants better quality, price, quick.
OBSTACLES TO ACHIEVING
STRATEGIC FIT
• Globalization: World have loosened
trade restrictions, which results into
increased Global Trade, global Supply
chain & increased competition.
• Difficulty in Executing New
Strategies: its easy to make strategies
but its hard to implement, needs energy,
time and cost.