MODULE 1: SUPPLY CHAIN DESIGN

▪ Section A: Develop the

Supply Chain Strategy
Section A

Section A Introduction
Key Processes for Section A:
▪ Aligning with the business strategy
▪ Creating the supply chain strategy

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CHAPTER 1:
INTRODUCTION TO SUPPLY CHAINS
Topic 1: Supply Chain Models

Basic Supply Chain for a Product

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Topic 1: Supply Chain Models

Vertical Integration

Benefits of vertical integration

No dealing with competitors for
supplies, etc.

Enhanced visibility into operations

Same ownership and

management for all activities in
supply chain

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Topic 1: Supply Chain Models

Lateral (Horizontal) Integration

Benefits of lateral integration

Components
Economies of scale and scope Components

Improved business focus

Lateral mergers are one
Leveraging communication and way to grow laterally.
production competencies

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Topic 1: Supply Chain Models

Manufacturing Supply Chain Model

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Topic 1: Supply Chain Models

Services Also Have Supply Chains

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Topic 1: Supply Chain Models

Specialized Supply Chains

Hospital: Cost cutting, actual

prices versus contract prices, and
tracking and billing accuracy.

Humanitarian and disaster relief:

Trusted relationships help overcome
infrastructure failures.

Retailers: Amazon severely

pressuring multichannel distribution
model. Stores as DCs.

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Topic 2: Supply Chain Maturity

Supply Chain Stages

Stage 1: Stage 2: Stage 3: Stage 4:

Stable Multiple Semi- Integrated Extended
dysfunction functional enterprise enterprise
enterprise

Historical Reactive Reactive Proactive Strategic

Efficient Efficient Driver

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Topic 2: Supply Chain Maturity

Stage 1: Multiple Dysfunction

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Topic 2: Supply Chain Maturity

Stage 2: Semi-functional Enterprise

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Topic 2: Supply Chain Maturity

Stage 3: Integrated Enterprise

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Topic 2: Supply Chain Maturity

Stage 4: Extended Enterprise

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CHAPTER 2:
INPUTS TO SUPPLY CHAIN
STRATEGY
Topic 1: Internal Inputs

Alignment of Strategies

A plan for A plan for how A plan for how the

choosing a company supply chain will
how to will function in its function in its
compete environment environment to meet
business goals and
strategies

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Topic 1: Internal Inputs

Common Business Strategies

Differentiation Focus Low Cost

Better Segment-specific Cheaper

Best Cost Low Cost

Best value at low price Low price, no-frills basics
• Cost and quality • Cost

Broad Focused Focused

Differentiation Differentiation Low Cost
Attributes and variety appeal Unique strategies for Well-defined niche market
to many buyers target niche market buyer; low cost
• Customer • Niche marketing and • Responsiveness
experience/quality innovation

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Topic 1: Internal Inputs

Focus Advantage Strategies

Mass vs. niche marketing Responsiveness

▪ Mass marketing: same ▪ Safety stocks or close
message to all market (enters warehouses
consciousness). ▪ Agility (ramp production up or
▪ Niche marketing tailors down fast)
message to 1+ segments.

Innovation
 R&D, time-to-market, and
time-to-volume

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Topic 1: Internal Inputs

Strategy: Customer Focus and Alignment

Right
• Product/service

Supply chain strategy • Price

• Time and place

Organiza- Organiza- Organiza- Organiza- Organiza-
tional tional tional tional tional
strategy strategy strategy strategy strategy

S2 S1 Nucleus C1 C2
firm End
user
Objective 1 Objective 1 Objective 1 Objective 1 Objective 1
…2 …2 …2 …2 …2
…3 …3 …3 …3 …3
…n …n …n …n …n

Commitments and cooperation to synchronize objectives

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 Topic 1: Internal Inputs

Strategies: Forecast vs. Demand-Driven Enterprise

Forecast-driven enterprise Demand-driven enterprise

Problem: Bullwhip effect Solution: Real data, not forecasts.

End user demand variability • Partner trust and collaboration.

increases at each stage due to each
• Share real demand data along
firm’s demand forecast inaccuracies.
supply chain.
Supplier(s)
Factory • “Agile” response to order flow
Distributor variability.
Retailer
Customer • Pull! Don’t push.

Demand
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Topic 1: Internal Inputs

Strategy: Product-Type-Driven
Suppliers Customers

Functional products
Nucleus
Multiple supply chains
company
Innovative products

Functional product supply chains: Innovative product supply chains:

High average utilization rate Buffer capacity and safety stock

Minimal inventory with high turns Aggressive reduction of lead times
Short lead time Choose suppliers for speed, flexibility,
quality (not cost)
Choose suppliers for cost, quality
Modular design with postponement of
Products with maximum differentiation
performance, minimal cost
Predictability and low cost Market responsiveness
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Topic 1: Internal Inputs

Business Plan

Statement of long-range strategy and revenue, cost, and profit

objectives with budgets and projected financial statements

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Topic 1: Internal Inputs

Value Proposition
Value added
Customer service
Quality Customer’s
Utility vs. price perspective

Relative to the competition

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Topic 1: Internal Inputs

Core Capabilities
▪ Best at?
– Decision making (plan, enable)
– Execution (source, make, deliver, return)
▪ Relative to competition
▪ Because
– Economies of scale
– Geography/culture
– Technology
– Resources

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 Topic 1: Internal Inputs

Cost Structure and Revenue Model

▪ Cost structure differs by operating model
Inventory Carrying/
Model Production Cost Best For
Planning Cost
Make-to-stock Low High Standardized, high
demand
Assemble-to-order Mid Low Some variety,
moderate demand
Make-to-order High Low Variety, sporadic
Engineer-to-order Delayed until sale Delayed until sale Highly custom

▪ Global, regional, or country-specific asset footprint

▪ Revenue model (how to make a profit)
– Sales channels by supply chain
– Prioritizing customers

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Topic 2: External Inputs

Competition
▪ Scan
▪ Regional unsatisfied demand
▪ Footholds in saturated markets
▪ Benchmark

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Topic 2: External Inputs

Market Conditions
▪ Global, local, and industry economy
▪ Government and third-party sources
▪ Value deals during recessions

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Topic 2: External Inputs

Global Perspectives
▪ Connected
▪ Complex
▪ Volatile

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CHAPTER 3: SUPPLY CHAIN
MANAGEMENT STRATEGY
Topic 1: Objectives

The Three Vs

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Topic 2: Value

Aligning Organizational and SC Strategies

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Topic 2: Value

Value Chain and Mapping

Value chain Functions in a company that add value

to goods or services

Processes that create, produce, and

Value stream deliver a product or service

Value stream Drawing the existing and desired

mapping value streams to improve processes

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Topic 2: Value

Balancing Varied Stakeholder Values

Companies in Profit, market share, image
SC
Product and service quality, affordability,
End customers availability
Investors Return on investment, quality of communications

Lenders Interest, long-term stability, return of principal

Communities/ Tax base, environment, jobs
environment
Governments Laws, regulation, overall impact
Job security, compensation, opportunity,
Employees working conditions

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Topic 2: Value

Financial Value
▪ Cut costs to yield net gains at the bottom line.

▪ “It takes money to make money” (e.g., upgrades).

▪ Equitably distribute gains

(all stakeholders).

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Topic 2: Value

Customer Value
Quality Affordability Availability Service Sustainability

Most resources are invested in creating the value

of greatest importance to the market.

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Topic 2: Value

Social Value

Deliver Avoid Integrate

socially negative sustainability
desirable side effects. in supply
goods. chain.

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Topic 2: Value

Supply Chain Capabilities

Organizational design Framework

From logistics,
procurement silos to
Processes
Processes business process
excellence, networking,
and visibility
Automation,
Technology transaction
support (ERP),
visibility (trust?) Customer Value Financial Value

Holistic knowledge,
Human resources go-between with
executive champion

Supply Chain Goal

Performance
Metrics benchmarking and
checklists

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Topic 2: Value

Excellence in Customer Service

Fundamental attributes:
▪ Availability
▪ Operational performance
▪ Customer satisfaction

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Topic 2: Value

Effective and Efficient Use of Systemwide Resources

Effectiveness:
Right product and right
amount to right
customer at right time.

Efficiency:
Actual compared to
standard output; how
well performing relative
to standards.

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Topic 2: Value

Efficiently and Effectively Leveraging Partner Strengths

Strong partnerships:
▪ Add value to products
▪ Improve market access
▪ Build financial strength
▪ Add technological strength
▪ Strengthen operations
▪ Enhance strategic growth
▪ Improve organizational skills
▪ Build trust.

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Topic 2: Value

Cost Structure and Revenue Model

▪ Align organizational and SC cost structures.
– Low cost Efficient (economies of scale, lowest cost
make vs. buy choices, not as responsive).
– Innovative Responsive (transformative technology,
scalable capacity, not as efficient).
▪ Spend management.
– Control outflow of funds to increase profit.
▪ Align organizational and SC revenue models.
– Shift view from cost center to value-added
service.

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Topic 3: Optimization

Changing Strategy: When and Why

▪ Change in market conditions
– SC must be prepared to adapt quickly.
▪ Change in business direction
– New products may require complete recasting of SC.
▪ Disruptive technology
▪ Anticipated change in market
– Innovative SC can respond in advance.
▪ Business combination or merger
▪ Product life cycle change

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Topic 3: Optimization

Recognizing Misalignments or Gaps

Anonymous
surveys

Reward or punish… Brainstorm worst

cases

Failure?

Consultants

Change
Critics?
management
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Topic 3: Optimization

Aligning with Complexity and Partners

▪ Only as complex as it needs to be
– Need multiple supply chains?
– Variety only if actually in demand

▪ Align with supply chain partners

– Determine who is channel master
– Buyer’s or seller’s market?

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CHAPTER 4:
TOOLS AND TECHNIQUES
Topic 1: Macro- and Microeconomic Considerations

Macroeconomics

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Topic 1: Macro- and Microeconomic Considerations

Microeconomics
▪ Price goes up, demand goes down and vice versa.
▪ Substitution effect: interrelated prices.
▪ Price adjusts until supply and demand equilibrium.
▪ Given small price change.
– Elastic: large change in demand.
– Inelastic: small change in demand.
– Maximize profit margin with price changes.
▪ Marginal analysis: Marginal utility must exceed marginal
cost.
– Ignore costs incurred regardless of choice.

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Topic 2: Accounting and Financial Reporting Information

Standard Costing

A cost accounting system that uses cost

units determined before production for
estimating the cost of an order or product

COST = VOLUME x RATE

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Topic 2: Accounting and Financial Reporting Information

Balance Sheet for Two Years

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Topic 2: Accounting and Financial Reporting Information

Income Statement for Two Years

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Topic 2: Accounting and Financial Reporting Information

Statement of Cash Flows for Two Years

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Topic 3: Strategic Analysis Tools

SWOT Analysis

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Topic 3: Strategic Analysis Tools

Marketing’s Role in Understanding the Marketplace

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Topic 3: Strategic Analysis Tools

Network Modeling and Operations Research

▪ Models are as complex as needed, not more.
Inputs

Processes

Maximum
Optimum (top
objectives) Outputs
Minimum
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