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 Competitive and supply chain strategies

 Achieving strategic fit
 Expanding strategic scope

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 Managing supply chain flows and assets, to
maximize
supply chain surplus

 What is supply chain surplus?

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 Competitive strategy: defines the set of customer
needs a firm seeks to satisfy through its products and
services
 Product development strategy: specifies the portfolio
of new products that the company will try to develop
 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

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Finance, Accounting, Information Technology, Human Resources

New Marketing
Product and Operations Distribution Service
Development Sales

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 Introduction
 How is strategic fit achieved?
 Other issues affecting strategic fit

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 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

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 Step 1: Understanding the customer and
supply chain uncertainty
 Step 2: Understanding the supply chain
 Step 3: Achieving strategic fit

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 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

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 Overall attribute of customer demand
 Demand uncertainty: uncertainty of

customer demand for a product

 Implied demand uncertainty: resulting

uncertainty for the supply chain given the

portion of the demand the supply chain
must handle and attributes the customer
desires

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 Implied demand uncertainty also related to
customer needs and product attributes
 Table 2.1
 Figure 2.2
 Table 2.2
 First step to strategic fit is to understand

customers by mapping their demand on the

implied uncertainty spectrum

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 Understanding the Customer
◦ Lot size
◦ Response time
◦ Service level
Implied
◦ Product variety
◦ Price Demand
◦ Innovation Uncertainty

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Customer Need Causes implied demand
uncertainty to increase because …
Range of quantity increases Wider range of quantity implies
greater variance in demand
Lead time decreases Less time to react to orders

Variety of products required Demand per product becomes more

increases disaggregated
Number of channels increases Total customer demand is now
disaggregated over more channels
Rate of innovation increases New products tend to have more
uncertain demand
Required service level increases Firm now has to handle unusual
surges in demand
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Predictable Predictable supply and uncertain Highly uncertain
supply and demand or uncertain supply and supply and demand
demand predictable demand or somewhat
uncertain supply and demand

Salt at a An existing A new

supermarket automobile communication
model device

Figure 2.2: The Implied Uncertainty (Demand and Supply)

Spectrum

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Attribute Low Implied High Implied
Uncertainty Uncertainty
Product margin Low High

Avg. forecast error 10% 40%-100%

Avg. stockout rate 1%-2% 10%-40%

Avg. forced season- 0% 10%-25%

end markdown

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 How does the firm best meet demand?
 Dimension describing the supply chain is

supply chain responsiveness

 Supply chain responsiveness -- ability to

◦ 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

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 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

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Responsiveness

High

Low
Cost
High Low
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 Step is to ensure that what the supply chain
does well is consistent with target
customer’s needs
 Fig. 2.5: Uncertainty/Responsiveness map
 Fig. 2.6: Zone of strategic fit
 Examples: Dell, Barilla

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Highly Somewhat Somewhat Highly
efficient efficient responsive responsive

Integrated Hanes Most Dell

steel mill apparel automotive
production

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 Responsive
supply chain

Responsiveness e of i t
n F
spectrum Zo e g i c
t
t ra
S

Efficient
supply chain

Certain Implied Uncertain

demand uncertainty demand
spectrum 2-
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 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

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 Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow
postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at expense Aggressively reduce even if
of greater cost costs are significant
Supplier selection strategy Cost and low quality Speed, flexibility, quality
Transportation strategy Greater reliance on low cost Greater reliance on
modes responsive (fast) modes
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 Multiple products and customer segments
 Product life cycle
 Competitive changes over time

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 Firms sell different products to different
customer segments (with different implied
demand uncertainty)
 The supply chain has to be able to balance
efficiency and responsiveness given its
portfolio of products and customer segments
 Two approaches:
◦ Different supply chains
◦ Tailor supply chain to best meet the
needs of each product’s demand

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 The demand characteristics of a product and
the needs of a customer segment change as
a product goes through its life cycle
 Supply chain strategy must evolve

throughout the life cycle

 Early: uncertain demand, high margins (time

is important), product availability is most

important, cost is secondary
 Late: predictable demand, lower margins,

price is important

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 Examples: pharmaceutical firms, Intel
 As the product goes through the life cycle,

the supply chain changes from one

emphasizing responsiveness to one
emphasizing efficiency

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 Competitive pressures can change over
time
 More competitors may result in an

increased emphasis on variety at a

reasonable price
 The Internet makes it easier to offer a wide

variety of products
 The supply chain must change to meet

these changing competitive conditions

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 Scope of strategic fit
◦ The functions and stages within a supply chain that
devise an integrated strategy with a shared objective
◦ One extreme: each function at each stage develops
its own strategy
◦ Other extreme: all functions in all stages devise a
strategy jointly
 Five categories:
◦ Intracompany intraoperation scope
◦ Intracompany intrafunctional scope
◦ Intracompany interfunctional scope
◦ Intercompany interfunctional scope
◦ Flexible interfunctional scope

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 Suppliers Manufacturer Distributor Retailer Customer

Competitive
Strategy
Product Intercompany
Development Interfunctional Intracompany
Strategy Intrafunctional
at Distributor
Supply Chain
Intracompany
Strategy Intracompany
Intraoperation
Interfunctional
at Distributor
Marketing at Distributor
Strategy

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 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?

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