Corporate Strategy

and its Connection to

Supply Chain Management
Fit Between Corporate and Functional
Strategies (Chopra & Meindl)

Corporate Competitive Strategy

Product Supply Chain Marketing

Development or Operations and Sales
Strategy Strategy Strategy

Information Technology Strategy

Finance Strategy

Human Resources Strategy

 Corporate Mission
• The mission of the organization
– defines its purpose, i.e., what it contributes to society
– states the rationale for its existence
– provides boundaries and focus
– defines the concept(s) around which the company can rally

• Functional areas and business processes define their

missions such that they support the overall corporate mission
in a cooperative and synergistic manner.
 Corporate Mission Examples
• Merck: The mission of Merck is to provide society with superior products
and services-innovations and solutions that improve the quality of life and
satisfy customer needs-to provide employees with meaningful work and
advancement opportunities and investors with a superior rate of return.
• FedEx: FedEx is committed to our People-Service-Profit philosophy. We
will produce outstanding financial returns by providing totally reliable,
competitively superior, global air-ground transportation of high-priority
goods and documents that require rapid, time-certain delivery. Equally
important, positive control of each package will be maintained utilizing
real time electronic tracking and tracing systems. A complete record of
each shipment and delivery will be presented with our request for
payment. We will be helpful, courteous, and professional for each other,
and the public. We will strive to have a completely satisfied customer at
the end of each transaction.
Defining the Corporate Strategy

Responsiveness (Reliability; Quickness; Flexibility;

e.g., Dell, Overnight Delivery Services)

Competitive Advantage through which

the company market share is attracted

Cost Leadership (Price;

e.g., Wal-Mart, Southwest
Airlines, Generic Drugs)

Differentiation (Quality; Uniqueness;

e.g., Luxury cars, Fashion Industry,
Brand Name Drugs)
 Defining the Corporate Strategy
• Corporate Strategy: The organization’s positioning in terms of
– responsiveness,
– cost leadership and
– product differentiation
requirements, i.e., the sought competitive advantage(s).

• The corporate strategy dictates the detailed strategies for each functional
area (i.e., Operations, Finance, Marketing) but it is also affected by
those areas.

• Collectively, all these strategies seek to exploit (external) opportunities

and (internal) strengths, neutralize (external) threats, and address
(internal) weaknesses
 Factors affecting Corporate Strategy
• External
– Emerging strengths and weaknesses of competitors => new threats and
opportunities, respectively
– New industry entrants
– Development of substitute products
– Development of new technologies
– Legal developments (e.g., environmental concerns and regulations)
– Economic and political developments (e.g., new international agreements,
political crises)

• Internal
– Company politics and restructuring
– Modified relationships with customers and suppliers
– Product Life Cycle
 Strategy and Issues during a Product’s Life
(J. Heizer & B. Render, “Operations Management”, Prentice Hall)

Introduction Growth Maturity Decline

• Best period to •Practical to •Poor time to change •Cost control
increase market change price or image, price or critical
share quality
quality image
•R&D engineering •Strengthen •Competitive costs
critical niche become critical
•Defend market Sales
position

Time
• Frequent product •Forecasting •Standardization - •Little product
and process changes critical minor product differentiation
•Short production •Products and changes •Overcapacity in
runs process reliability •Optimum capacity the industry
•High production •Increase capacity •Process stability •Reduce capacity
costs •Shift towards •Long production and eventually
•Limited models product focus runs prune line to
•Attention to quality •Enhance eliminate items not
distribution returning good
margin
 The “zone of strategic fit”
(adapted from Chopra & Meindl)
Responsive
Supply Chain

Responsiveness e of Fit
n
Spectrum Zo tegic
ra
St

Efficient
Supply Chain
Certain Implied Uncertain
Demand Uncertainty Demand
Spectrum

Implied Demand Uncertainty: The uncertainty that exists due to the portion of
Demand that the supply chain is required to meet.
The operations frontier, trade-offs,
and the operational effectiveness
Responsiveness

Cost Leadership

Differentiation
 Expanding the operations frontier:
Dell’s “revolution” in the PC market
• Dell’s competitive advantage: Provide customized PC
configurations, with short delivery times and affordable
prices.
• Dell’s success in PC market:
Supporting Dell’s competitive advantage
through a new operational model
• Focused on strategic partnerships: suppliers down from 200 to 47
• Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour
• Suppliers own inventory until used in production
• Demand pull throughout value chain – “information for inventory”
substitution
• Demand forecasting is critical – changes are shared immediately within
Dell and with supply base
• Customers frequently steered to “recommended configurations” with high
availability to balance supply and demand
• External logistics supplier used to manage inbound supply chain
 PC SUPPLY CHAINS

Customer Customer
PULL

Virtual Integration
Distribution
Channels
PULL
Dell
PUSH
Manufacturer

Suppliers
PUSH
Suppliers

Typical PC Supply Chain Dell Supply Chain

(Compaq, HP, IBM, etc.)
 The CSF’s underlying Dell’s
competitive advantage
• Very high product (configurable) variety – mass
customization!
• Direct fulfillment - no intermediaries
• No production launch until customer order booked (pure
pull!)
• Very low finished goods inventory (costs) – high inventory
turns (raw material inventory influenced by
“recommended configurations”)
• High velocity material flows & fulfillment
Dell performance
 Emerging factors and trends enabling
Dell’s strategy
• The commoditization of the PC industry
– Standardized and interchangeable components
– Emergence of reliable manufacturing service providers
• Recent advances in Supply Chain Management
– Information Technology (IT) platforms that allow the effective and
efficient information exchange and coordination across the entire supply
chain
– 3rd party logistics service providers
– Emerging emphasis on virtual rather than vertical company integration
 The primary “drivers” for achieving
strategic fit in Supply Chain Strategy
(adapted from Chopra & Meindl)

Corporate Strategy

Supply Chain Strategy

Efficiency Responsiveness

Market
Facilities Inventory Transportation Information
Segmentation
 The role of Facilities
• Facilities: The locations where inventory is
– processed and transformed into another state (manufacturing) or
– staged before being shipped to the next stage (warehousing)
• In general, centralization boosts efficiency, while decentralization boosts responsiveness (but not always…)
• Primary decisions:
– Location
• Proximity to the customer
• Proximity to resources
• Access to markets (ability to circumvent quotas and tariffs)
• Infrastructure
• Operational costs and tax incentives
– Capacity
• Capital cost vs. responsiveness
– Operations Methodology for Manufacturing Facilities
• Product vs. functional focus
• Flexible vs. dedicated capacity
– Warehousing methodology
• SKU-based storage
• Job lot storage
• Cross-docking
 The role of Inventory
• Primary inventory components:
– Raw Material
– Work In Process (WIP)
– Finished Goods
• It exists because of the finiteness of the production and transportation rates
(Little’s Law: I=TH*T)
• Types of Inventory
– Cycle Inventory: It is incurred in an effort to control the impact of “fixed”
ordering and set-up costs.
– Safety Inventory: It is used to deal with the randomness in the experienced
demand; it is set so that it meets the supply chain to meet some “service level”
(i.e., control the probability that no stock-out will be experienced at any
replenishment cycle).
– Seasonal Inventory: It is used to help the supply chain deal with predictable
variability in demand.
– Opportunistic Inventory: Takes advantage of “bargains”.
• Sourcing: Determine the set of suppliers / subcontractors to be used, and
develop the contracts that will govern the relationship.
 The role of Transportation
• Transportation: The SC element that moves product between its different
stages.
• Primary decisions:
– Mode(s) of Transportation
• Air: fastest but most expensive
• Truck: Relatively quick, inexpensive and very flexible mode
• Rail: Inexpensive mode to be used for large quantities
• Ship: Slowest but often the most economical choice for large overseas shipments
• Pipeline: Used (primarily) for oil and gas
• Electronic transportation: for goods as music and movies
– Route and Network Selection
– Inhouse or Oursource to some 3PL provider
 The role of Information
• Information exchange is necessary for the most extensive modes of
coordination sought in contemporary supply chains. It allows the supply chain
to improve simultaneously its efficiency and responsiveness.
• Information-related decisions
– Push vs. pull
– Extent and modes of information sharing and coordination
– Forecasting and Aggregate Planning schemes
– Pricing and revenue management policies
– Enabling Technologies:
• Electronic Data Interchange (EDI): Enables paperless transactions, primarily for
“backend” operations of the SC.
• The Internet and the WWW.
• Enterprise Resource Planning (ERP): enables transactional tracking and global visibility
of information in the SC.
• Supply Chain Management (SCM) software: decision support tools.
 Current Trends and Challenges in the SCM
• Increasing variety of products
• Decreasing product life cycles
• Increasingly demanding customers
• Fragmentation of Supply Chain Ownership: vertical vs. virtual
integration
• Globalization and Market Segmentation
• “Closed Loop” SC

Production Distribution Consumption Retrieval

Disassembly/ Reverse Logistics and

Disposal
Reprocessing Re-manufacturing network