Supply Chain Performance Factors

CHAPTER 2 - SUPPLY CHAIN PERFORMANCE
Dung H. Nguyen
Faculty of International Economic Relations
University of Economics and Law
‹#› Het begint met een idee

CONTENTS
 Competitive and supply chain strategies
 Strategic fit
 Drivers of supply chain performance
2
Vrije Universiteit Amsterdam
COMPETITIVE AND SUPPLY CHAIN STRATEGIES
 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
 All functional strategies must support one another and the
competitive strategy
3
ACHIEVING STRATEGIC FIT
 Strategic fit – competitive and supply chain

strategies have aligned 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
4
ACHIEVING STRATEGIC FIT
1. The competitive strategy and all functional strategies

must fit together to form a coordinated overall
strategy. Each functional strategy must support other
functional strategies and help a firm reach its
competitive strategy goal.
2. The different functions in a company must
appropriately structure their processes and resources
to be able to execute these strategies successfully.
3. The design of the overall supply chain and the role of
each stage must be aligned to support the supply chain
strategy.
5
HOW IS STRATEGIC FIT ACHIEVED?
1. Understanding the customer and supply

chain uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit
6
STEP 1: UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY
 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
7
STEP 1: UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY
 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
8
STEP 2: UNDERSTANDING SUPPLY CHAIN CAPABILITIES
 How does the firm best meet demand?

 Supply chain responsiveness includes its ability to:
o respond to wide ranges of quantities demanded
o meet short lead times
o handle a large variety of products
o build highly innovative products
o meet a high service level
o handle supply uncertainty
 Responsiveness comes at a cost!
9
SUPPLY CHAIN CAPABILITIES
 Supply chain efficiency is:

o the inverse of the cost of making and delivering a product to the
customer.
 Less costly the supply chain, more efficient it is
 Trade-off between efficiency and responsiveness
10
SUPPLY CHAIN CAPABILITIES: 7-ELEVEN
11
STEP 3: ACHIEVING STRATEGIC FIT
 Ensure that the degree of supply chain responsiveness is

consistent with the implied uncertainty
 Assign roles to different stages of the supply chain that
ensure the appropriate level of responsiveness
 Ensure that all functions maintain consistent strategies
that support the competitive strategy
12
SUPPLY CHAIN CAPABILITIES
Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow

postponement
Pricing strategy Lower margins Higher margins
Manufacturing strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at expense of Aggressively reduce even if
greater cost costs are significant
Supplier selection strategy Low cost, sufficient quality Speed, flexibility, quality
Transportation strategy Greater reliance on low cost Greater reliance on responsive

modes (fast) modes
13
DRIVERS OF SUPPLY CHAIN PERFORMANCE
 A company’s supply chain requires a balance between

responsiveness and efficiency
 Logistical and cross-functional drivers of supply chain performance:
o Facilities
o Inventory
o Transportation
o Information
o Sourcing
o Pricing
14
FACILITIES (IKEA NETHERLANDS)
15
FACILITIES (7-ELEVEN STORES BANGKOK)
16
FACILITIES
 The physical locations in the supply chain network where product is

stored, assembled, or fabricated
 Role: two types of facilities
o Production facilities
 Flexibility
 Focus: product-focused; functional-focused
o Storage facilities (warehouses & DCs)

 Cross-docking
 Storage
17
FACILITY DECISIONS
 Location:
o Centralize vs Decentralize
o Macroeconomic factors: workers, infrastructure, tax, etc.
 Capacity
18
INVENTORY
 Raw materials + Work in process + Finished goods

 Role in the supply chain
o Mismatch between supply and demand
o Producing in large quantities to fulfill the future demand
o Increases responsiveness
o Example: Amazon (best-selling books vs slow-moving books)
19
INVENTORY DECISIONS
 Cycle inventory: lot size & frequency

 Safety inventory: amount to hold
 Seasonal inventory: amount to hold
 Level of product availability: high or low?
Level of inventory   Responsiveness  & Efficiency 
20
TRANSPORTATION

o Moves products between stages
o Faster transportation, higher cost but also higher level of responsiveness
 Components of transportation decisions
o Design of transportation network
o Choice of transportation mode
21
INFORMATION
 Data and analysis concerning facilities, inventory, transportation,

costs, prices, and customers throughout the supply chain
 Components of information decisions
o Push vs Pull
o Coordination and information sharing
o Sales and Operations Planning (S&OP)
o Technologies: EDI, ERP, SCM, RFID
22
SOURCING
 The choice of who will perform a particular supply chain activity

 Components of information decisions
o In-house vs Outsource
o Supplier selection
o Procurement
Source: dailymail.co.uk 23
PRICING

o How much to charge the customer
o Influences the customer expectation
o Could be used to match supply and demand
 Differential pricing provides responsiveness to customers that value it
and low cost to customers that do not value responsiveness as much
 Components of pricing decisions
o Pricing and economies of scale
o Every day low pricing vs high-low pricing
o Fixed price vs menu pricing
24
PRICING
Source: heartofcodes
25
STRUCTURING DRIVERS
Competitive Strategy
Supply Chain Strategy
Efficiency Responsiveness
Supply chain structure
Logistical Drivers
Facilities Inventory Transportation
Information Sourcing Pricing
Cross-Functional Drivers
Source: Chopra and Meindl (2016) 26

WALMART CASE
 Inventory: cross-docking
 Transportation: own fleet
 Facilities: centralized DCs
 Information: large IT investment
 Sourcing: large orders
 Pricing: EDLP
27
CHAPTER 2 - SUPPLY CHAIN PERFORMANCE
THANK YOU!
‹#› Het begint met een idee

Supply Chain Performance Factors

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CHAPTER 2 - SUPPLY CHAIN PERFORMANCE

‹#› Het begint met een idee

 Competitive and supply chain strategies

 Drivers of supply chain performance

 Competitive strategy defines the set of customer needs a firm seeks

 Strategic fit – competitive and supply chain

strategic fit or because its processes and

1. The competitive strategy and all functional strategies

1. Understanding the customer and supply

 Quantity of product needed in each lot

 How does the firm best meet demand?

 Supply chain efficiency is:

 Ensure that the degree of supply chain responsiveness is

Product design strategy Min product cost Modularity to allow

Manufacturing strategy High utilization Capacity flexibility

Inventory strategy Minimize inventory Buffer inventory

Transportation strategy Greater reliance on low cost Greater reliance on responsive

 A company’s supply chain requires a balance between

 The physical locations in the supply chain network where product is

 Focus: product-focused; functional-focused

o Storage facilities (warehouses & DCs)

 Raw materials + Work in process + Finished goods

 Cycle inventory: lot size & frequency

Level of inventory   Responsiveness  & Efficiency 

 Role in the supply chain

 Data and analysis concerning facilities, inventory, transportation,

 The choice of who will perform a particular supply chain activity

 Role in the supply chain

Supply Chain Strategy

Facilities Inventory Transportation

Information Sourcing Pricing

Source: Chopra and Meindl (2016) 26

‹#› Het begint met een idee

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