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Supply chain management and
Company strategy

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 Learning Objectives
 Introduction
 Supply Chain Management objectives
 Supply Chain strategy and decision levels
 Difficulties in managing Supply Chains
 Global optimization
 Developing supply chain strategy
 Discussion questions
 Conclusion
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Learning objectives
 Explain the importance of supply chain
 Establish the objectives and decision
levels of Supply chain management
 Identify challenges in managing supply
 Describe the steps involved in the
development of Supply Chain strategy

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 Supply Chain Management: a set of approaches utilized to
efficiently integrate suppliers, manufacturers, distributors
and retailers in order to produce goods whilst minimizing
system wide costs and attaining customer satisfaction -
Simchi-Levi, Kamsinky and Simchi-Levi (2009)
 Strategy moves that a company makes to achieve a
sustained competitive advantage
 Supply Chain Strategy: defines how a supply chain should
operate in order to compete.
 Constitutes the actual operations of organizations and
the extended supply chain in order to meet specific
supply chain objectives

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 Business strategy: involves leveraging the core competencies of
the organisation to achieve a defined goal or objective.
 Business strategic questions; what to offer, when to offer, where
to offer. (Happek, (2005))
Importance of Supply Chain Strategies
 Operationalises and support business strategy
 Focuses on reducing operational costs and maximizing
 Establishes how organizations work with supply chain partners
 Results in value creation if well executed

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Supply Chain Management Objective

 To be efficient and cost effective across the

entire system
◦ Efficient: integration of suppliers, manufacturers,
warehouses, stores in order to respond to
customer satisfaction
◦ Cost Effective: reduction of costs from
transportation and distribution, to inventories of
raw materials, WIP, finished products

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Supply Chain Strategies and decision
levels in SCM
 Strategic Level
 Product design
 Make/ buy decisions
 Supplier selection
 Strategic partnering
 Number, location and capacity of warehouses and
manufacturing plants

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Supply Chain Strategies and
decision levels in SCM
Tactical level
 Sourcing contracts and other purchasing
 Production decisions, including contracting,
scheduling, and planning process definition.
 Inventory decisions, including quantity,
location, and quality of inventory.
 Transportation strategy, including frequency,
routes, and contracting.
 Focus on customer demand and Habits or

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Supply Chain Strategies and decision
levels in SCM
 Operational Level strategies
 Scheduling
 Lead time quotations
 Routing
 Truck loading etc

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Difficulties in managing a Supply
 Supply chain strategies cannot be determined in
isolation – they are affected by other chains that
organisations have
 It’s a challenge to design and operate a supply chain
so that system wide costs are minimized and
system wide service levels are maintained (global
 Designing Supply Chains to eliminate as much
uncertainty and risk as possible
◦ Customer demand can never be forecasted ,exactly,
transportation is uncertain, machines break down.
Outsourcing / off shoring increase levels of risk

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Global optimization
 The process of finding the best system-wide
strategy in supply chain management
 Challenges in global optimization:
The complexity of the supply chain network;
facilities dispersed over a large geography
Different facilities(companies
/organusations)frequently have different,
conflicting objectives.
Suppliers want manufacturers to commit to large
quantities in stable volumes, manufacturers need
to be flexible to their customers

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Global optimization
◦ The supply chain is a dynamic system that
evolves over time
 Customer demand and supplier capabilities change
over time
 Supply chain relationships evolve over time
◦ System variations over time are important
 Impact of seasonal fluctuations, trends, competitor
pricing activities, etc

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How Supply Chain Decisions
Impact Strategy
Low-Cost Response Differentiation
Strategy Strategy Strategy
Supplier’s Supply demand Respond quickly Share market
goal at lowest to changing research;
possible cost requirements jointly develop
(e.g., Emerson and demand to products and
Electric, Taco minimize options (e.g.,
Bell) stockouts (e.g., Benetton)
Dell Computers)
Primary Select primarily Select primarily Select primarily
selection for cost for capacity, for product
criteria speed, and development
flexibility skills

Table 11.1
How Supply Chain Decisions
Impact Strategy
Low-Cost Response Differentiation
Strategy Strategy Strategy
Process Maintain high Invest in excess Modular
charact- average capacity and processes that
eristics utilization flexible lend
processes themselves to
Inventory Minimize Develop Minimize
charact- inventory responsive inventory in the
eristics throughout the system with chain to avoid
chain to hold buffer stocks obsolescence
down cost positioned to
ensure supply

Table 11.1
How Supply Chain Decisions
Impact Strategy
Low-Cost Response Differentiation
Strategy Strategy Strategy
Lead-time Shorten lead Invest Invest
charact- time as long as aggressively to aggressively to
eristics it does not reduce reduce
increase costs production lead development
time lead time
Product- Maximize Use product Use modular
design performance designs that design to
charact- and minimize lead to low postpone
eristics costs setup time and product
rapid differentiation
production as long as
ramp-up possible

Table 11.1
Developing a supply chain Strategy

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 Discuss the PESTEL Factors affecting the
development of a supply chain strategy

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Pestel Analysis (Macro environment)
Political factors
 Taxation Policy
 Trade regulations
 Governmental stability
 Unemployment Policy etc.

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 Economical factors
 Inflation rate
 Growth in spending power
 Rate of people in a pensionable age
 Recession or Boom
 Customer liquidations
 Socio-cultural
 age distribution.
 education levels.
 income level.
 consumerism.
 diet & nutrition.

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 Environmental factors
 competitive advantage
 Waste disposal
 Energy consumption
 Pollution monitoring etc.
 Legal factors
 Unemployment law
 Health and safety
 Product safety
 Advertising regulations
 Product labeling
 labor laws

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Discussion questions:
 Consider the supply chain for a domestic
◦ What are the components of the supply chain
for the automobile?
◦ What are the different firms involved in the
supply chain?
◦ What are the objectives of these firms?
◦ What risks would this supply chain face?

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 Supply chain strategy is an enabler of
business strategy
 The objectives of SC strategy is to be
efficient and cost effective through the
entire SC system
 Due to its complex nature, SC
management faces a number of challenges
 SC managers need to understand how
they can develop SC strategies
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Happeck, S., (2005). Supply Chain Strategy: The importance of aligning
your strategies. UPS Supply Chain Solutions

Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E., (2009). Designing and
Managing the Supply Chain. Mcgraw Hill, Boston

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