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Supply Chain
Performance:
Achieving
Strategic Fit
and Scope
PowerPoint presentation to accompany
Chopra and Meindl Supply Chain Management, 5e
Global Edition
Copyright ©2013 Pearson Education.
© 2012 Prentice Hall Inc. 1
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 Competitive & Supply
Chain Strategies
 Relative to competitors, the set of
customer needs that it seeks to satisfy
through its products and services.
 For Example: Walmart: High availability at
low price
 McMaster Carr, MRO, more than 500000
products through catalogue and website.
 Responsive strategy
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 Blue Nile: online diamonds, more than
90000.
 While Zales: Brick & Mortor

 Thus, firms competitive strategy depends

on customer's priorities.

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The Value Chain

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 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
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 How is Strategic Fit
Achieved?
1. Understanding the customer and
supply chain uncertainty
2. Understanding the supply chain
capabilities
3. Achieving strategic fit

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 Evolution of Dell…1993 and present.
 Between 1993 and 2006, large variety of
customizable products.
 Common components and rapid
assembly.
 Starting in 2007, Dell altered its
competitive strategy, with reduced
customer focus on hardware
customization, they branched out into
selling through PCs through retail stores.

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 How is achieving
Strategic Fit
 1. Understanding customer and supply
chain uncertainty
 2. Understanding the supply chain
capabilities
 3. Achieving strategic Fit

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 Step 1: Understanding the
Customer and Supply Chain
Uncertainty
 Quantity of product needed in each lot
 Response time customers are willing to
tolerate
 Variety of products needed
 Service level required
 Price of the product
 Desired rate of innovation in the product

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 Customer Needs and
Implied Demand Uncertainty
Customer Need
Range of quantity required
increases
Lead time decreases
Variety of products required
increases
Number of channels through
which product may be acquired
increases
Rate of innovation increases
Required service level increases
Causes Implied Demand Uncertainty to …
Increase because a wider range of the quantity
required implies greater variance in demand
Increase because there is less time in which to
react to orders
Increase because demand per product becomes
more disaggregate
Increase because the total customer demand is
now disaggregated over more channels
Increase because new products tend to have more
uncertain demand
Increase because the firm now has to handle
unusual surges in demand
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 Fisher pointed out that:
 Products with uncertain demand are often
less mature and have less direct
competition having high margin.
 Forecasting is more accurate when
demand has less uncertainty.
 Increased implied demand uncertainty
leads to increase in supply demand
matching.
 Markdowns are high for products with
implied demand uncertainty.

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 E.g.,. Salt with low implied demand
uncertainty, low margin, accurate demand
forecast, low stock out rates.

Low Implied Uncertainty High Implied Uncertainty

Product Margin Low High

Average Forecast Error 10% 40 to 100%

Average Stock out Rate 1 to 2% 10 to 40%

Average forced season 0% 10 to 25%

end markdown

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Levels of Implied Demand
Uncertainty

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 Step 2: Understanding Supply
Chain Capabilities
 How does the firm best meet demand?
 Supply chain responsiveness is the 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
 Handle supply uncertainty
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Cost-Responsiveness
Efficient Frontier

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Responsiveness Spectrum

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 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

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Zone of Strategic Fit

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Roles and Allocations

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 Efficient and Responsive Supply Cha
Efficient Supply Chains Responsive Supply Chains
Supply demand at the lowest
Primary goal Respond quickly to demand
cost
Create modularity to allow
Product design Maximize performance at a
postponement of product
strategy minimum product cost
differentiation
Lower margins because price is Higher margins because price is
Pricing strategy
a prime customer driver not a prime customer driver
Maintain capacity flexibility to
Manufacturing Lower costs through high
buffer against demand/supply
strategy utilization
uncertainty
Inventory Maintain buffer inventory to deal
Minimize inventory to lower cost
strategy with demand/supply uncertainty
Lead-time Reduce, but not at the expense Reduce aggressively, even if the
strategy of costs costs are significant
Supplier Select based on speed,
Select based on cost and quality
strategy flexibility, reliability, and quality

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 Changes Over Product
Life Cycle

 Beginning stages
1. Demand is very uncertain, and supply may
be unpredictable
2. Margins are often high, and time is crucial to
gaining sales
3. Product availability is crucial to capturing
the market
4. Cost is often a secondary consideration

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 Changes Over Product
Life Cycle

 Later stages
1. Demand has become more certain, and
supply is predictable
2. Margins are lower as a result of an increase
in competitive pressure
3. Price becomes a significant factor in
customer choice

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Different Scopes of Strategic Fit
Across a Supply Chain

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 Drivers of Supply Chain
Performance
• 1. Facilities
– The physical locations in the supply chain
network where product is stored,
assembled, or fabricated
• 2. Inventory
– All raw materials, work in process, and
finished goods within a supply chain
• 3. Transportation
– Moving inventory from point to point in the
supply chain

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 Drivers of Supply Chain
Performance
• 4. Information
– Data and analysis concerning facilities,
inventory, transportation, costs, prices, and
customers throughout the supply chain
• 5. Sourcing
 In-house or outsource, Supplier selection,
Procurement

• 6. Pricing
– How much a firm will charge for the goods and
services that it makes available in the supply
chain

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A
Framework
for
Structuring
SCM Drivers

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 Challenges
 Increasing product variety and shrinking
life cycles
 Globalization and increasing uncertainty
 Fragmentation of supply chain ownership
 Changing technology and business
environment
 The environment and sustainability

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