SUPPLY CHAIN MANAGEMENT

3RD EDITION

COMPETITIVE AND SUPPLY CHAIN STRATEGY

Ans- A company’s competition strategic defines the set of customer needs that it seeks to
satisfy through its products and services. The company’s competitive strategy will be
defined based upon the customer priorities. Competitive strategy targets one or more
customer segments and aims to provide products and services and satisfy the customer
needs.

A supply chain strategy determines the nature of procurement of raw materials,

transportation of materials to and from the company, manufacture of the product or
operation to provide the service and the distribution of the product and services to the
customer, along with any follow up service. Additionally, in each company, the strategies
will also be devised for finance, accounting, information technology, and human resources.
Supply chain strategy includes what many traditionally calls supply strategy, operations
strategy, and logistics strategy, decisions regarding inventory, transportation, operating
facilities, and information flows in the supply chain are all part of supply chain strategy.

ACHIEVING STRATEGIC FIT

For any company to be successful, its supply chain strategy and competitive strategy must fit
together. Strategic fit means that both the competitive and supply chain strategies have the same
goal. It refers to consistency between the customer priorities that the competitive strategy hopes to
satisfy and the supply chain capabilities that the supply chain strategy aims to built. The issue of
achieving strategic fit is key consideration during the supply chain strategy or design phase.

To achieve strategic fit, a company must ensure that it supply chain capabilities support its ability to
stisfy the targeted customer segments. There are three basic steps to achieve strategic fit.

Understanding the customer and supply chain uncertainty

understanding the supply chain capabilities

Achieving strategic fit;

Understanding the customer and supply chain uncertainty: First a

company must understand the customer needs for each targeted segment and the
uncertainty the supply chain faces in satisfying these needs. These needs help the company
define the desired cost and the service requirements. The supply chain uncertainty helps
the company identify the extent of disruptions and delay the supply chain must be prepared
for. To understand the customer, a company must identify the needs of the customer being
served. In general the customer demand from different segments may vary along several
attributes as follows.

The quantity of product and services required in each lot or order 

The response time or the time of execution of a service that a customer is willing to tolerate.


The variety of product or services needed 

The service level required 

The price of product or service. 

The desired rate of innovation in the product 

The desired level of quality of the product or service

Understanding the supply chain capabilities: There are many are types of supply
chains, each of which is designed to perform different tasks well. A company must
understand what its supply chain is designed to do well. The study of the characteristics of
the supply chain and its capabilities is very important. The sigle idea o which all the
characteristics of the supply chain contribute is the idea of a tradeoff between
responsiveness and efficiency. The supply chain responsiveness includes a supply chain to
do the following:

Respond to the wide range and attributes of products or services demanded. 

Meet the strict deadlines and short lead times 

Handle large quantities of orders or a large project for execution. 

Meet a high service level 

Handle supply uncertainty.

The responsiveness comes at cost. Higher is the responsiveness of the supply chain higher is
cost and lower is the efficiency of the supply chain. For every strategic choice to increase
responsiveness, there are additional costs that reduce the efficiency.(Figure 3.2 & 3.3)
Finding a Zone of Strategic Fit: This the third and final step in achieving the strategic fit
which is to ensure that the capabilities of the supply chain is consistent with the need of the
customer. If a mismatch exists between what the supply chain does particularly well and the
desired customer needs, the company will either need to restructure the supply chain to
support the competitive strategy or alter its strategy.

To achieve complete strategic fit, a firm must consider all functional strategies within the
value chain; it must ensure that all functions in the value chain have consistent strategies
that support the competitive strategy. All functional strategies must support the goals of the
competitive strategy and all sub-strategies within the supply chain such as the
manufacturing, inventory, and purchasing must also be consistent with the supply chain’s
level of responsiveness.

Thus, firms with different locations along the responsive spectrum must have different
functional strategies that support their responsiveness. A highly responsive supply chain
must devote all its functional strategies to responsiveness, where as an efficient supply
chain must focus all its functional strategies on efficiency.(Figure: 3.4). Changing the
strategies to achieve strategic fit may sound easy enough to do, but in reality it can be quite
difficult. It is established that:

There is no right supply chain strategy independent of the competitive strategy. 

There is a right supply chain strategy for a given competitive strategy. 

The drive for strategic fit should come from the highest levels of the organization. In many
companies different group devise competitive and functional strategies. Without proper
communication between the groups and coordination by high level management such as
the CEO these strategies are not likely achieve the strategic fit. For many firms, the failure to
achieve the strategic fit is a key reason for their inability to succeed
2)How a company achieve strategic fit between its supply chain
strategy and its competitive strategy?

ANS-What is "Strategic Fit"? - in a business scenario "strategic fit means aligning supply
chain strategy with competitive strategy." Companies build a competitive strategy to target
a set of customer segments and build strategies to satisfy needs and priorities of those
customer segments. Companies also study what competitors are doing and what changes
they can offer to have a competitive advantage, like winning customers by offering a lower
price on the product or by providing large varieties of the product or by providing better
services. Companies can achieve these strategies by ensuring that their supply chain
capabilities are able to support these strategies.
Companies have to understand the need and priorities of targeted customer segments and
the uncertainty of their demand.  There are many factors which influence the demand of
customer like price, convenience of purchase, urgency of the product, size of the lot,
delivery lead time, etc. The customers of one segment tend to have more or less the same
demand pattern, so to satisfy the uncertainty of demand for the target segments the supply
chain has to build the strategy and capabilities accordingly. The demand uncertainty of
target segments is called "Implied Demand Uncertainty" which is different from "Demand
Uncertainty" which reflects the overall uncertainty of demand for a product.
Now the question arises as to how to handle this implied demand uncertainty? For this,
companies have to build the supply chain capabilities of responsiveness and efficiency.
Being a strategic fit is all about building the supply chain strategies to face the customer
demand and uncertainty or in other words a supply chain which is able to supply big
quantities required, in the shortest lead time, covering large product portfolios and
providing better services. Having these capabilities makes a responsive supply chain.
Responsiveness towards customer demand for quantity and quality comes at a price. For
example, to respond to a large product portfolio a company needs to increase the
production and storage capacity which will increase the cost. The increase in cost will have
an inverse effect on the efficiency of the supply chain. So a strategic decision to increase the
responsiveness will have additional cost which will lower the efficiency. It's a trade-off
between responsiveness and efficiency. Some companies being more responsive will have
less efficient supply chain and if companies need an efficient supply chain then they have to
lower the level of responsiveness. Strategically companies have to decide on the level of
responsiveness they need to provide and try to bring the efficiency by enhancing the
processes and technologies.
From purchase of raw material to delivery of final product to the customer, a supply chain
has different stages and the demand uncertainty is different for each stages. It is very
important to understand the demand at each stage of supply chain and choose the
appropriate level of responsiveness or efficiency for that level. To make it clearer let's have
an example of Dell computers which uses the direct order model where customers can
configure computers and place orders online. Dell gives a choice to customers to make
customized models for their requirement, and delivers them at their door steps. This
increased the implied demand uncertainty for Dell which needs a responsive supply chain.
To provide these services to the customer there will be additional costs involved for carrying
huge inventory for all the parts which cannot be charged to the customers because Dell has
to be competitive in the market to survive. As a solution to this increased cost Dell closely
collaborates with suppliers, which allows Dell to operate with only a few hours of inventory
for some parts and a few days of inventory for other common components. This way the
supplier will have less demand uncertainty which can be handled through an efficient supply
chain. Thus Dell absorbs most the uncertainty and provides responsiveness in supply chain
and its supplier being efficient absorbs very little uncertainty. To achieve strategic fit
companies need to bring consistency between implied demand uncertainty and supply
chain responsiveness. For a high implied demand uncertainty we need a responsive supply
chain and for a low implied demand uncertainty we need an efficient supply chain.