MODULE 8:

OPTIMIZATION, SUSTAINABILITY,
AND TECHNOLOGY

Section A: Optimizing Supply Chain

Strategy and Tactics

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Module 8, Section A

Section A Introduction
Section A Key Processes: Section A Topics:
▪ Evaluate and optimize the supply ▪ Topic 1: Business and Supply
chain. Chain Strategy
– Optimize the supply chain ▪ Topic 2: Supply Chain Strategic
strategy. Value and Optimization
▪ Evaluate existing supply chain
strategy.
▪ Redesign strategy for
optimization.
– Optimize the supply chain
network and processes.
▪ Evaluate existing supply chain
network and processes.
▪ Redesign network and
processes for optimization.
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Topic 1: Business and Supply Chain Strategy

Alignment of Strategies

A plan for choosing A plan for how a A plan for how the
how to compete company will supply chain will
function in its function in its
environment environment to
meet business
goals and
strategies

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Topic 1: Business and Supply Chain Strategy

Processes to Develop or Design the Supply Chain

Develop Design or Redesign

▪ Align with business strategy

– Business plan, financials Identify customer and
– External scanning business requirements
– Current capacity, resilience, etc. Identify current/future
▪ Create supply chain strategy state
– Define customer service
– Set revenue model Perform gap analysis
– Do mapping
– Align in-house vs contracted Develop action plan
– Document and get approval

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Topic 1: Business and Supply Chain Strategy

Common Business Strategies

Low Cost (Cheaper) Differentiation (Better)
Broad Low Cost Broad Differentiation
• Compete: cost • Compete: customer
• Low price experience and quality
• No frills • Attributes and variety
appeal to many
Best Cost
• Compete: cost and quality
• Best value at low price
Focused Focused Low Cost Focused Differentiation
(Segment • Compete: cost and • Compete: Innovation and
-specific) responsiveness niche marketing
• Well defined niche • Unique strategies for niche
market market

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Topic 1: Business and Supply Chain Strategy

Low-Cost and Differentiation Strategies

Low-Cost Advantage Product or Service
Differentiation
▪ High operational efficiency ▪ Competitive analysis
▪ Standardized products ▪ Nonprice basis distinction
▪ Tight inventory control – Availability
▪ Target costing – Durability
– Quality
▪ Global strategy and
economies of scale – Reliability
– Diversity of product line
▪ Mass marketing
– Special features
▪ Postponement

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Topic 1: Business and Supply Chain Strategy

Focus Advantage Strategies

Mass vs. Niche Marketing Responsiveness

▪ Safety stocks or close ▪ Mass marketing: same
warehouses message to all market
▪ Agility (ramp production up (enters consciousness).
or down fast) ▪ Niche marketing tailors
message to 1+ segments.
Innovation
▪ R&D, time-to-market, and
time-to-volume.

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Topic 1: Business and Supply Chain Strategy

Organizational Strategy: Customer Focus and Alignment

Commitments and cooperation to synchronize

objectives
Right
• Product/service

Supply chain strategy • Price

• Time and place

Organiza- Organiza- Organiza- Organiza- Organiza-
tional tional tional tional tional
strategy strategy strategy strategy strategy

S2 S1 Nucleus C1 C2
firm End
user
Objective 1 Objective 1 Objective 1 Objective 1 Objective 1
…2 …2 …2 …2 …2
…3 …3 …3 …3 …3
…n …n …n …n …n

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Topic 1: Business and Supply Chain Strategy

Strategies: Forecast vs. Demand-Driven Enterprise

Forecast-Driven Enterprise Demand-Driven Enterprise

▪ Problem: Bullwhip effect – Solution: Real data, not

▪ End user demand variability forecasts.
increases at each stage due – Partner trust and
to each firm’s demand collaboration.
forecast inaccuracies.
– Share real demand data
Supplier(s)
Factory along supply chain.
Distributor
Retailer
– “Agile” response to order
Customer flow variability.
– Pull! Don’t push.
Demand
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Topic 1: Business and Supply Chain Strategy

Organizational Strategy: Product-Type-Driven

Functional Product SCs Innovative Product SCs

▪ High average utilization rate ▪ Buffer capacity and safety stock
▪ Minimal inventory with high turns ▪ Aggressive reduction of lead times
▪ Short lead time ▪ Choose suppliers for speed,
flexibility, quality (not cost)
▪ Choose suppliers for cost, quality
▪ Modular design with postponement
▪ Products with maximum of differentiation
performance, minimal cost
▪ Market responsiveness
▪ Predictability and low cost
Suppliers Customers
Functional products
Nucleus
Multiple supply chains
company
Innovative products

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Topic 1: Business and Supply Chain Strategy

Business Plan
Statement of long-range strategy and revenue, cost,
and profit objectives with budgets and projected
financial statements

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Topic 1: Business and Supply Chain Strategy

Fundamental Elements and Value Proposition

Porter’s five
Value added
fundamental elements:
Customer service
Quality
Customer service
Utility vs. price Sales channels
Value system
Customer’s perspective
Operating model
Asset footprint
Relative to the competition

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Topic 1: Business and Supply Chain Strategy

Core Competencies
▪ Best at?
– Decision making (plan, enable)
– Execution (source, make, deliver, return)
▪ Relative to competition
▪ Because
– Economies of scale
– Geography/culture
– Technology
– Resources

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 Topic 1: Business and Supply Chain Strategy

Cost Structure and Revenue Model

▪ Cost structure differs by operating model
Inventory Carrying/
Model Production Cost Best For
Planning Cost
Make-to-stock Low High Standardized, high
demand
Assemble-to-order Mid Low Some variety,
moderate demand
Make-to-order High Low Variety, sporadic
Engineer-to-order Delayed until sale Delayed until sale Highly custom

▪ Global, regional, or country-specific asset footprint

▪ Revenue model (how to make a profit)
– Sales channels by supply chain
– Prioritizing customers

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Topic 1: Business and Supply Chain Strategy

The Three Vs

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Topic 2: Supply Chain Strategic Value and Optimization

Aligning Organizational and SC Strategies

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Topic 2: Supply Chain Strategic Value and Optimization

Value Chain and Mapping

Value
Value Value
stream
chain stream
mapping

Functions in a Processes that Map as is and to

company that create, produce, be value
add value to and deliver a streams to
goods or product or improve
services service process, cutting
non-value-
added steps

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Topic 2: Supply Chain Strategic Value and Optimization

Balancing Varied Stakeholder Values

Companies in SC Profit, market share, image
End customers Product and service quality, affordability,
availability
Investors Return on investment, quality of
communications
Lenders Interest, long-term stability, return of principal
Communities/ Tax base, environment, jobs
environment
Governments Laws, regulation, overall impact
Employees Job security, compensation, opportunity,
working conditions

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Topic 2: Supply Chain Strategic Value and Optimization

Financial Value
▪ Cut costs to yield net gains at the bottom line.

▪ “It takes money to make money” (e.g., upgrades).

▪ Equitably distribute gains

(all stakeholders).

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Topic 2: Supply Chain Strategic Value and Optimization

Customer Value
Resources are invested in creating the value of greatest
importance to the market.

Quality Affordability Availability

Service Sustainability

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Topic 2: Supply Chain Strategic Value and Optimization

Social Value

Deliver
Avoid Integrate
socially
negative sustainability in
desirable
side effects. supply chain.
goods.

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Topic 2: Supply Chain Strategic Value and Optimization

Existing Network and Process Evaluation

Organizational design
• Framework
Processes
• From logistics, procurement silos to
business process excellence,
networking, and visibility
Systems and technology
• Automation, transaction support
(ERP), visibility (trust?) Customer Financial
Human resources Value Value
• Holistic knowledge, go-between
with executive champion
Metrics
• Performance benchmarking and Supply Chain Goal
checklists
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Topic 2: Supply Chain Strategic Value and Optimization

Excellence in Customer Service

Fundamental attributes:
▪ Availability
▪ Operational performance
▪ Customer satisfaction

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Topic 2: Supply Chain Strategic Value and Optimization

Effective and Efficient Use of Systemwide Resources

▪ Effectiveness:
– Right product and right
amount to right customer
at right time.
▪ Efficiency:
– Actual compared to
standard output.
– How well performing
relative to standards.

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Topic 2: Supply Chain Strategic Value and Optimization

Efficiently and Effectively Leveraging Partner Strengths

Strong partnerships:
▪ Add value to products
▪ Improve market access
▪ Build financial strength
▪ Add technological strength
▪ Strengthen operations
▪ Enhance strategic growth
▪ Improve organizational skills
▪ Build trust.

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Topic 2: Supply Chain Strategic Value and Optimization

Cost Structure, Revenue Model, and Tax Strategy

▪ Align organizational and SC cost structures.
– Low cost Efficient (economies of scale, lowest cost
make vs. buy choices, not as responsive).
– Innovative Responsive (transformative technology,
scalable capacity, not as efficient).
▪ Spend management.
– Control outflow of funds to increase profit.
▪ Align organizational and SC revenue models.
– Shift view from cost center to value-added service.
▪ Leverage tax benefits of country, region, or city, especially
if new area has other benefits (e.g., better efficiency).

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Topic 2: Supply Chain Strategic Value and Optimization

Reasons Misalignments or Gaps Occur

▪ Change in market conditions
– SC must be prepared to adapt quickly.
▪ Change in business direction
– New products may require complete recasting of SC.
▪ Disruptive technology
▪ Anticipated change in market
– Innovative SC can respond in advance.
▪ Business combination or merger
▪ Product life cycle change

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Topic 2: Supply Chain Strategic Value and Optimization

Resolving Misalignments or Gaps

Objective
Recognition Change
analysis

Culture
rewards or Anonymous
Watch trends
punishes surveys
failure?

Change
Critics needed Consultants
management

Brainstorm
worst cases

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Topic 2: Supply Chain Strategic Value and Optimization

Aligning with Complexity and Partners

▪ Only as complex as it needs to be
– Need multiple supply chains?
– Variety only if actually in demand
▪ Align with supply chain partners
– Determine who is channel master
– Buyer’s or seller’s market?

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 Topic 2: Supply Chain Strategic Value and Optimization

Network Modeling and Operations Research

Models are as complex as needed, not more.
Inputs

Processes

Maximum
Optimum (top
objectives) Outputs
Minimum
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