Supply Chain Performance: Achieving Strategic Fit and Scope

 1.1 Competitive and Supply Chain Strategies:

A company's competitive strategy is about how it tries to be better than other companies by
offering products and services that meet customer needs in a special way. It focuses on what
customers want and makes sure its products or services are better, cheaper, or more unique
than others.
For example, Walmart aims to provide high availability of a variety of products of reasonable
quality at low prices.
In each case, the competitive strategy is defined based on how the customer prioritizes product
cost, delivery time, variety, and quality. A McMaster-Carr customer places greater emphasis on
product variety and response time than on cost. A Walmart customer, in contrast, places greater
emphasis on cost. A Blue Nile customer, purchasing online.

product development strategy: A product development strategy specifies the portfolio of new
products that a company will try to develop. It also dictates whether the development effort will
be made internally or outsourced.

Marketing and sales strategy: specifies how the market will be segmented and how the product
will be positioned, priced, and promoted.

Supply chain strategy: 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 distribution of the product to the customer, along with
any follow-up service and a specification of whether these processes will be performed in-house
or outsourced.

 1.2 Achieving Strategic Fit

Strategic fit requires that both the competitive and supply chain strategies of a company
have aligned goals. 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
build.
For a company to achieve strategic fit, it must accomplish the following:

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.

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A company may fail either because of a lack of strategic fit or because its overall supply chain
design, processes, and resources do not provide the capabilities to support the desired strategic
fit. Consider, for example, a situation in which marketing is publicizing a company’s ability to
provide a large variety of products quickly; simultaneously, distribution is targeting the lowest-
cost means of transportation.

How Is Strategic Fit Achieved?

What does a company need to do to achieve that all-important strategic fit between the supply
chain and competitive strategies? A competitive strategy will specify, either explicitly or
implicitly, one or more customer segments that a company hopes to satisfy. To achieve strategic
fit, a company must ensure that its supply chain capabilities support its ability to satisfy the
needs of the targeted customer segments.

There are three basic steps to achieving this strategic fit, which we outline here and then discuss
in more detail:
Step 1: Understanding the customer and supply chain uncertainty
Step 2: Understanding the supply chain
Step 3: Achieving strategic fit

Step 1. Understanding the customer and supply chain uncertainty:

First, a company must understand the customer needs for each targeted segment and the
uncertainty these needs impose on the supply chain. These needs help the company define the
desired cost and service requirements. The supply chain uncertainty helps the company identify
the extent of the unpredictability of demand and supply that the supply chain must be prepared
for.
In general, customer demand from different segments varies along several attributes, as follows:
• Quantity of the product needed in each lot: An emergency order for material needed to
repair a production line is likely to be small. An order for material to construct a new production
line is likely to be large.
• Response time that customers are willing to tolerate: The tolerable response time for the
emergency order is likely to be short, whereas the allowable response time for the construction
order is apt to be long.
• Variety of products needed: A customer may place a high premium on the availability of all
parts of an emergency repair order from a single supplier. This may not be the case for the
construction order.
• Service level required: A customer placing an emergency order expects a high level of product
availability. This customer may go elsewhere if all parts of the order are not immediately
available. This is not apt to happen in the case of the construction order, for which a long lead
time is likely.
• Price of the product: The customer placing the emergency order is apt to be much less
sensitive to price than the customer placing the construction order.

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• Desired rate of innovation in the product: Customers at a high-end department store expect a
lot of innovation and new designs in the store’s apparel. Customers at Walmart may be less
sensitive to new product innovation.

Demand uncertainty reflects the uncertainty of customer demand for a product.

Implied demand uncertainty, in contrast, is the resulting uncertainty for only the portion of the
demand that the supply chain plans to satisfy based on the attributes the customer desires.

For example, a firm supplying only emergency orders for a product will face a higher implied
demand uncertainty than a firm that supplies the same product with a long lead time, as the
second firm has an opportunity to fulfill the orders evenly over the long lead time

Implied Uncertainty and Other Attributes:

 Forecasting is more accurate when demand has less uncertainty
 For uncertain demand, margin may be higher
 Increased implied demand can lead to either a stockout or an oversupply situation.
 Markdowns are high for products with greater implied demand uncertainty because
oversupply often results.

Levels of Implied Demand Uncertainty:

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Lead time refers to the total time taken from the initiation of a process to its completion. In
business and manufacturing, it typically means the time between placing an order and receiving
the goods.
Translation in Urdu:
،‫لیڈ ٹائم کا مطلب وہ کل وقت ہے جو کسی عمل کے آغاز سے لے کر اس کے مکمل ہونے تک لگتا ہے۔ کاروبار اور مینوفیکچرنگ میں‬
‫یہ عام طور پر اس وقت کو ظاہر کرتا ہے جو آرڈر دینے اور سامان وصول کرنے کے درمیان ہوتا ہے‬

Step 2: Understanding the 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
 Responsiveness comes at a cost
 Supply chain efficiency is the inverse to the cost of making and delivering the product
 The cost-responsiveness efficient frontier curve shows the lowest possible cost for a
given level of responsiveness

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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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 Supply Chain Drivers and Metrics

Supply chain performance is influenced by key drivers, which determine efficiency,

responsiveness, and overall effectiveness. These drivers are measured using metrics,
which help businesses track and improve their supply chain operations.

1. Facilities (Manufacturing & Storage):

Definition: The physical locations in the supply chain network where product is
stored, assembled, or fabricated.

Role in Supply Chain:

 Determines production capacity and storage availability.
 Impacts delivery speed and inventory holding costs.
 Centralized facilities reduce costs, while decentralized ones improve
responsiveness.

 Example:

o Production Facilities: A Tesla Gigafactory where electric cars and batteries

are manufactured.

o Warehouses: Amazon Fulfillment Centers, where products are stored

before shipping to customers.

2. Transportation (Logistics & Distribution):

Definition: The movement of goods between different stages of the supply chain.
Role in Supply Chain:
 Affects delivery time and cost.
 Fast transportation improves responsiveness but increases expenses.
 Choosing the right transport mode (air, sea, rail, road) impacts cost efficiency.

 Example:

o Coca-Cola transports beverages via trucks, ships, and rail depending on the
destination.

3. Pricing
Definition: How much a firm will charge for the goods and services that it makes
available in the supply chain.