Supply Chain Performance

1. Supply Chain Performance Achieving Strategic Fit and Scope Wike Agustin Prima Dania, STP, M.Eng

2. World Wide Business • Foodstuffs such as soy sauce, noodle, etc. • Low-end computers for private use with high annual sales. • High-end computers for corporate markets with world-wide market but low annual sales. • High-end trendy clothing.

3. Competitive and supply chain strategies • Company’s competitive strategy defines the set of customer needs that it seeks to satisfy through its products and services  convenience, availability, responsiveness, etc • How the customer priorities product cost, delivery time, variety, and quality. • Factors that contribute to competitive strategy: • Level of quality • Price • Standard product or customisation • Delivery time • Customer support • Once a competitive strategy has been developed, it is necessary to ensure a strategic fit between the competitive strategy and the supply chain strategy. • Relationship between competitive and SC strategies  start with the value chain

4. The Value Chain in a Company • NPD: the portfolio of new product that a company will try to develop • M&S: how the market will be segmented and how the product will be positioned, priced, and promoted • Operation: procurement of raw materials, transportation material to and from company, manufacture of the product or operation • Distribution: distribution of the product to the customer • Service: follow up service and specification of whether these process will be performed in house or out-sourced Finance, Accounting, Information, Technology, Human Resources NPD Marketing & Sales Operation Distribution Service

5. Achieving Strategic Fit • Strategic fit: • both the competitive and supply chain strategies have aligned goals. • Consistency between the customer priorities that competitive strategy hopes to satisfy and the SC capabilities that the SC strategy aims to build. A company’s success/failure linked to the following keys: • The competitive strategy and all function strategies must fit together to form a coordinated overall strategy • The different functions in a company must appropriately structure their processes and resources to be able to execute the strategies successfully • The design of the overall SC and the role of each stage must be aligned to support the SC strategy

6. 3 steps to achieving strategic fit • Understanding the customer and SC uncertainty • The quantity of the product needed in each lot • The response time that customers are willing to tolerate • The variety of product needed • The service level required • The price of the product • The desired rate of innovation in the product

7. Customer Need Causes Implied Demand Uncertainty Range of quantity required increases Increases because a wider range of the quantity required implies greater variance in demand Lead time decreases Increases because there is less time in which to react to orders Variety of products required increases Increases because demand per product becomes disaggregate Number of channels through which product acquired increases Increases because total customer demand is now disaggregated over more channels Rate of innovation increases Increases because new products tend to have more uncertain demand Required service level increases Increases because the firm now has to handle surges in demand Impact of customer needs on implied demand uncertainty

8. Predictable supply and uncertain demand or uncertain supply and predictable demand or somewhat uncertain supply and demand Predictable supply and demand Highly uncertain supply and demand Salt at a supermarket An existing automobile model A new communication device Low Medium High uncertainty uncertainty uncertainty The Implied Uncertainty (Demand and Supply) Spectrum

9. Understanding the SC capabilities • To understand supply chain is to understand how the firm can best meet demand in an uncertain environment • Supply chain can be categorised by 2 factors: • responsiveness: usually comes at a high cost • cost efficiency: usually comes at low responsiveness • SC has ability to do: • Respond to wide ranges of quantities demanded • Meet short lead times • Handle a large variety of products • Build highly innovative products • Meet a high service level • Handle supply uncertainty

10. Responsiveness High Low High Low Cost Cost-Responsiveness Efficient Frontier • Responsiveness, however, comes at a cost To respond to a wider range of quantities, capacity must be increased, & this leads to a cost increase. The relationship between responsiveness and cost is shown below:

11. The responsiveness spectrum Highly efficient Somewhat efficient Somewhat responsive Highly responsive Production scheduled weeks/months in advance with little variety or flexibility Traditional make to stock manufacturer with production lead time of several weeks Delivering a large variety of products in a couple of weeks Changing merchandise mix by location and time of day

12. Achieving strategic fit • To achieve strategic fit, the greater the implied uncertainty, the more responsive the supply chain should be. • Increasing implied uncertainty from customers and supply sources is best served by increasing responsiveness from the supply chain. • Low implied uncertainty can be served by a cost-efficient supply chain. • This relationship is represented by the “zone of strategic fit” illustrated in figure below. • Examples: • Constant rate of demand for sugar from highly reliable supplier and transport • A variety of high fashion products from a range of unreliable suppliers

13. Responsive Supply Chain Zone of Strategic Fit Responsive Spectrum Efficient Supply Chain Low Implied Uncertainty Spectrum High Finding the- Zone of Strategic Fit

14. Comparison of efficient and responsive supply chain

15. Obstacles to achieving strategic fit • Increasing variety of products • Decreasing product life cycles • Increasingly demanding customers • Fragmentation of SC ownership • Globalization • Changing business environment • Difficulty executing new strategies