Copyright 2011 John Wiley & Sons, Inc. Chapter 2 Supply Chain Strategy 2-1 Copyright 2011 John Wiley & Sons, Inc

Copyright 2011 John Wiley & Sons, Inc.

Chapter 2

Supply Chain Strategy

2-1Copyright 2011 John Wiley & Sons, Inc.

Lecture Outline

2-2

• What is Supply Chain Strategy?

• Achieving a Competitive Advantage

• Building Blocks of Supply Chain Strategy

• Supply Chain Strategic Design

• Strategic Considerations

• Productivity as a Measure of Competitiveness


What is Supply Chain Strategy?

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• Supply Chain Strategy– a long-range plan for the

design and ongoing management of all supply chain decisions that support the business strategy


What is Supply Chain Strategy?Continued

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• Business Strategy– a plan for the company that clearly defines the

company’s long-term goals, how it plans to achieve these goals, and the way the company plans to differentiate itself from its competitors


Strategic Alignment

All organizational functions should be designed to support the business strategy

– Supply Chain Management (SCM)

– Marketing

– Operations

– Distribution

– Purchasing

– Finance


Achieving a Competitive Advantage

• A well designed supply chain can provide companies with needed competitive advantage

• Two advantages provide a basis of strategy and competitive positioning in the marketplace:

– Cost-Productivity Advantage

– Value Advantage


Cost-Productivity Advantage

Advantage comes from offering the lowest cost product or service

• Economies of Scale– enable the company to spread its fixed costs over a

greater volume

• Experience Curve– organizational costs are reduced due to experience

that results from processing a higher volume

• Efficient Supply Chain Network2-7Copyright 2011 John Wiley & Sons, Inc.

Value Advantage

Advantage comes from providing a product with the greatest perceived differential value compare with its competitors

• Methods to gain a Value Advantage:

– Identify “Value-Segments”

– Service


Competitive Advantage Matrix


SCM as a Source of Value

Improving Supply Chain Management can provide a way for companies to achieve a cost-value advantage over competitors

• Reduce Supply Chain Costs– inventory, distribution, coordination

• Service Excellence– shorter lead times, just-in-time deliveries

• New Supply Chain Technologies


Building Blocks of SupplyChain Strategy


Operations Strategy

The operations Strategy involves decisions about how it will produce goods and services

• Dynamic Process– needs to change as the product moves

through different life-cycle changes

• Product Positioning Strategy– determines the degree of product

customization offered


Product Positioning Strategy

Relates to the form in which the company stores its finished products and delivery lead time

• Three options:

– Make-to-stock

– Assemble-to-order

– Make-to-order


Make-to-stock Strategy

Produces finished products for immediate sale or delivery, in anticipation of demand

Best strategy for standardized products that sell in high volume

– large production batches– provides finished products in inventory– typically assembly line operations– delivery lead time is shortest– no customer involvement in product design


Assemble-to-order Strategy

The product is partially completed and kept in a generic form, then finished when an order is received

– provides for many variations of the end product– standard components held in inventory– components combined to customer

specifications– shorter lead times than make-to-order– low finished-goods inventory


Make-to-order Strategy

The product is made to customer specifications after an order has been received

Strategy for customized products or products with infrequent demand

– provides for many variations of the end product

– low product volumes

– longest delivery time


Product Positioning Strategies


Distribution Strategy

Determines how the company plans to get its products and services to customers

– channel intermediaries vs. direct sales to customers

– market segment analysis

– competition analysis

– vary strategies by market segment


Sourcing Strategy

Determines which aspects of a company’s business it is going to outsource and which ones it will retain internally

• Focus on Core Competencies

“Do what you do best, and outsource the rest!”

-- Tom Peters


Sourcing Strategy Continued

• Outsourcing Advantages

– cost

– expand into new markets/geographic areas

– achieve technological capability

• Outsourcing Risks

– loss of control

– dependency


Customer Service Strategy

Determines how the company is going to meet the demands of its customers

Segment the market by volume and profitability

– same service for all market segments?

– same products for all market segments?



Supply Chain Strategic Design

The supply chain strategy must support the competitive priority

Five primary Competitive Priorities:

• Cost

• Time

• Innovation

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• Quality

• Service


Competing on Cost

Companies that compete on cost offer products at the lowest price possible

• Supply Chain Considerations:

– asset utilization

– inventory days of supply

– product and supply chain costs

– product and process standardization


Competing on Time

Companies that compete on time deliver products in as short a time as possible

• Can utilize:

– technology to speed processes

– flexible workforce for peak demands

– system analysis to eliminate/combine processes


Competing on Time Continued

• Measures:

– rapid-delivery

– on-time delivery


Competing on Innovation

Companies that compete on innovation focus on developing “must have” products

• Supply chains of these companies focus on:

– speed

– product design collaboration


Competing on Quality

Companies that compete on quality have products and services known for their premium nature

• Embed quality throughout supply chain

– TQM, Six Sigma

• Product Traceability

– the supply chain has the ability to easily trace a product


Competing on Service

Companies that compete on service tailor their products to meet the specific needs of target customers

– customer loyalty

– consistency

– reliability


Competing on All Dimensions?

Successful companies focus on the strategically important dimensions

• Order Winners

– characteristics that win orders

• Order Qualifiers– characteristics that qualify the company

to participate in a particular market


Small Versus Large Firms

• Large companies have advantages:

– Quantity Discounts

– High Degree of Supply Chain Control

• Smaller companies can develop supply chain strategies within a particular market segment


Supply Chain Adaptability

Supply chain strategy is a dynamic process

• Factors requiring adaptability:

– development of a new technology

– change in the scope of a company’s business

– change in a company’s competitive position


Productivity as a Measure of Competitiveness

Productivity is a measure of how well a company uses its resources

Productivity =

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Output

Input


Productivity Example

A dry cleaning company has a monthly dollar value of outputs worth $18,000 and inputs worth $9,000. Calculate the monthly total productivity.

Total Productivity =

Total Productivity = = 2.0

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Output

Input

$18,000

$9,000


Productivity Example Continued

The machines at the dry cleaning company can clean 32 garments in eight hours. Calculate the machine productivity.

Machine Productivity =

Machine Productivity = = 4 garments/hr

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# of garments

cleaning time

32 garments

8 hours


Interpreting Productivity

Productivity is a useful metric for evaluating competitiveness

Productivity can be:

– benchmarked against a standard

– tracked over time


Productivity Example Continued

The dry cleaning company chose to track machine productivity on a monthly basis and had purchased new machines in the third month:

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Month 1 2 3 4 5

Productivity (garments / hr)

3.8 4.0 5.3 6.4 6.9


Review

1. Supply chain strategy is a long-range plan for the design and ongoing management of the supply chain to support the business strategy.

2. Strategic alignment needs to exist between the business strategy and the functional strategies. A company’s supply chain strategy should be developed to support the company’s business strategy.


Review Continued

3. Companies can gain a competitive advantage through either a cost/productivity advantage or a value advantage. A company with a cost/productivity advantage maintains competitiveness by offering the lowest cost product or service. A company with a value advantage maintains competitiveness by providing a product with the greatest perceived differential value compared with its competitors.


Review Continued

4. The experience curve describes the relationship between unit costs and cumulative volume, where organizational costs are reduced due to experience and learning effects that result from processing a higher volume.

5. The four building blocks of supply chain strategy are operations strategy, sourcing strategy, distribution strategy, and customer service strategy.


Review Continued

6. The way a company competes in the marketplace is called a competitive priority. The supply chain strategy and supply chain design will be different based on a company’s competitive priorities.

7. Competitiveness can be measured by productivity, which is a measure of how a company utilizes its resources.


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Copyright 2011 John Wiley & Sons, Inc. Chapter 2 Supply Chain Strategy 2-1 Copyright 2011 John Wiley & Sons, Inc