Supply Chain Performance

Achieving Strategic Fit and Scope

Outline
•Competitive and Supply Chain Strategies
•Achieving Strategic Fit
•Expanding Strategic Scope
•Challenges of Achieving Fit
Competitive and Supply Chain Strategies

• Competitive strategy defines (relative to its competitors)

the set of customer needs that it seeks to satisfy through
its products and services.
• E.g. Melcom aims to provide high availability of a variety
of products of reasonable quality at low prices. (product
availability and low price)
• JUMIA’s (online shop) competitive strategy is built around
providing the customer with convenience, availability,
and responsiveness.
• The competitive strategy is defined how the customer
prioritizes product cost, delivery time, variety, and quality.
• Competitive strategy differs across firms
 Competitive and Supply Chain Strategies

• Competitive strategy targets one or more

customer segments and aims to provide
products and services that satisfy these
customers’ needs.
• The value chain:
 Competitive and Supply Chain Strategies

• To achieve a competitive strategy, all these (value

chain) functions play a role, and each must develop its
own 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.
• A marketing and sales strategy specifies how the
market will be segmented and
– how the product will be positioned, priced, and promoted.
 Competitive and Supply Chain Strategies
• 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.
– It also includes design decisions regarding inventory,
transportation, operating facilities, and information flows.
• Consistency and support between supply chain strategy,
competitive strategy, and other functional strategies is
important
• KFC , Bush canteen, Imperial perkin
• Novelty cakes, cakes at the mall
• Fruit juice – package vs blueskies
• Accra mall vs Kantanmanto/ Accra makola
market
• Black cotton saloon by appointment,
individual rooms, call reminder etc, natural
hair
 Achieving Strategic Fit

Given its competitive strategy, what should a

company’s supply chain try to do particularly
well?
 Achieving Strategic Fit
• Strategic fit:
– 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.
– requires that both the competitive and supply chain
strategies of a company have aligned goals.
• A company may fail because of a lack of strategic
fit or because its processes and resources do not
provide the capabilities to execute the desired
strategy
 How Is Strategic Fit Achieved?

• 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.
• Three basic steps to achieving strategic fit:
– Understanding the customer and supply chain
uncertainty
– Understanding the supply chain capabilities
– Achieving strategic fit
Understanding the customer and supply chain
uncertainty

• To understand the customer, the needs of the

customer segment must be identified.
• Customer demand varies along several
attributes from different segments , as follows:
– Quantity of product needed in each lot
– Response time customers will tolerate
– Variety of products needed
– Service level required
– Price of the product
– Desired rate of innovation in the product
Understanding the customer and supply chain
uncertainty
• Demand uncertainty: reflects the uncertainty of
customer demand for a product.
• Implied demand uncertainty: 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.
– It is the demand uncertainty imposed on the supply
chain because of the customer needs it seeks to
satisfy.
– Implied demand uncertainty is related to customer
needs and product attributes
Understanding the customer and supply chain
uncertainty
• Both the product demand uncertainty and various customer
needs that the supply chain tries to fill affect implied demand
uncertainty.
 Understanding the customer and supply chain
uncertainty

• Understanding the Customer

– Lot size
– Response time
– Service level Implied
– Product variety Demand
– Price Uncertainty
– Innovation
Levels of Implied Demand Uncertainty
 Understanding the customer and supply chain
uncertainty

• The first step in achieving strategic fit between

competitive and supply chain strategies is:
– to understand customers and supply chain
uncertainty.
– Uncertainty from the customer and the supply
chain can be combined and mapped on the
implied uncertainty spectrum.
 Understanding the supply chain capabilities

• How does the firm best meet demand in that

uncertain environment?
• Creating strategic fit is all about designing a
supply chain whose responsiveness aligns with
the implied uncertainty it faces.
• Supply chains have different characteristics
that influence their responsiveness and
efficiency.
 Understanding the supply chain capabilities
• Supply chain responsiveness includes a supply
chain’s ability to do the following:
– 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
• The more of these abilities a supply chain has, the
more responsive it is.
• Responsiveness comes at a cost.
Understanding the supply chain capabilities
• Supply chain efficiency is the inverse of the cost of
making and delivering a product to the customer.
– Increases in cost lower efficiency.
• For every strategic choice to increase
responsiveness, there are additional costs that
lower efficiency.
• The cost-responsiveness efficient frontier : is the
curve showing the lowest possible cost for a given
level of responsiveness.
Cost-Responsiveness Efficient Frontier
• The lowest cost is defined based on existing technology.
– not every firm is able to operate on the efficient frontier, which
represents the cost-responsiveness performance of the best supply
chains.
• A firm that is not on the efficient frontier can improve both its
responsiveness and its cost performance by moving toward the
efficient frontier.
• A firm on the efficient frontier can improve its responsiveness
only by increasing cost and becoming less efficient.
– Such a firm must then make a trade-off between efficiency and
responsiveness.
• Firms on the efficient frontier can also improve their processes
and change technology to shift the efficient frontier itself.
• Given the trade-off between cost and responsiveness, a key
strategic choice for any supply chain is the level of
responsiveness it seeks to provide.
• Supply chains range from those that focus solely on being
responsive to those that focus on goal of producing and
supplying at the lowest possible cost.
 The Responsiveness Spectrum

Highly Somewhat Somewhat Highly

efficient efficient responsive responsive

Firm A Firm B Firm C Firm D

• The second step in achieving strategic fit between

competitive and supply chain strategies is to
understand the supply chain and map it on the
responsiveness spectrum.
 Achieving strategic fit
• After mapping the level of implied uncertainty and
understanding the supply chain position on the
responsiveness spectrum, the third and final step is
to ensure that the degree of supply chain
responsiveness is consistent with the implied
uncertainty.
• The goal is to target high responsiveness for a
supply chain facing high implied uncertainty, and
efficiency for a supply chain facing low implied
uncertainty.
• Increasing implied uncertainty from customers and
supply sources is best served by increasing
 Achieving strategic fit
Responsive
supply chain

Responsivenes e of it
n F
s spectrum Zo egic
t rat
S

Efficient supply
chain

Certain Implied Uncertain

demand uncertainty demand
spectrum
 Achieving strategic fit
• For a high level of performance, companies should
move their competitive strategy (and resulting implied
uncertainty) and supply chain strategy (and resulting
responsiveness) toward the zone of strategic fit.
• Achieving strategic fit is to assign roles to different
stages of the supply chain that ensure the appropriate
level of responsiveness.
• The desired level of responsiveness required across
the supply chain may be attained by assigning
different levels of responsiveness and efficiency to
each stage of the supply chain
 Expanding Strategic Scope
• Scope of strategic fit
– refers to the functions within the firm and stages within a supply chain
that devise an integrated strategy with a shared objective
– One extreme: each function at each stage develops its own strategy
– Other extreme: all functions in all stages devise a strategy jointly
• Intraoperation scope: Minimizing Local Cost - each stage of the supply
chain devising its strategy independently
• intrafunctional scope: Minimizing Functional Cost - firms attempt to
align all operations within a function.
• Interfunctional Scope: Maximizing Company Profit - all functional
strategies are developed to align with one another and with the
competitive strategy.
• Intercompany Scope: Maximizing Supply Chain Surplus –
• Agile Intercompany Scope: refers to a firm’s ability to achieve strategic
fit when partnering with supply chain stages that change over time.
 Challenges of Achieving Fit

• Increasing Product Variety and Shrinking Life

Cycles
• Globalization and Increasing Uncertainty
• Fragmentation of Supply Chain Ownership
• Changing Technology and Business
Environment
• The Environment and Sustainability