2. Topics to be covered Introduction to Supply Chain Management
: Supply Chain objectives, Importance Decision Phases, Process
view, Competitive and supply chain strategies, achieving strategic
fit Supply chain drivers, obstacles, framework Facilities,
inventory, transportation, information, sourcing, pricing
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3. Supply Chain- Meaning The supply chain encompasses all
activities involved in the transformation of goods from the raw
material stage to the final stage, when the goods and services
reach the end customer. Supply chain management involves planning,
design and control of flow of material, information and finance
along the supply chain to deliver superior value to the end
customer in an effective and efficient manner.
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4. DefinitionMohanty and Deshmukh define supply chain
management as a loop: It starts with the customer and ends with the
customer. Through the loop flow all materials, finished goods,
information and all transactions. It requires looking at the
business as one continuous, seamless process. This process absorbs
distinct functions such as forecasting, purchasing, manufacturing
and distribution, sales and marketing into a continuous business
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5. Definition Management of material, funds and information
flows both in and between facilities such as vendors, manufacturing
and assembly plants and distribution centers. Thomas and Griffin
The objective of managing the supply is to synchronize the
requirements of the customer with the flow of materials from
suppliers in order to affect a balance between what are often seen
as conflicting goals of high customer service, low inventory
management and low unit cost. - Stevens
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6. For a simple product like soap, the HUL supply chain
involves ingredient suppliers, transporters, the companys
manufacturing plants, carrying and forwarding agents, wholesalers,
distributors and retailers. A supply chain is dynamic and involves
the constant flow of information, product and funds between
different stages. Of late, firms have realized that it is not the
firms themselves but their supply chains that vie with each other
in the marketplace. https://www.facebook.com/ialwaysthink
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7. Order Delivery Lead TimeOrder Customerpenetration order
Order delivery leadpoint time Make Source component Assembly
Delivery s Supply chain lead time A typical firm sources material,
manufactures components, assembles the product and delivers the
finished product to the end customer. Total time required for the
supply chain to carry out all activities from the beginning to the
end is the supply chain lead time. Time required for the supply
chain to deliver the order to the customer after they place it is
the order delivery lead time. https://www.facebook.com/ialwaysthink
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8. Order penetration point based supplychain typology Customer
order Make Source Assembly Deliver Made to components Stock
Customer (FMCG order Products) Make Made to Source Assembly Deliver
components Order (Equipment Customer Manufacturer) order Make
Configure to Source Assembly Deliver components Order (Pizza
Manufacturer, Laptop Manufacturer)
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9. Objectives of Supply chain The objective of every supply
chain should be to maximize the overall value generated. The value
a supply chain generates is the difference between what the final
product is worth to the customer and the costs the supply chain
incurs in filling the customers request. Supply chain profitability
is the difference between the revenue generated from the customer
and the overall cost across the supply chain. The higher the supply
chain profitability, the more successful is the supply chain.
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10. Supply chain success should be measured in terms of supply
chain profitability and not in terms of the profits at an
individual stage. For any supply chain, there is only one source of
revenue: the customer. All flows of information, product or funds
generate costs within the supply chain. Thus the appropriate
management of these flows is a key to supply chain success.
Effective supply chain management involves the management of supply
chain assets and product, information
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total supply prettythings
11. The small size of Indian retail outlets limits the amount
of inventory they can hold, thus requiring frequent replenishment.
The only way for a manufacturer to keep transportation costs low is
to bring full truckloads of product close to the market and then
distribute locally using milk runs with smaller vehicles. The
presence of an intermediary who can receive a full truckload
shipment, break bulk, and then make smaller deliveries to the
retailers is crucial if transportation costs are to be kept low.
Distributors in India are also able to reduce transportation costs
for outbound delivery to the retailer by aggregating products
across https://www.facebook.com/ialwaysthink multiple manufacturers
during the delivery prettythings
12. Supply Chain Stages Supplier Manufacturer Distributor
Customer RetailerA typical supply chain may involve a variety of
stages. These supply chain stages include: Customers, Retailers,
Wholesalers/distributors, Manufacturers, Raw material
suppliers.Each stage in a supply chain is connected through the
flow of products, information, and funds. These flows often occur
in both directions and may be managed by one of the stages or an
intermediary. https://www.facebook.com/ialwaysthink
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13. Importance of Supply Chain Decisions Helps in achieving
success Companies being a leader at using supply chain design,
planning and operation help in achieving success. Effective flow of
goods and information Companies like Walmart who have invested
heavily in transportation and information infrastructure help in
achieving effective flow of goods and information. Reduces the
level of Inventory with the manufacturer Dell centralizes
manufacturing and inventories in a few locations and postpones
final assembly until orders arrive. Thus, Dell is able to provide a
large variety of PC configurations while keeping very low
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14. Improved match between supply and demand To improve the
match between supply and demand, Dell makes an active effort to
steer customers in real time, on the phone or via the internet,
toward PC configurations that can be built given the components
available. Reason for companys success For the Companies like Dell,
Toyota etc., the supply chain design, and its management of
product, information and cash flows play a key role in the companys
success. https://www.facebook.com/ialwaysthink prettythings
15. Reasons for Growing Importance of Supply ChainFirms that do
not manage their supply chain will incur huge inventory costs and
eventually end up losing a lot of customers because the right
products are not available at the right place and time.Five major
trends that have emerged to make supply chain management a critical
success factor in most industries. Proliferation in product lines
Companies have realized that more and more product variety is
needed to satisfy the growing range of customer tastes and
requirements. Companies like HUL, in their personal care products,
manage, on an average, 1200 SKUs. Chains like Foodworld manage
about 6000 SKUs. With increasing product variety, it becomes rather
difficult to forecast accurately. Hence, retailers and other
organizations involved in the business are forced to either
maintain greater amount of inventories or lose customers.
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16. Shorter product life cycles With increased competition,
product life cycles across all industries are becoming shorter. So
a firm like Dell, which has, on an average, just 7 days of
inventory, as compared to the industry average of 35 days, does not
have to worry about product and component obsolescence. Its
competitors with higher inventories end up writing off huge amounts
of stocks every year as obsolete. Higher level of outsourcing Firms
increasingly focus on their core activities and outsource non-core
activities to other competent players. This trend towards
outsourcing is irreversible but a higher level of outsourcing makes
supply chains more vulnerable, thereby forcing firms to develop
different types of supply chain capabilities within the
organization. https://www.facebook.com/ialwaysthink
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17. Shift in power structure in the chain In every industry,
the entities closer to customers are becoming more powerful. With
increasing competition, a steadily rising number of products are
chasing the same retail shelf space. Retail shelf space has not
increased at the pace at which product variety has increased. So
there have been case of retailers asking for slotting allowance
when manufacturers introduce new products in the market place.
Retailers have realized that they are powerful entities in the
chain and hence expect the manufacturers to be more responsive to
their demands and needs. Globalization of manufacturing Over the
past decade, tariff levels have come down significantly. Many
companies are restructuring their production facilities to be at
par with global standards. Unlike in the past, when firms used to
source components, produce goods and sell them locally, now firms
are integrating their supply chain for the entire world market.
This has made managing supply chains extremely complicated.
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18. Decision Phases in a SupplyChainSuccessful supply chain
management requires many decisions relating to the flow of
information, products and funds. Each decision should be made to
raise the supply chain surplus. These decisions fall into three
categories or phases, depending on the frequency of each decision
and the time frame during which the decision phase has an impact.
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19. Supply Chain Strategy or Design Itdecides what the chains
configuration willbe, how resources will be allocated andwhat
processes each stage will perform.Strategic decisions made by
companiesinclude whether to outsource or perform asupply chain
function in-house, the locationand capacities of production
andwarehousing facilities, the products to bemanufactured or stored
at various locations,the modes of transportation to be
madeavailable along different shipping legs andthe type of
information system to be utilized.Ciscos decisions regarding its
choice ofsupply sources for components, contractmanufacturers for
manufacturing and thelocation and capacity of its warehouses areall
supply chain design or strategicdecisions.
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20. 2. Supply Chain Planning The goalof planning is to maximize
the supplychain surplus that can be generatedover the planning
horizon given theconstraints established during thestrategic or
design phase. Planningincludes making decisions regardingwhich
markets will be supplied fromwhich locations, the subcontracting
ofmanufacturing, the inventory policies tobe followed and the
timing and size ofmarketing and price promotions. Dellsdecisions
regarding markets supplied bya production facility and
targetproduction quantities at each locationare classified as
planning decisions. https://www.facebook.com/ialwaysthink
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21. Supply Chain Operation Thegoal of supply chain operations
isto handle incoming customerorders in the best possible
manner.During this phase, firms allocateinventory or production
toindividual orders, set a date that anorder is to be filled,
generate picklists at a warehouse, allocate anorder to a particular
shippingmode and shipment, set deliveryschedules of trucks and
placereplenishment orders. https://www.facebook.com/ialwaysthink
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22. Process ViewA supply chain is a sequence of processes and
flows that take place within and between different stages and
combine to fill a customer need for a product. There are two
different ways to view the processes performed in a supply chain.
Cycle View The processes in a supply chain are divided into a
series of cycles, each performed at the interface between two
successive stages of a supply chain. Push/Pull View Pull processes
are initiated in response to a customer order, whereas push
processes are initiated and performed in anticipation of customer
orders. https://www.facebook.com/ialwaysthink prettythings
23. All supply chain processes can be broken down into four
process cycles: Customer order cycle Replenishment cycle
Manufacturing cycle Procurement cycleEach cycle occurs at the
interface between two successive stages of the supply chain.
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24. Supply Chain Process Cycles
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25. Sub processes in Each SupplyChain Process CycleSupplier
stage Buyer returns markets reverse flows to product supplier or
third party Buyer stage Buyer stage places order receives
supplySupplier stage Supplier stagereceives order supplies order
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26. Each cycle starts with the supplier marketing the product
to customers. A buyer then places an order that is received by the
supplier. The supplier supplies the order, which is received by the
buyer. The buyer may return some of the product or other recycled
material to the supplier or a third party.
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27. Within each cycle, the goal of the buyer is to ensure
product availability and to achieve economies of scale in ordering.
The supplier attempts to forecast customer orders and reduce the
cost of receiving the order. The supplier then works to fill the
order on time and improve efficiency and accuracy of the order
fulfillment process. The buyer then works to reduce the
https://www.facebook.com/ialwaysthink cost of the receiving
process. prettythings
28. Few differences between cycles: In the customer order
cycle, demand is external to the supply chain and thus uncertain.
In all other cycles, order placement is uncertain but can be
projected based on policies followed by the particular supply chain
stage. As we move from the customer to the supplier, the number of
individual orders declines and the size of each order increases.
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29. Push/Pull View of Supply ChainProcesses With pull
processes, execution is initiated in response to a customer order.
With pull processes, execution is initiated in anticipation of
customer orders. At the time of execution of a pull process,
customer demand is known with certainty, whereas at the time of
execution of a push process, demand is not known and must be
forecast. https://www.facebook.com/ialwaysthink prettythings
30. Pull processes may also be referred to as reactive
processes because they react to customer demand. Push processes may
also be referred to as speculative processes because they respond
to speculated rather than actual demand. Push/Pull Boundary Push
Pull Processes Processes Customer Order
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31. Examples of Push and Pull Processes Make to stock Companies
like HP Executes all processes in the customer order cycle after
the customer arrives. All processes that are part of the customer
order cycle are thus pull processes. All processes in the
replenishment cycle, manufacturing and procurement cycle are
performed in anticipation of demand and are thus push processes.
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32. Build to order computer manufacturer like Dell All
processes in the customer order, replenishment and manufacturing
cycle at Dell are classified as pull processes because they are
initiated by customer arrival. Dell, however, does not place
component orders in response to a customer order. Inventory is
replenished in anticipation of customer demand. All processes in
the procurement cycle for Dell are thus classified as push
processes, because they are in response to a forecast.
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33. Competitive and Supply ChainStrategies A companys
competitive strategy defines, relative to its competitors, the set
of customer needs that it seeks to satisfy through its products and
services. For eg. Wal Mart aims to provide high availability of a
variety of products of reasonable quality at low prices. Most
products sold at Wal Mart are common- place and can be purchased
elsewhere. What Wal Mart provides is a low price and product
availability. https://www.facebook.com/ialwaysthink
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34. Contd. Dell has stressed customization and variety at a
reasonable cost, with customers having to wait approximately one
week to get their product. In contrast, a customer can walk into a
computer retailer, be helped by a salesperson, and leave the same
day with HP computer. The amount of variety and customization
available at the retailer, however, is limited. In each case, the
competitive strategy is defined based on how the customer
prioritizes product cost, delivery time, variety and quality. A
Dell customer, purchasing online, places great emphasis on product
variety and customization. A customer purchasing HP laptop is most
concerned with price, fast response time and help in product
selection. https://www.facebook.com/ialwaysthink prettythings
35. A firms competitive strategy will be defined based on its
customers priorities. Competitive strategy targets one or more
customer segments and aims to provide products and services that
satisfy these customers needs. To see the relationship between
competitive and supply chain strategies, we start with the value
chain for a typical organization.
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36. The Value Chain in aCompanyFinance, Accounting, Information
Technology, Human ResourcesNew Product MarketingDevelopment and
Sales Operation Distribution Service s
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37. Value Chain It begins with new product development, which
creates specifications for the product. Marketing and sales
generate demand by publicizing the customer priorities that the
products and services will satisfy. Marketing also brings customer
input back to new product development. Using new product
specifications, operations transforms inputs to outputs to create
the product. Distribution either takes the product to the customer
or brings the customer to the product. Service responds to customer
requests during https://www.facebook.com/ialwaysthink or after the
sale. prettythings
38. 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. 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.
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39. Achieving Strategic FitStrategic fit means that both the
competitive and supply chain strategies 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.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.
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40. All processes and functions that are part of a companys
value chain contribute to its success or failure. A companys
success or failure is thus closely linked to the following keys:
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. The different functions in a
company must appropriately structure their processes and resources
to be able to execute these strategies successfully. The design of
the overall supply chain and the role of each stage must be aligned
to support the supply chain strategy.
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41. How is Strategic FitAchieved? 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 targeted customer segments.
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42. Three basic steps to achieve strategic fit:1. Understanding
the customer and supply chain Uncertainty First, a company must
understand the customer needs for each targeted segment and the
uncertainty the supply chain faces in satisfying these needs. 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,
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43. Demand uncertainty reflects the uncertainty of customer
demand for a product. An example of product with low demand
uncertainty is common salt. Salt has a very low margin, accurate
demand forecasts, low stockout rates, and virtually no markdowns.
It is a product with highly certain demand. On the other end of the
spectrum, a new palmtop computer has high demand uncertainty. It
will likely have a high margin, very inaccurate demand forecasts,
high stockout rates and large markdowns.
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44. Implied Demand uncertainty is often correlated with other
characteristics of demand, as follows: Products with uncertain
demand are often less mature and have less direct competition. As a
result margins, tend to be high. Forecasting is more accurate when
demand has less uncertainty. Increased implied demand uncertainty
leads to increased difficulty in matching supply with demand.
Markdowns are high for products with high implied demand
uncertainty because oversupply often results.
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45. There is uncertainty resulting from the capability of the
supply chain. For eg, when a new component is introduced in the PC
industry, the quality yields of the production process tend to be
low and breakdowns are frequent. As a result, companies have
difficulty delivering according to a well-defined schedule,
resulting in high supply uncertainty for PC manufacturers.As the
production technology matures and yields improve, companies are
able to follow a fixed delivery schedule, resulting in low supply
uncertainty. https://www.facebook.com/ialwaysthink
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46. The Uncertainty(Demand and Supply) Spectrum Predictable
supply and uncertain demand or uncertain Predictable supply supply
and predictable Highly uncertain and demand demand or somewhat
supply and uncertain supply and demand demandSalt at a An existing
A newsupermarke automobile communicationt model device
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47. 2. Understanding the Supply Chain Capabilities Creating
strategic fit is all about creating a supply chain strategy that
best meets the demand a company has targeted given the uncertainty
it faces.Supply chain responsiveness includes a supply chains
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 uncertaintyResponsiveness, however comes at a cost. For
instance, to respond to a wider range of quantities demanded,
capacity must be increased, which increases cost.Supply chain
efficiency is the inverse of the cost of making and delivering a
product to the customer. For every strategic choice to increase
responsiveness, there are additional costs that lower efficiency.
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48. Cost-Responsiveness EfficientFrontier Responsivenes s High
Low Hig Cost Low h https://www.facebook.com/ialwaysthink
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49. The Responsiveness Spectrum Highly Somewha Somewhat Highly
efficient t responsive responsiv efficien e tIntegrated steel
Apparel: A traditional Most automotive Reliancemills :
make-to-stock production: Delivering aFresh:Production manufacturer
with large variety of products Changingscheduled production lead
time in a couple of weeks merchandiweeks in of several weeks se mix
byadvance with locationlittle variety and time of day
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50. Achieving Strategic Fit The 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.For eg. The competitive
strategy of Dell targets customers who value having customized PCs
delivered within days. Given the vast variety of PCs, the high
level of innovation and rapid delivery, demand from Dell customers
is having high demand uncertainty. Some supply uncertainty also
exists, especially for newly introduced components. Building a
responsive supply chain, will allow Dell to meet its customers
needs. https://www.facebook.com/ialwaysthink prettythings
51. On the other hand, salt is a product with relatively stable
customer demand, giving it a low implied demand uncertainty. Supply
is also quite predictable. It will be in a much better position if
it designs a more efficient supply chain with a focus on cost
reduction. https://www.facebook.com/ialwaysthink prettythings
53. Drivers of Supply chain Performance To understand how a
company can improve supply chain performance in terms of
responsiveness and efficiency, the logistical and cross functional
drivers of supply chain performance must be examined. Facilities
Actual physical locations in the supply chain network where product
is stored, assembled or fabricated. The two major types of
facilities are production sites and storage sites. Decisions
regarding the role, location, capacity and flexibility of
facilities have a significant impact on supply chains performance.
For instance, an auto parts distributor striving for responsiveness
could have many warehousing facilities located close to customers
even though this practice reduces efficiency. Inventory It
encompasses all raw materials, work in process and finished goods
within a supply chain. Changing inventory policies can dramatically
alter the supply chains efficiency and responsiveness. A clothing
retailer can make itself more responsive by stocking large amounts
of inventory, however, it increases the retailers cost, thereby
making it less efficient. https://www.facebook.com/ialwaysthink
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54. Transportation It entails moving inventory from point to
point in the supply chain. Transportation can take the form of many
combinations of modes and routes, each with its own performance and
characteristics. Companies can use faster modes of transportation
which increases responsiveness but also less efficient. Information
It consists of data and analysis concerning facilities, inventory,
costs, prices and customers throughout the supply chain.
Information is potentially the biggest driver of performance in the
supply chain because it directly affects each of the other drivers.
Information presents management with the
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chains more prettythings
55. Sourcing It is the choice of who will perform a particular
supply chain activity such as production, storage, transportation
or the management of information. At the strategic level, these
decisions determine what functions a firm performs and what
functions the firm outsources. Outsourcing the activities to an
economic third party will make the supply chain efficient but at
the same time its responsiveness suffer because of the long
distance. Pricing It determines how much a firm will charge for
goods and services that it makes available in the supply chain.
Pricing affects the behavior of the buyer of the good or service,
thus affecting supply chain performance. Customers who value
efficiency will order early and who value responsiveness wait and
order just before they need a product transported.
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57. Most companies begin with a competitive strategy and then
decide what their supply chain strategy ought to be. The supply
chain strategy determines how the supply chain should perform with
respect to efficiency and responsiveness. The supply chain must
then use the three logistical and three cross-functional drivers to
reach the performance level the supply chain strategy dictates and
maximize the supply chain profits.
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58. Framework Walmart as an example Wal Marts competitive
strategy is to be a reliable, low- cost retailer for a wide variety
of mass-consumption goods. This strategy dictates that the ideal
supply chain will emphasize efficiency but also maintains an
adequate level of responsiveness. Pioneered cross-docking, a system
in which inventory is not stocked in a warehouse but rather is
shipped to stores from the manufacturer. Runs its own fleet of
trucks, to keep responsiveness high. Benefits in terms of reduced
inventory and improved product availability justify this cost.
Makes use of Hub and spoke model, uses centrally located DCs within
its network of stores to decrease the number of facilities and
increase efficiency at each DC. Practices EDLP for its products.
Invested significantly more than its competitors in information
technology. Identifies efficient sources for each product it sells
and feeds them large orders. https://www.facebook.com/ialwaysthink
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59. Obstacles to achieving Strategic Fit Increasing variety of
products Increase in product variety and more customised products
complicate the supply chain by making forecasting much more
difficult. Increased variety tends to raise uncertainty and
increased uncertainty hurts both efficiency and responsiveness
within the supply chain. Decreasing Product Life Cycles Makes the
job of achieving strategic fit more difficult, as the supply chain
must constantly adapt to manufacture and deliver new products, in
addition to coping with these products demand uncertainty.
Increasingly Demanding Customers Customers are constantly demanding
improvements in delivery lead times, cost, product quality and
product performance. If they do not receive these improvements,
they move on to new suppliers. Supply chain must provide more to
maintain its business. https://www.facebook.com/ialwaysthink
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60. Fragmentation of Supply Chain Ownership The new ownership
structure, due to outsourcing many of the noncore functions, has
made managing the supply chain more difficult. With the chain
broken into many owners, each with its own policies and interests,
the chain is more difficult to coordinate. Globalization Adds
stress to the chain, because facilities within the chain are
farther apart, making coordination much more difficult. Difficulty
Executing new Strategies Toyotas Production System, which is a
supply chain strategy, has been widely known and understood and
many other competitors have figured it out. The difficulty other
firms have had in executing that strategy.
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