Strategic Decisions in SCM

8/6/2019 Strategic Decisions in SCM

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Strategic decisions in SCMIts a matter of survival


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Do we need Customer

relationship Management

Who cares sale is a sale, make one saleand move on to another.

Can we satisfy customers on individualbasis.

Exceed the expectations or at leastmeet them.


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Who is competing? Companies? Or

The supply chains.And the success and failure of supply

chains is ultimately determined by theend customer in the market place.

Getting the right product at the rightplace at the right time is key to survival.


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Cont Service/ support

Why customers leave their suppliers? 09% because of competition

12% because of relocation

28% because of no special reason 51% because of complaints that were

not handled.


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StrategyA set of plan and policies by which a

company aims to gain long termcompetitive advantage.

E.g. of long term SCM decisions

The number location and size of distribution center

Terms and conditions of long term contracts with thesuppliers

Outsourcing

Personnel and system selection.


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ButAll the above depends upon what kind

of strategic fit you are looking for

As supply chain integrates lots offunctions


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Competitive and Supply

Chain Strategies Competitive strategy: defines the set of customer needs a firm seeks to

satisfy through its products and services

Product development strategy: specifies the portfolio of new productsthat the company will try to develop

Marketing and sales strategy: specifies how the market will besegmented and product positioned, priced, and promoted

Supply chain strategy:

determines the nature of material procurement, transportation ofmaterials, manufacture of product or creation of service,distribution of product

Consistency and support between supply chain strategy,competitive strategy, and other functional strategies is important


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New

Product

Development

Marketing

and

Sales

Operations Distribution Service

Finance, Accounting, Information Technology, Human Resources

The Value Chain: Linking Supply

Chain and Business Strategy

Supply chain


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Achieving Strategic Fit How is strategic fit achieved?


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Achieving Strategic Fit Strategic fit:

Consistency between customer priorities of

competitive strategy and supply chain capabilitiesspecified by the supply chain strategy

Competitive and supply chain strategies have thesame goals

A company may fail because of a lack of strategic fitor because its processes and resources do notprovide the capabilities to execute the desiredstrategy

Example of strategic fit -- Dell


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How is Strategic Fit Achieved? Step 1: Understanding the customer

and supply chain uncertainty

Step 2: Understanding the supply chain

Step 3: Achieving strategic fit


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Step 1: Understanding the Customer andSupply Chain Uncertainty

Identify the needs of the customer segmentbeing served

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


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Step 1:Cont

Overall attribute of customer demand

D

emand uncertainty: uncertainty ofcustomer demand for a product

Implied demand uncertainty: resultinguncertainty for the supply chain giventhe portion of the demand the supplychain must handle and attributes thecustomer desires


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Implied demand uncertainty also related tocustomer needs and product attributes

First step to strategic fit is to understandcustomers by mapping their demand on theimplied uncertainty spectrum

Step 1:Cont


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What is this implied demand

uncertainty? Consider the following products

Unbranded Salt Indicab car

Nokia E63


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Achieving Strategic Fit Understanding the Customer

Lot size Response time

Service level

Product variety Price

Innovation

ImpliedDemand

Uncertainty


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Impact of Customer Needs on ImpliedDemand Uncertainty

Customer Need Causes implied demand

uncertainty to increase because

Range of quantity increases Wider range of quantity impliesgreater variance in demand

Lead time decreases Less time to react to orders

Variety of products required increases Demand per product becomes more

disaggregated

Number of channels increases Total customer demand is now

disaggregated over more channels

Rate of innovation increases New products tend to have more

uncertain demand

Required service level increases Firm now has to handle unusual

surges in demand


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Levels of Implied Demand

UncertaintyPredictablesupply and

demand

Salt at a

supermarket

A newcommunication

device

Highly uncertainsupply and demand

Predictable supply and uncertaindemand or uncertain supply and

predictable demand or somewhat

uncertain supply and demand

An existingautomobile

model


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Correlation Between Implied DemandUncertainty and Other Attributes

Attribute Low Implied

Uncertainty

High Implied

Uncertainty

Product margin Low High

Avg. forecast error 10% 40%-100%

Avg. stockout rate 1%-2% 10%-40%

Avg. forced season-

end markdown

0% 10%-25%


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Now the question is at what

cost? There is a cost to achieving responsiveness

Supply chain efficiency: cost of making and

delivering the product to the customer

Increasing responsiveness results in highercosts that lower efficiency

Second step to achieving strategic fit is tomap the supply chain on the responsivenessspectrum


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Step 2: Understanding the

Supply Chain

How does the firm best meet demand?

Dimension describing the supply chain is supply chain

responsiveness What is this responsiveness?

Supply chain responsiveness -- 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


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Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier

High Low

Low

High

Responsiveness

Cost


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Achieving Strategic Fit Shown on theUncertainty/Responsiveness Map

Implieduncertainty

spectrum

Responsivesupply chain

Efficientsupplychain

Certaindemand

Uncertaindemand

Responsiveness

spectrum


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Step 3: Achieving Strategic Fit Step is to ensure that what the supply

chain does well is consistent with targetcustomers needs

Uncertainty/Responsiveness map

Zone of strategic fit

Examples: Dell,


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Step 3: Cont All functions in the value chain must support the

competitive strategy to achieve strategic fit

Two key points there is no right supply chain strategy

independent of competitive strategy

there is a right supply chain strategy for a given

competitive strategy


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Comparison of Efficient and ResponsiveSupply Chains

Efficient Responsive

Primary goal Lowest cost Quick response

Product design strategy Min product cost Allow postponement

Pricing strategy Lower margins Higher margins

Mfg strategy High utilization Capacity flexibility

Inventory strategy Minimize inventory Buffer inventory

Supplier selection strategy Cost and low quality Speed, flexibility, quality

Transportation strategy Greater reliance on low cost

modes

Greater reliance on

responsive (fast) modes


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Other Issues Affecting Strategic Fit

Multiple products and customersegments

Product life cycle

Competitive changes over time


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Multiple Products and

Customer Segments Firms sell different products to different customer

segments (with different implied demand

uncertainty) The supply chain has to be able to balance efficiency

and responsiveness given its portfolio of productsand customer segments

Two approaches:

Different supply chains

Tailor supply chain to best meet the needs of eachproducts demand


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Product Life Cycle The demand characteristics of a product and the

needs of a customer segment change as a product

goes through its life cycle Supply chain strategy must evolve throughout the life

cycle

Early: uncertain demand, high margins (time isimportant), product availability is most important,cost is secondary

Late: predictable demand, lower margins, price isimportant

pharmaceutical firms, Intel


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Other considerations for

strategic fit Supplier


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Competitive Changes Over

Time Competitive pressures can change over time

More competitors may result in an increased

emphasis on variety at a reasonable price

The Internet makes it easier to offer a widevariety of products

The supply chain must change to meet thesechanging competitive conditions


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Supply chain Communities

Leverage the core competences of each partner

For increased growth and unparalleledefficiency.

Optimize each others efforts.

Flow of information.


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Customer relationship

Management strategy

Supplier relationship

Management strategy

Superior businessperformance

Supply chain strategy

Results in


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Why has it become such an

important issue? In an era where high quality standards

are a minimum requirement just to

compete, quality no longer becomes acompetitive differentiator.

Paying attention to customers after the

sale with responsive and proactiveservice and support can set a companyapart from its competition.


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Dells Business Model. Direct selling

Direct relationship with customers

First hand information Building computers based on components

available in the market.

Less burden of owning assets, research and

development risks. Spread the development and manufacturing

risk among the various suppliers.


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How? Accumulating inventory in the fast moving PC

industry is high risk proposition since thecomponents can become obsolete veryquickly.

Virtual integration. Linking the suppliers and customers on real

time. Sony monitors are picked up at Sony's

Mexican factory and matched at Texas facilityand delivered to customers.


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Essentials for supply chain to

become strategic for CRM. Technology: Front line employees ability to manage customers relations

effectively.

Atmosphere of innovation:

Strategic superiority ultimately comes from innovation.

Organizational environment. Act locally and think globally

Decentralized and flexible

Shared vision

Strategic Decisions in SCM

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