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

2. Lecture Outline 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
Copyright 2011 John Wiley & Sons, Inc.

3. What is Supply Chain Strategy?
a long-range plan for the design and ongoing management of all supply chain decisions that support the business strategy
Copyright 2011 John Wiley & Sons, Inc.

4. What is Supply Chain Strategy? Continued
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
Copyright 2011 John Wiley & Sons, Inc.

5. Strategic Alignment
All organizational functions should be designed to support the business strategy
Supply Chain Management (SCM)
Marketing
Operations
Distribution
Purchasing
Finance
Copyright 2011 John Wiley & Sons, Inc.

6. 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
Copyright 2011 John Wiley & Sons, Inc.

7. 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 Network
Copyright 2011 John Wiley & Sons, Inc.

8. 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
Copyright 2011 John Wiley & Sons, Inc.

9. Competitive Advantage Matrix
Copyright 2011 John Wiley & Sons, Inc.

10. 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
Copyright 2011 John Wiley & Sons, Inc.

11. Building Blocks of Supply Chain Strategy
Copyright 2011 John Wiley & Sons, Inc.

12. 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
Copyright 2011 John Wiley & Sons, Inc.

13. 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
Copyright 2011 John Wiley & Sons, Inc.

14. 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
Copyright 2011 John Wiley & Sons, Inc.

15. 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
Copyright 2011 John Wiley & Sons, Inc.

16. 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
Copyright 2011 John Wiley & Sons, Inc.

17. Product Positioning Strategies
Copyright 2011 John Wiley & Sons, Inc.

18. 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
Copyright 2011 John Wiley & Sons, Inc.

19. 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
Copyright 2011 John Wiley & Sons, Inc.

20. Sourcing Strategy Continued
Outsourcing Advantages
cost
expand into new markets/geographic areas
achieve technological capability
Outsourcing Risks
loss of control
dependency
Copyright 2011 John Wiley & Sons, Inc.

21. 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?
Copyright 2011 John Wiley & Sons, Inc.

22. Copyright 2011 John Wiley & Sons, Inc.

23. Supply Chain Strategic Design
The supply chain strategy must support the competitive priority
Five primary Competitive Priorities:
Cost
Time
Innovation
Quality
Service
Copyright 2011 John Wiley & Sons, Inc.

24. 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
Copyright 2011 John Wiley & Sons, Inc.

25. 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
Copyright 2011 John Wiley & Sons, Inc.

26. Competing on Time Continued
Measures:
rapid-delivery
on-time delivery
Copyright 2011 John Wiley & Sons, Inc.

27. 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
Copyright 2011 John Wiley & Sons, Inc.

28. Competing on Quality Embed quality throughout supply chain
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
Copyright 2011 John Wiley & Sons, Inc.

29. Competing on Service
Companies that compete on service tailor their products to meet the specific needs of target customers
customer loyalty
consistency
reliability
Copyright 2011 John Wiley & Sons, Inc.

30. 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
Copyright 2011 John Wiley & Sons, Inc.

31. 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
Copyright 2011 John Wiley & Sons, Inc.

32. 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
Copyright 2011 John Wiley & Sons, Inc.

33. Productivity as a Measure of Competitiveness
Productivity is a measure of how well a company uses its resources
Productivity =
Output
Input
Copyright 2011 John Wiley & Sons, Inc.

34. 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
Output
Input
$18,000
$9,000
Copyright 2011 John Wiley & Sons, Inc.

35. 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
# of garments
cleaning time
32 garments
8 hours
Copyright 2011 John Wiley & Sons, Inc.

36. Interpreting Productivity
Productivity is a useful metric for evaluating competitiveness
Productivity can be:
benchmarked against a standard
tracked over time
Copyright 2011 John Wiley & Sons, Inc.

37. 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:
Month 1 2 3 4 5
Productivity (garments / hr)
3.8
4.0
5.3
6.4
6.9
Copyright 2011 John Wiley & Sons, Inc.

38. Review
Supply chain strategy is a long-range plan for the design and ongoing management of the supply chain to support the business strategy.
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.
Copyright 2011 John Wiley & Sons, Inc.

39. Review Continued
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.
Copyright 2011 John Wiley & Sons, Inc.

40. Review Continued
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.
The four building blocks of supply chain strategy are operations strategy, sourcing strategy, distribution strategy, and customer service strategy.
Copyright 2011 John Wiley & Sons, Inc.

41. Review Continued
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.
Competitiveness can be measured by productivity, which is a measure of how a company utilizes its resources.
Copyright 2011 John Wiley & Sons, Inc.

42. Copyright 2011 John Wiley & Sons, Inc. All rights reserved
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