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

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.

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.

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

Copyright 2011 John Wiley & Sons, Inc.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Copyright 2011 John Wiley & Sons, Inc. All rights reserved Copyright 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.