1. Business, Operations and Supply Chain Strategy (BOSCS)
Introduction to Supply Chain Strategy
BOSCS Intro to Supply Chain Strategy

2. Teaching schedule, topics 7-12
Lecture 7
Introduction to supply chain strategy 8
Determining organisational boundaries:
vertical integration and outsourcing 9
Drivers of supply chain performance 10
Dynamics of vertical supply networks:
demand fluctuations and the bullwhip effect 11
International issues in supply chain strategy 12
Risk management in supply networks;
including the design and management of sustainable supply chains
BOSCS Intro to Supply Chain Strategy

3. Required reading for this lecture
Required reading for this lecture on supply chain strategy:
Chartered Institute of Purchasing and Supply (2009), Coursebook for the Unit on Strategic Supply Chain Management , 2nd edition,
chapters 10, 11, 13

4. The boundaries of the business organisation
There are two possible perspectives on the boundaries of the (business) organisation:
external perspective: the supply chain
internal perspective: the value chain
BOSCS Intro to Supply Chain Strategy

5. External perspective: the supply chain
The supply chain consists of all the stages of production
– widely defined; that is, including manufacture, supply, transport and service –
that are involved, directly or indirectly, in fulfilling customer orders for a particular product or range of products.

6. Simple diagram of the supply chain
production of
raw materials
by raw material producers
storage of
raw materials
at factory 1
storage of
raw materials
by raw material producers
transportation
of raw materials
to factory 1
fabrication
of raw materials
into components
storage of
components
at factory 2
storage of
components
at factory 1
transportation
of components
from factory 1
to factory 2
assembly of
components into
finished goods C
storage of
finished goods
at factory 2
transportation
of finished
goods to
Distribution
Centres
storage of
finished goods
at Distribution
Centres
Transportation of finished goods
from
Distribution Centres
to retailers
storage of
finished goods
at retailers
transportation
of finished
goods from
retailers
to final customers
consumption of finished goods
by final customers
BOSCS Intro to Supply Chain Strategy

7. Supply ‘chain’ versus ‘network’
At any stage of the supply chain, more than one actor (or ‘player’) may be involved.
In other words, there may be multiple suppliers, manufacturers and/or distributors.
Therefore, it may be more accurate to use the term ‘Supply Network’.
BOSCS Intro to Supply Chain Strategy

8. The potential complexity of a supply network
storage of
materials
using materials to
produce finished goods
storage of
materials
transportation
of materials
storage of
materials
storage of
finished goods

9. Design features of a supply network
The key design features of a supply network:
task design
workflow design
organisational design
coordination (planning & control)
motivation
The crucial problem in a supply network is that no firm is necessarily in overall control of its design.
Unless there is a dominant focal firm who can pull the network together, each actor may end up making its own decisions, which will not necessary be consistent with those of the other actors.
BOSCS Intro to Supply Chain Strategy

10. Supply Chain Management
Supply Chain Management is concerned with the management of two or more (or, ideally, all) successive stages of a Supply Chain (or Network).
Supply Chain Management is made much more difficult by:
Uncertainty in demand: information is needed on (changes in) the demand for resources
Uncertainty in supply: information is needed on (changes in) the availability of resources
BOSCS Intro to Supply Chain Strategy

11. Maximising Added Value
From a ‘systems’ perspective, the overriding goal should be to maximise the added value created by the supply network as a whole:
AV = B – C = (B – P) + (P – C)
But each actor or player in the network will, in practice, try to maximise its own share of this added value.
This is not necessarily a ‘zero-sum’ game, but could lead to a decrease in the overall amount of added value.
BOSCS Intro to Supply Chain Strategy

12. Key decision phases in SCM
Strategic (design) phase
Strategic decisions relate to the configuration of the supply chain. They have a long-term impact, lasting years.
Planning phase
Planning decisions cover a period of three months, say, to a year. They include decisions such as aggregate (or production) planning and product promotions over that period.
Operational phase
Operational decisions span days or weeks. They include the sequencing of production and the filling of specific customer orders.
BOSCS Intro to Supply Chain Strategy

13. Different views of supply chain processes (1)
Cycle view
A ‘Cycle’ view of a supply chain divides processes into cycles, each performed at the interface between two successive stages of a supply chain.
Each cycle starts with an order placed by one stage of the supply chain and ends when the order is received from the supplier stage.
BOSCS Intro to Supply Chain Strategy

14. Cycle view Customer Retailer Distributor Manufacturer Supplier 14
Customer order cycle
Retailer
Replenishment cycle
Distributor
Manufacturing cycle
Manufacturer
Procurement cycle
Supplier 14

15. Different views of supply chain processes (2)
Push/Pull view (location of the CODP)
A ‘Push/Pull’ view of a supply chain characterises processes based on their timing relative to that of a customer order.
The ‘Customer Order Decoupling Point’ (CODP) indicates that storage point in the supply chain, ‘upstream’ from which the planning and control of production activities is decoupled from the actual flow of customer orders.
BOSCS Intro to Supply Chain Strategy

16. The push/pull boundary
Processes upstream from the CODP are ‘push’ processes. They are planned and controlled on the basis of prior forecasts of customer orders.
Processes downstream from the CODP are ‘pull’ processes. They are performed in response to actual customer orders. 
That is, the CODP constitutes the ‘push/pull boundary’ in the supply chain.
The precise location of the CODP defines the basic structure of the supply chain, and thereby also the basic strategy for SCM.

17. Strategic policies for supply chain planning and control
Engineer To Order (ETO)
no CODP exists in the supply chain
Make To Order (MTO)
CODP is located at the point where raw materials are stored
Assemble To Order (ATO)
CODP is located at the point where components are stored
Make To Stock (MTS)
CODP is located at the point where finished goods are stored
BOSCS Intro to Supply Chain Strategy

18. C Engineer To Order Advantages: Zero cost of holding inventory
production of
raw materials
by raw material producers
Advantages:
Zero cost of holding inventory
High flexibility
Quality of design can be high
Disadvantages:
Delivery is very slow
Delivery may not be dependable
storage of
raw materials
at factory 1
storage of
raw materials
by raw material producers
transportation
of raw materials
to factory 1
fabrication
of raw materials
into components
storage of
components
at factory 2
storage of
components
at factory 1
transportation
of components
from factory 1
to factory 2
assembly of
components into
finished goods C
storage of
finished goods
at factory 2
transportation
of finished
goods to
Distribution
Centres
storage of
finished goods
at Distribution
Centres
transportation
of finished
goods from
Distribution
Centres
to retailers
storage of
finished goods
at retailers
transportation
of finished
goods from
retailers
to final customers
consumption of finished goods
by final customers
BOSCS Intro to Supply Chain Strategy

19. C Make To Order Advantages: Low cost of holding inventory
production of
raw materials
by raw material producers
Advantages:
Low cost of holding inventory
High flexibility
Quality of design can be high
Disadvantages:
Delivery is relatively slow
Delivery may not be dependable
storage of
raw materials
at factory 1
storage of
raw materials
by raw material producers
transportation
of raw materials
to factory 1
fabrication
of raw materials
into components
storage of
components
at factory 2
storage of
components
at factory 1
transportation
of components
from factory 1
to factory 2
assembly of
components into
finished goods C
storage of
finished goods
at factory 2
transportation
of finished
goods to
Distribution
Centres
storage of
finished goods
at Distribution
Centres
transportation
of finished
goods from
Distribution
Centres
to retailers
storage of
finished goods
at retailers
transportation
of finished
goods from
retailers
to final customers
consumption of finished goods
by final customers
BOSCS Intro to Supply Chain Strategy

20. C Assemble To Order Advantages / disadvantages:
production of
raw materials
by raw material producers
Advantages / disadvantages:
Medium cost of holding inventory
Medium flexibility
Quality of design can still be quite high
Delivery is relatively fast
Delivery is relatively dependable
storage of
raw materials
at factory 1
storage of
raw materials
by raw material producers
transportation
of raw materials
to factory 1
fabrication
of raw materials
into components
storage of
components
at factory 2
storage of
components
at factory 1
transportation
of components
from factory 1
to factory 2
assembly of
components into
finished goods C
storage of
finished goods
at factory 2
transportation
of finished
goods to
Distribution
Centres
storage of
finished goods
at Distribution
Centres
transportation
of finished
goods from
Distribution
Centres
to retailers
storage of
finished goods
at retailers
transportation
of finished
goods from
retailers
to final customers
consumption of finished goods
by final customers
BOSCS Intro to Supply Chain Strategy

21. C Make To Stock Advantages: Fast delivery Dependable delivery
production of
raw materials
by raw material producers
Advantages:
Fast delivery
Dependable delivery
Efficient production
Disadvantages:
High cost of holding inventory
Low flexibility
Standard quality of design
storage of
raw materials
at factory 1
storage of
raw materials
by raw material producers
transportation
of raw materials
to factory 1
fabrication
of raw materials
into components
storage of
components
at factory 2
storage of
components
at factory 1
transportation
of components
from factory 1
to factory 2
assembly of
components into
finished goods C
storage of
finished goods
at factory 2
transportation
of finished
goods to
Distribution
Centres
storage of
finished goods
at Distribution
Centres
transportation
of finished
goods from
Distribution
Centres
to retailers
storage of
finished goods
at retailers
transportation
of finished
goods from
retailers
to final customers
consumption of finished goods
by final customers
BOSCS Intro to Supply Chain Strategy

22. Key criteria for choosing between SCM policies
The key criteria upon which the choice between these different strategic policies for SCM must be based are:
Feasibility
Desirability

23. Feasibility
The feasibility of a particular SCM strategic policy relates to the nature, uncertainty and unpredictability of the external environment :
Customer demand may be fundamentally unforecastable; or any demand forecasts may be subject to significant errors.
The supply of raw materials and/or components may be unreliable because of poor conformance quality or a low level of dependability on the part of the vendors.
BOSCS Intro to Supply Chain Strategy

24. Desirability
Even if a particular strategy is feasible, it may not be desirable , depending on its:
acceptability , in terms of its financial return;
vulnerability , in terms of the risks involved (of demand forecasts being wrong or vendors not delivering on time)
‘strategic fit’ with business and operations strategy; that is, how well it supports the priorities put on specific performance objectives.
In relation to the last point, it should be noted that selecting one particular strategy in preference to another implies important trade-offs between the various performance objectives in SCM.
BOSCS Intro to Supply Chain Strategy

25. Strategic performance objectives in SCM
in supply chain management
Strategic performance objectives in SCM
Customer service
(‘responsiveness’)
Resource utilisation
(‘efficiency’)
Quality:
quality of design
quality of conformance
Speed (of delivery)
Dependability (of delivery)
Flexibility:
product flexibility, innovation, customisation, range; volume flexibility; delivery flexibility
Selling price
Cost of production
BOSCS Intro to Supply Chain Strategy

26. Achieving strategic fit between the competitive priorities for the supply chain and the capabilities of the supply chain
Industry & market
environment
Competitive priorities for supply chains
Competitive advantage
based on supply chains
Business
performance
Business
strategy
Supply chain
strategy
Distinctive
capabilities of supply chains
Supply chain activities
Supply chain processes
Endowments of tangible & intangible resources
Resources
committed to supply chains
BOSCS Introduction to Operations Strategy

27. How is strategic fit achieved?
The business must understand its customer needs and competitors’ actions ; including the role of demand uncertainty.
The business must understand its supply chain capabilities (in terms of its responsiveness and efficiency); including the role of supply uncertainty:
a CODP that is located upstream fits better with competitive priorities based on flexibility and quality of design ;
a CODP that is located downstream fits better with competitive priorities based on fast and dependable delivery and efficiency .
The business must achieve an appropriate balance between flexibility and efficiency, taking account of the levels of demand and supply uncertainty.
BOSCS Intro to Supply Chain Strategy

28. Potential obstacles to achieving strategic fit
Increasing variety of products
Decreasing product life cycles
Increasingly demanding customers
Fragmentation of Supply Chain ownership
Vertical dis-integration of production activities
Outsourcing of non-production / support activities
Globalisation
Globalised supply chains
Increasing global competition

29. Your task
Use the Internet and/or other information sources to investigate three examples of effective supply chain management.
For example:
Computer manufacturers (Dell)
Supermarkets (Tesco)
Car manufacturers (Toyota)
Consumer products (Procter & Gamble)
Mobile phone manufacturers (Apple)
BOSCS Intro to Supply Chain Strategy