1. Chapter 2 Supply Chain Strategy

2. Objectives After reading the chapter and reviewing the materials presented the students will be able to: Explain how a proper supply chain design strategy can create a competitive advantage. Identify and explain the building blocks of a supply chain strategy. Explain how productivity can be used to measure competitiveness.

3. What is Supply Chain Strategy? A business strategy is a plan for the company that clearly defines the long term goals, how it plans to achieve these goals, and the way the company plans to differentiate itself from its competitors. A business strategy should leverage the company’s core competencies or strengths and carefully consider the characteristics of the marketplace. Supply chain strategy is a long range plan for the design and ongoing management of all supply chain decisions that support the business strategy.

4. Strategic Alignment There must be strategic alignment between the business strategy and the supply chain strategy. A company’s supply chain strategy should be developed to drive and support its business strategy.

5. Achieving Competitive Advantage Cost-Productivity Advantage: Advantage comes from offering the lowest cost product or service. Economies of scale enable a company to spread its fixed costs over a greater volume: Wal-Mart. Experienced workers become more skilled in processes and tasks and do them more efficiently. An efficient supply chain network can increase efficiency and improve productivity, thereby reducing the cost per unit. Value Advantage: The advantage comes from providing a product with the greatest perceived differential value compared with its competitors: Apple products. The ideal position is to have both cost and competitive advantage.

6. SCM as a source of Value Improvements in the supply chain can dramatically reduce inventory, distribution, and coordination costs. The advantage comes from building superior strategic alliances suppliers, designing an agile global distribution network, and positioning production facilities strategically.

7. Building Blocks of Supply Chain Strategy Operations Strategy: involves decisions about how it will produce goods and services. Three options are make to stock, assemble to order, and make to order. In the early stages of a product life cycle, demand for a product is uncertain and companies are better off with a make to order strategy. Later the company cam move to an assemble to order to make sure there is product availability. Products in the mature stage are made to stock. Distribution Strategy: is about how the company plans to get its products and services to customers; retailers, sales force, or direct through the internet. Sourcing Strategy: Activities with low strategic importance that can be performed by another company are good options for outsourcing. Outsourcing enables companies to quickly respond to changes in demand. Customer Service Strategy: Different levels of service depending on the importance of the customer. Segment the market and meet the demand of those segments.

8. Supply Chain Strategic Design There are 5 primary competitive priorities: cost, time, innovation, quality, & service. Competing on Cost: requires a highly efficient, integrated operations that have cut costs out of the system. Wal-Mart promises the lowest price. Competing on Time: FedEx is an example of a company that has chosen to compete on time. It uses its own fleet of airplanes. Competing on Innovation: Companies typically have a short window of opportunity before imitators enter the market and steal market share. Marketing and product design are the strength of companies such as Nike which outsources manufacturing. Competing on Quality: RFID (radio frequency identification) tags have provided excellent product traceability, an important attribute of competing on quality. It is important for luxury goods where counterfeiting is a problem and pharmaceutical companies where safety is critical. Competing on Service: These companies have exceptional order fulfillment systems, with fast invoicing that enables them to be consistent and reliable. They are offered for customers in the high value segment.

9. Strategic Considerations Small versus large firms: Large companies have the advantage of being able to buy larger quantities of goods and command a lower prices due to quantity discounts. Small companies can create cooperatives to aggregate their power. Supply chain adaptability: Any time the scope of the business changes, the supply chain must adapt.

10. Productivity as a Measure of Competitiveness One of the most common measures of competitiveness is productivity. Productivity is a measure of how well a company uses its resources. Productivity = Output / Input To interpret the meaning of a productivity measure, it must be compared to a baseline (industry standards). In addition, productivity must be measured over time to observe changes. A company that competes on speed would probably measure productivity in units produced over time. Well chosen units can make productivity a useful metric for evaluating competitiveness over time.

11. Summary A business strategy is a plan for the company that clearly defines the long term goals, how it plans to achieve these goals, and the way the company plans to differentiate itself from its competitors. Supply chain strategy is a long range plan for the design and ongoing management of all supply chain decisions that support the business strategy. Cost-Productivity Advantage: Advantage comes from offering the lowest cost product or service. Value Advantage: The advantage comes from providing a product with the greatest perceived differential value compared with its competitors: Apple products. Operations Strategy: In the early stages of a product life cycle, demand for a product is uncertain and companies are better off with a make to order strategy. Later the company cam move to an assemble to order to make sure there is product availability. Products in the mature stage are made to stock. There are 5 primary competitive priorities: cost, time, innovation, quality, & service. Small versus large firms: Large companies have the advantage of being able to buy larger quantities of goods and command a lower prices due to quantity discounts. Productivity is a measure of how well a company uses its resources. To interpret the meaning of a productivity measure, it must be compared to a baseline (industry standards). Well chosen units can make productivity a useful metric for evaluating competitiveness over time.

12. Home Work 1. What is a business strategy? 2. What is a supply chain strategy? 3. Why is a make to order strategy best for early stage of a product life cycle?