WHAT IS THE RIGHT

SUPPLY CHAIN FOR YOUR

PRODUCT?

POINTS FOR DISCUSSION

Introduction

Nature of product

Devising ideal SC strategy

Efficient supply of functional products

Responsive supply of innovative products

Conclusion

INTRODUCTION

Technology & brainpower has not improved SC

performance
Framework to decide the best SC
Consider nature of demand for product before
devising SC strategy
Match type of product and type of SC

STRATEGIC FIT

Consistency between customer priorities of

competitive strategy and supply chain
capabilities specified by the supply chain strategy
Competitive and supply chain strategies have the
same goals
All functional strategies support the above

COMPETITIVE AND SUPPLY

CHAIN STRATEGIES

Competitive strategy

Defines the set of customer needs a firm seeks to satisfy

through its products and services

Supply chain strategy

determines the nature of material procurement,

transportation of materials, manufacture of product or
creation of service, distribution of product

NATURE OF PRODUCT
Functional or innovative?
Functional

Stable,

predictable demand
Long life cycles
Low profit margins

Innovative
Uncertain

demand
Short life cycles
High profit margins

Physically same products can be either functional or

innovative

CUSTOMER NEED

Causes demand uncertainty

to increase because

Range of quantity required

increases

Greater 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

SUPPLY UNCERTAINTY
Supply source incapability like
Frequent breakdowns
Unpredictable & low yields
Poor quality
Limited or inflexible supply capacity
Evolving production process

causes supply uncertainty to increase

IMPLIED UNCERTAINTY
SPECTRUM

Predictable
supply &
demand

Salt at a
supermarket

Mix

Existing
automobile
model

Price

Customer Need

Highly
uncertain
supply &
Demand

New
communication
device
Responsiveness
9

SUPPLY CHAIN FUNCTIONS

Physical function
Conversion,

storage &transportation between points

in SC
Efficiency
More important for functional products

Market mediation function

Matching

supply with demand

Responsiveness
More important for innovative products

Sport Obermeyer vs. Campbell Soup

10

SUPPLY CHAIN EFFICIENCY VS.

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
Handle supply uncertainty

Supply chain efficiency

cost

of making and delivering the product to the

customer

Increasing responsiveness results in higher costs

that lower efficiency

11

COST-RESPONSIVENESS
EFFICIENT FRONTIER

High

Responsiveness

Low
High

Low

Cost12

RESPONSIVENESS SPECTRUM

Highly
efficient
Integrated
steel mill

Somewhat
efficient
Ready-made
garments

Somewhat
responsive

Highly
responsive

Most
automotive
production

Dell

13

ACHIEVING STRATEGIC FIT

Ensure that what the supply chain does well is

consistent with target customers needs
All functions in the chain must support the
competitive strategy to achieve strategic fit

14

UNCERTAINTY/ RESPONSIVENESS MAP

Responsive
supply chain

of it
e
F
n
Zo egic
t
ra
t
S

Responsiveness
spectrum

Efficient
supply chain
Certain
demand

Implied
uncertainty
spectrum

Uncertain
demand

15

DEVISING IDEAL SC STRATEGY

Understand type of product

Functional

Understand supply chain capabilities

Efficient

or innovative

or responsive

Correct any mismatch

16

TYPE OF PRODUCTS
Functional
products
(predictable
demand)

Innovative
products
(unpredictable
demand)

> 2 yrs

3 months to 1 yr

Contribution margin
Product variety

5-20%
Low (10-20)

20-60%
High (millions)

Avg. forecast error

10%

40%-100%

Avg. stock out rate

1%-2%

10%-40%

0%

10%-25%

6mth-1yr

1day-2wks

Attribute
PLC

Avg. forced season-end

markdown
Lead time for make to
order product

17

SUPPLY CHAIN CAPABILITIES

Efficient

Responsive

Primary goal

Lowest cost

Quick response

Product design strategy

Max performance & Min

product cost

Modularity to allow
postponement

Pricing strategy

Lower margins

Higher margins

Mfg strategy

High utilization

Capacity flexibility

Inventory strategy

Minimize inventory

Buffer inventory

Lead time focus

Reduce but not at

expense of greater cost

Aggressively reduce even

if costs are significant

Supplier selection
strategy

Cost and low quality

Speed, flexibility, quality

Transportation strategy

Greater reliance on low

cost modes

18

Greater reliance on
responsive (fast) modes

MATCHING SUPPLY CHAIN WITH

PRODUCT

Efficient

Functional

Innovative

Products

Products

Match

Mismatch

Mismatch

Match

Supply
Chain
Responsive
Supply
Chain

19

GETTING OUT OF UPPER RH CELL

Efficient supply of innovative products

Automobile
Computer

Move down

Move left

industry

industry

Toothpaste
Functional

cars

20

EFFICIENT SUPPLY OF
FUNCTIONAL PRODUCTS

Campbell soup
Continuous
EDI

replenishment program

links with retailers

Showed

negative impact of price promotions viz.

forward buying

Everyday

low price

Improved

service (in-stock availability)

Improved

efficiency (reduction of retailers inventory)

21

EFFICIENT SUPPLY OF
FUNCTIONAL PRODUCTS

Partners can interact to cut costs

Get higher profits for the chain of price sensitive
products

Cooperation & competition?

Share cost information

22

RESPONSIVE SUPPLY OF
INNOVATIVE PRODUCTS

Accept, reduce, avoid and hedge against

uncertainty
Mass

customization at National Bicycles Japan

Accurate

response at Sport Obermeyer

23

OTHER ISSUES AFFECTING

STRATEGIC FIT

Multiple products and customer segments

How

many supply chains?

Product life cycle

Technological

changes
As product goes through the life cycle, supply chain
changes from one emphasizing responsiveness to one
emphasizing efficiency

Competitive changes over time

Mass

customization

24

CONCLUSION
There is no right supply chain strategy
independent of competitive strategy
There is a right supply chain strategy for a given
competitive strategy

25