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Supply Chain Management

Supply Chain Performance: Achieving Strategic Fit and Scope

Dr. Md. Mamun Habib


Associate Professor
© 2007 Pearson Education 2-1
What is Supply Chain Management?
 The main purpose of the supply chain is to maximize overall value
generated. Value is the difference between what the cost supply
chain incurs and the worth end product has to the customer.
 Managing supply chain flows and assets to maximize supply chain
surplus
 Supply chain surplus refers to (what the customer has paid - total
cost expended by supply chain in filling order).

© 2007 Pearson Education 2-2


What is Supply Chain Management?
 For example: A customer purchase a personal computer from IBM
at $2,000, which indicates the revenue supply chain achieved. All
the stages incur costs to make sure the efficient transfer of funds,
information, storage of the product, transportation to the final
consumer etc. The difference between the supply chain cost and
revenue generated from personal computer represent the supply
chain surplus or profitability.

 Supply chain surplus is the total profit shared by all the stages and
intermediaries. The greater the supply chain surplus the more
successful is supply chain. Supply chain success is measured by its
overall surplus not by the profit at each stage.

© 2007 Pearson Education 2-3


The Value Chain: Linking Supply Chain
and Business Strategy

Finance, Accounting, Information Technology, Human Resources

New Marketing
Product and Operations Distribution Service
Development Sales

© 2007 Pearson Education 2-4


Competitive and Supply Chain Strategies

 Competitive strategy: defines the set of customer needs a firm


seeks to satisfy through its products and services
 Product development strategy: specifies the portfolio of new
products that the company will try to develop
 Marketing and sales strategy: specifies how the market will be
segmented and product positioned, priced, and promoted
 Supply chain strategy:
– determines the nature of material procurement, transportation of
materials, manufacture of product or creation of service, distribution of
product
– consistency and support between supply chain strategy, competitive
strategy, and other functional strategies is important

© 2007 Pearson Education 2-5


Achieving Strategic Fit

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

A company may fail because of a lack of strategic fit or


because its processes and resources do not provide the
capabilities to execute the desired strategy.

© 2007 Pearson Education 2-6


How is Strategic Fit Achieved?

Step 1: Understanding the customer and supply chain


uncertainty
Step 2: Understanding the supply chain
Step 3: Achieving strategic fit

© 2007 Pearson Education 2-7


Step 1: Understanding the Customer
and Supply Chain Uncertainty
Quantity of product needed in each lot
Response time customers will tolerate
Variety of products needed
Service level required
Price of the product
Desired rate of innovation in the product

© 2007 Pearson Education 2-8


Impact of Customer Needs on Implied
Demand Uncertainty
Customer Need Causes implied demand uncertainty to
increase because …
Range of quantity increases Wider range of quantity implies greater
variance in demand
Lead time (The amount of time between the Less time to react to orders
placing of an order and the receipt of the goods
ordered) Decreases
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
© 2007 Pearson Education 2-9
Levels of Implied Demand Uncertainty

Predictable Predictable supply and uncertain Highly uncertain


supply and demand or uncertain supply and supply and demand
demand predictable demand or somewhat
uncertain supply and demand

Salt at a An existing A new


supermarket automobile communication
model device

© 2007 Pearson Education 2-10


Step 2: Understanding the Supply Chain

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

© 2007 Pearson Education 2-11


Cost-Responsiveness

Responsiveness  Cost high, Responsiveness high


 Cost low, Responsiveness low

High

Low
Cost
High Low
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Responsiveness, Cost and Efficiency
 Cost high, Responsiveness high
 Cost high, Efficiency low
 Efficiency low, Responsiveness high

High
Responsiveness

Low
High Cost Low

Efficiency High
© 2007 Pearson Education
Low
3-13
Responsiveness Spectrum

Highly Somewhat Somewhat Highly


efficient efficient responsive responsive

Integrated Hanes Most 7-11


steel mill apparel automotive Dell
production

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Step 3: Achieving Strategic Fit

Step is to ensure that what the supply chain does well is


consistent with target customer’s needs

© 2007 Pearson Education 2-15


Achieving Strategic Fit Shown on the
Uncertainty/Responsiveness Map
Responsive
supply chain

Responsiveness
spectrum

Efficient
supply chain

Certain Implied Uncertain


demand uncertainty demand
spectrum
© 2007 Pearson Education 2-16