Chapter 2

Supply Chain Performance:

Achieving Strategic Fit
and Scope
 Competitive Strategies
and Supply Chain Strategies
 A company’s competitive strategy defines the
set of customer needs that it seeks to satisfy
through its products and services.

 Example –Wal-Mart aims to provide high

availability of a variety of reasonable quality
products at low prices.
 McMaster-Carr: It guarantees product
availability and delivery within a day. 
The Value Chain in a Company
 The Value Chain
 A product development strategy specifies the
portfolio of new products that a company will
try to develop. It also dictates whether the
development effort will be made internally or
outsourced.

 A marketing strategy specifies how the

market will be segmented and the product
positioned, priced, and promoted. 
 The Value Chain
 Operations transforms inputs into outputs to
create the product according to new product
specifications.

 Distribution either takes the product to the

customers or brings the customer to the product.

 Service responds to customer requests during or

after the sales.
 The Value Chain
 Finance, Accounting, Information
Technology, and Human resources support
and facilitate the functioning of the value
chain.

 All functional strategies must support one

another and support the competitive strategy.
 Supply Chain Strategy

 A supply chain strategy determines the nature

of procurement of raw materials, transportation
of materials to and from the company,
manufacture of the product or operation to
provide the service, and distribution of the
product to the customer, along with any
follow-up service. 
 Supply chain strategy includes what many
traditionally call supplier strategy, operations
strategy, and logistics strategy. 

 Logistics means planning, execution, and control of

the procurement, movement, and stationing of
personnel, material, and other resources to achieve
the objectives of a campaign, plan, project, or
strategy. It may be defined as the 'management of
inventory in motion and at rest.
 Achieving Strategic Fit
 Strategic fit means that both the competitive
and supply chain strategies have the same goal.
Consistency between the customer priorities
that the competitive strategy is designed to
satisfy and the supply chain capabilities that
the supply chain strategy aims to build .
 Achieving Strategic Fit
1. The competitive strategy and all functional strategies must
fit together to form a coordinated overall strategy. Each
functional strategy must support other functional strategies
and help a firm reach its competitive strategy goal. 

2. The different functions in a company must appropriately

structure their processes and resources to be able to execute
these strategies successfully. 

3. The design of overall supply chain and the role of each

stage must be aligned to support the supply chain strategy.
 How Is Strategic Fit Achieved?
 Understanding the customer and the supply chain uncertainty: A
company must understand the customer needs for each targeted segment
and the uncertainty these needs impose on the supply chain. These
needs help the company define the desired cost and service
requirements. The supply chain uncertainty helps the company identify
the extent of the unpredictability of demand and supply that the supply
chain must be prepared for.

 Understanding the supply chain capabilities: A company must

understand what its supply chain is designed to do well.

 Achieving strategic fit: if a mismatch exists between what the supply

chain does particularly well and the desired customer needs, the
company will either need to restructure the supply chain to support the
competitive strategy or alter its competitive strategy.
 Understanding the customer and the supply
chain uncertainty
 Customer demand from different segments
varies along several attributes, as follows:
 Quantity of the product needed in each lot:
 Response time that the customers are willing
to tolerate:
 Variety of products needed
 Service level required
 Price of the product
 Desired rate of innovation in the product
Understanding the supply chain capabilities
 Supply Chain Responsiveness

 Supply chain responsiveness includes a supply

chain ability to do the following:

 Respond to wide ranges of quantity demanded

 Meet short lead times
 Handle a large variety of products
 Build highly innovative products.
 Meet a high service level
 Handle supply uncertainty
Supply Chain Responsiveness
 Achieving strategic Fit

 The goal is to target high responsiveness for a

supply chain facing high implied uncertainty,
and efficiency for a supply chain facing low
implied uncertainty.
 Tailoring the Supply Chain for
strategic Fit
 Toward the beginning stages of a product’s life cycle:
• Demand is very uncertain, and supply may be unpredictable.
• Margins are often high, and time is crucial to gaining sales
• Product availability is crucial to capture the market
• Cost is often secondary consideration.
 Later in the life cycle, the demand and supply
characteristics changes as:
• Demand has become more certain, and supply is predictable.
• Margins are lower as a result of an increase in competitive
pressure.
• Price becomes a significant factor in customer choice.
 Challenges to Achieving and
Maintaining Strategic Fit
 The key to achieving strategic fit is a
company’s ability to find a balance between
responsiveness and efficiency that best
matches the needs of its target customers.
 Increasing Product Variety and
Shrinking Life Cycles
 One of the biggest challenges to maintain strategic
fit.
 The Challenge gets magnified when companies
continue to increase new products without
maintaining the discipline of eliminating older ones.
 Apple, for example, has had great success limiting
its product variety while limiting its product variety
while continuing to introduce new products.
 Product variety must be limited to what truly adds
value to the customer.
 Globalization and Increasing
Uncertainty
 Globalization has increased both the
opportunities and risks for supply chains.
 Fluctuations in exchange rates, global demand,
oil price, etc. affect supply chain performance.
 Fragmentation of Supply Chain
Ownership
 With the chain broken into many owners, each
with its own policies and interests, the chain is
more difficult to coordinate. This problem
could potentially cause each stage of a supply
chain to work only toward its local objectives
rather than those of a whole chain.
 Changing Technology and Business
Environment
 A strategy that may have been very successful
in one environment can easily become a
weakness in a changed setting.

 Example: Dell’s customized PCs vs.

standardized laptops.
 The Environment and sustainability

 In some instances, regulation has been driving

changes; in others, change has been driven by
the perception of the lack of sustainability as a
risk factor.