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1 Competitive and Supply Chain Strategies

A Companys Competitive Strategies defines, relative to its competitors, 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 products at reasonable quality of low prices.
Retail Units Worldwide 7,390 US Retail Units 4,219 Wal-Mart Stores 920 Supercenters 2,565 Sams Clubs 593 Neighborhood Market 141 International Retail Units 3,171

A Product Development strategy specifies the portfolio of new products that a company will try to develop.
A marketing and sales strategy specifies how the market will be segmented and how the product will be positioned, priced and promoted.

A Supply chain strategy determines the nature of procurement of raw materials, transportation of raw 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 the follow up service and a specification of whether these processes will be performed in house or outsourced. Example : Cisco, Dell, Toyota, 7-Eleven Japan
New Product Development The Marketing and Sales Operations Distribution Service

Finance, Accounting, IT, Human resources

The Value chain in a Company

2.2 Achieving Strategic Fit

Strategic Fit means that both the competitive and supply chain strategies have aligned goals It refers to consistency between the customer priorities that the competitive strategy hopes to satisfy and the supply chain capabilities that the supply chain strategies aims to build. A companys success or failure is thus closely linked to the following keys,
1. The competitive strategy and all functional strategies must fit together to form coordinated overall strategy. Each functional strategy must support other functional strategies The different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully.


1. Understanding the Customer and Supply chain Uncertaint 2. Understanding the Supply Chain Capabilities 3. Achieving Strategic Fit

1. Understanding the Customer and Supply chain Uncertainty The Quality of the Product Needed in Each lot The response time that customers are willing to Tolerate The variety of products needed The service level required The price of the product The desired innovation in the product

Demand Uncertainty reflects the uncertainty of customer demand. Implied Demand Uncertainty is the resulting uncertainty for only the portion of the demand that the supply chain plans to satisfy based on the attributes the customer desires.

Ex: A firm supplying only emergency orders for a product will face a

Correlation Between Implied Demand Uncertainty and other Attributes

Product Margin Average Forecast error Average stock out rate Average forced seasonend markdown Low Implied Uncertainty Low 10 % 1% to 2% 0% High Implied Uncertainty High 40% to 100% 10% to 40% 10% to 25%

Source: Fisher, Harward Business Revi

Impact of Supply Source Capability on Supply Uncertainty

Supply Source Capability Frequent Breakdowns Unpredictable and Low Yields Poor quality Causes Supply Uncertainty to Increase Increase Increase

Limited Supply Capacity Inflexible Supply Capacity

Evolving Production Process

Increase Increase
Increase Source: Hau L. lee, California Management

Predictable Supply And Demand

Predictable Supply and Uncertain or uncertain Supply and predictable Demand or somewhat uncertain Supply and demand

Highly uncertain Supply And Demand

Salt at a Supermarket

An Existing Automobile Model

A new Communicatio Device

The implied Uncertainty (demand and supply)


2. Understanding the Supply chain capabilities

Supply chain Responsiveness includes,

Respond to wide ranges of quantities demanded Meet short lead times Handle a large variety of products Build highly innovative products Meet a high service level Handle supply uncertainty
Responsiveness High

Cost Responsivene ss Efficient Frontier

Low High Cost Low

The cost-responsiveness Efficient frontier is the curve Showing the lowest possible Cost for a given level of Responsiveness. Lowest cost Based on existing technology. The Efficient frontier represents the cost-responsiveness performance of the best

3. Achieving Strategic Fit

Responsive Supply Chain

Finding the Zone of Strategic Fit

Responsiveness Spectrum

Zone Of Strategic Fit

Efficient Supply Chain Certain Demand Implied Uncertainty Spectrum

The Goal is to high responsiveness Is consistent with the implied Uncertainty, and efficiency for Supply chain or facing low implied uncertainty. Uncertain Demand

Highly efficient

Somewhat Efficient

Somewhat Responsive

Highly Responsiv

Integrated Steel Mills Production Scheduled weeks Or months In advance with Little variety or flexibility

Hanes apparel A traditional Make-to-stock Manufacturer With production Lead time of several weeks

Most Automotive Production Delivering a large Variety of products In a couple of weeks

7-Eleven Japan Changing Merchandising Mix by Location and Time of day

The Responsiveness Spectrum

Supplier absorbs The least implied Uncertainty and Must be very efficient Supplier

Manufacturer absorbs Less implied Uncertainty and Must be somewhat efficient Manufacturer

Retailer absorbs Most of the implied Uncertainty and Must be very responsive Supply Chain Retailer

Extent of implied Uncertainty for the supply chain

Supplier Supplier absorbs Less implied Uncertainty and Must be somewhat efficient


Retailer Supply Chain Retailer absorbs the least implied Uncertainty and Must be very efficient

Manufacturer absorbs Most of the implied Uncertainty and Must be very responsive

Different roles and allocation of implied uncertainty for a given level of SC Responsiven

Competitive Strategy Supply chain strategy 1. Manufacturing 2. Inventory 3. Lead time 4. Purchasing 5. transportation

Product Development Strategy

Marketing and sales Strategy

Primary Goals Product Design Strategy Pricing strategy Manufacturing strategy Inventory Strategy Lead time strategy Supplier Strategy

Efficient supply chains

Supply demand at the lowest cost Maximize performance at a minimum product cost Lower margin because price is a prime customer driver Lower cost through high utilization Minimize inventory to lower cost Reduce, but not at the expense cost Selected based on cost and quality

Responsive supply chains

Respond quickly to demand Create modularity to allow postponement of product differentiation Higher margins because price is not a prime customer driver Maintain capacity flexibility to buffer against demands/supply uncertainty Maintain buffer inventory to deal with demand/supply uncertainty Reduce aggressively, even if the costs are significant Select based on speed, flexibility, reliability and quality

Other issues affecting Strategic Fit

1. Multiple Products and Customer Segments 2. Product Life Cycle 3. Globalization and competitive changes over time 4. Growing supply chain uncertainty 5. The environment and sustainability

Achieving and Maintaining Strategic Fit in Emerging Retail Mar The Indian Scenario
1. 2. 3. The booming Indian Retail Industry, estimated at around $ 300 billion

The unorganized sector, controlling over 95% of the retail business in the country The Indian middle class, of about 350 million, which the organized retail sector is trying to target


In this scenario, the Walmart-Bharti combine presents the Walmart everyday low

price (EDLP) model for an efficient supply chain

5. Reliance Retail, seems more focused on developing an indigenous sourcing base and concentrating on economies arising out of disintermediation of supply and distribution channels and variety of stores reaching put about 800 cities and towns throughout the country . 6.

Shoppers Stop, an early entrant into Indian retail sector, seems to prefer targeting high-end customers in a limited number of cities


Pantaloon Retail (India) Ltd which had charted out a mega expansion plan powered by its retail discount chain


Big Bazaar, and was planning to cover 3 million Sq. feet of retail space in the country within 2007 and low price leader.


Subhiksha, the no frills deep discount branded product seller

including mobile phones, 1655 stores in 2 years, is now facing cash crunch.

10. Available reports suggest that a number of malls experiencing rough weather due to low percentage of footfalls getting converted into actual sales, high rentals, inadequate parking spaces, and overarching Indian attitudes.

11. Pantaloons projected expansion is slowing down for these reasons. As

per Mayur Toshniwal, VP and Business Head North, Expansions into newer cities is going through a problem phase 12. The Indian Retail Industry, failed to gain a thorough understanding of the customer, supply chain uncertainties and supply chain

2.3 Expanding Strategic Scope

Suppliers Manufacturer Distributor Retailer Customer
Competitive Strategy

Intercompany Inter functional Expanding Strategic Scope

Intra company Intra functional At distributor

Product Development Strategy

Intra company Inter functional At distributor

Intra company Inter operation At distributor

Supply chain Strategy

Marketing Strategy

The different Scope of Strategic Fit Across a Supply Chain

1. Intra Company Intra operation Scope: The Minimize Local cost View

2. Intra company intra functional Scope: The Minimize Functional Cost Vie

3. Intra company Inter functional Scope: The maximize Company profit Vie

4. Inter company Inter functional Scope: The Maximize Supply Chain Surp 5. Agile Inter company Inter Functional Scope

2.4 Obstacles to Achieving Strategic Fit 1. 2. 3. 4. 5. 6. 7. Increasing variety of Products Decreasing product Life Cycles Increasingly Demanding Customers Fragmentation of Supply Chain Ownership Globalization Changing Business Environment Difficulty Executing New Strategies