ch2_ct
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2.1 Competitive and Supply Chain Strategies
ACompanys Competitive Strategies defines, relative
to its competitors, the set of customer needs that itseeks to satisfy through its products and services.
Example : Wal-Mart aims to provide high availabilityof a variety of products at reasonable quality of low
prices.
A Product Development strategy specifies theportfolio of new products that a company will try todevelop.
A marketing and sales strategy specifies how themarket will be segmented and how the product will bepositioned, priced and promoted.
Retail Units
Worldwide 7,390US Retail Units4,219Wal-Mart Stores920Supercenters2,565Sams Clubs 593NeighborhoodMarket 141International
Retail Units 3,171
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A Supply chain strategy determines the nature ofprocurement of raw materials, transportation of raw
materials to and from the company, manufacture of theproduct or operation to provide the service, anddistribution of the product to the customer, along with thefollow up service and a specification of whether these
processes will be performed in house or outsourced.
Example : Cisco, Dell, Toyota, 7-Eleven Japan
New
ProductDevelopment Service
Marketing
andSales Operations Distribution
The
The Value chain in a Company
Finance, Accounting, IT, Human resources
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2.2 Achieving Strategic Fit
Strategic Fit means that both the competitive and supply
chain strategies have aligned goalsIt refers to consistency between the customer prioritiesthat the competitive strategy hopes to satisfy and thesupply chain capabilities that the supply chain strategies
aims to build.
Acompanys success or failure is thus closely linked to thefollowing keys,
1. The competitive strategy and all functional strategies must fittogether to form coordinated overall strategy. Each functionalstrategy must support other functional strategies
2. The different functions in a company must appropriately structuretheir processes and resources to be able to execute these strategies
successfully.
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1. Understanding the Customer and Supply chain Uncertain
2. Understanding the Supply Chain Capabilities
3. Achieving Strategic Fit
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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
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Low ImpliedUncertainty
High ImpliedUncertainty
Product Margin Low HighAverage Forecast error 10 % 40% to 100%
Average stock out rate 1% to 2% 10% to 40%
Average forced season-end markdown
0% 10% to 25%
Correlation Between Implied Demand Uncertainty and other
Attributes
Source: Fisher, Harward Business Rev
Supply Source Capability Causes SupplyUncertainty to
Frequent Breakdowns Increase
Unpredictable and Low Yields Increase
Poor quality Increase
Limited Supply Capacity Increase
Inflexible Supply Capacity Increase
Evolving Production Process Increase
Impact of Supply Source Capability on Supply Uncertainty
Source: Hau L. lee, California Management
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Salt at aSupermarket
An ExistingAutomobile
Model
A newCommunicatio
Device
PredictableSupplyAnd Demand
Predictable Supply and Uncertainor uncertain Supply and predictableDemand or somewhat uncertainSupply and demand
Highly uncertainSupplyAnd Demand
The implied Uncertainty (demand and supply)
S ectrum
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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
LowHigh LowCost
Cost -Responsivene
ssEfficient
Frontier
The cost-responsivenessEfficient frontier is the curve
Showing the lowest possibleCost for a given level ofResponsiveness. Lowest costBased on existing technology.TheEfficient frontier represents
the cost-responsivenesserformance of the best
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3. Achieving Strategic Fit
ZoneOf Strategic
Fit
Responsive
Supply Chain
ResponsivenessSpectrum
EfficientSupply Chain
CertainDemand
ImpliedUncertaintySpectrum
UncertainDemand
Finding the Zone of Strategic Fit
The Goal is tohighresponsivenessIs consistent with
the impliedUncertainty, andefficiency forSupply chain orfacing lowimplied
uncertainty.
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Highlyefficient
SomewhatEfficient
SomewhatResponsive
HighlyResponsi
IntegratedSteel MillsProductionScheduled weeks
Or monthsIn advance withLittle variety orflexibility
Hanes apparelA traditionalMake-to-stockManufacturer
With productionLead time of severalweeks
Most AutomotiveProductionDelivering a largeVariety of products
In a couple ofweeks
7-Eleven JapaChangingMerchandisinMix by
Location andTime of day
The Responsiveness Spectrum
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Supplier Manufacturer Retailer
Supplier Manufacturer Retailer
Extent of implied Uncertainty for the supply chain
Supply Chain
Supply Chain
Supplier absorbsThe least impliedUncertainty andMust be very
efficient
Supplier absorbsLess impliedUncertainty andMust be somewhat
efficient
Retailer absorbsMost of the impliedUncertainty andMust be veryresponsive
Retailer absorbsthe least impliedUncertainty andMust be very
efficient
Manufacturer absorbsLess impliedUncertainty andMust be somewhatefficient
Manufacturer absorbsMost of the impliedUncertainty andMust be very responsive
Different roles and allocation of implied uncertainty for a given level of SC Responsive
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Supply chain strategy1. Manufacturing2. Inventory3. Lead time4. Purchasing5. transportation
ProductDevelopment
Strategy
Marketing andsales
Strategy
Competitive Strategy
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Strategy
Primary Goals
Product Design Strategy
Pricing strategy
Manufacturing strategy
Inventory Strategy
Lead time strategy
Supplier Strategy
Efficient supply chains
Supply demand at the lowestcost
Maximize performance at aminimum product cost
Lower margin because price is aprime customer driver
Lower cost through high
utilization Minimize inventory to lower
cost
Reduce, but not at the expensecost
Selected based on cost andquality
Responsive supply chains
Respond quickly to demand
Create modularity to allowpostponement of productdifferentiation
Higher margins because price isnot a prime customer driver
Maintain capacity flexibility to
buffer against demands/supplyuncertainty
Maintain buffer inventory todeal with demand/supplyuncertainty
Reduce aggressively, even if thecosts are significant
Select based on speed,flexibility, reliability and quality
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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
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Achieving and Maintaining Strategic Fit in Emerging Retail Ma
The Indian Scenario
1. The booming Indian Retail Industry, estimated at around $ 300 billion
2. The unorganized sector, controlling over 95% of the retail business in the countr
3. The Indian middle class, of about 350 million, which the organized retail sector
is trying to target
4. In this scenario, the Walmart-Bharti combine presents the Walmart everyday lo
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 targetin
high-end customers in a limited number of cities
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7. Pantaloon Retail (India) Ltd which had charted out a mega expansion
plan powered by its retail discount chain
8. Big Bazaar, and was planning to cover 3 million Sq. feet of retail space
in the country within 2007 and low price leader.
9. 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 understandingof the customer su l chain uncertainties and su l chain
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2.3 Expanding Strategic Scope
IntercompanyInter functional
Intra companyInter functionalAt distributor
Intra companyIntra functionalAt distributor
Intra companyInter operationAt distributor
Suppliers Manufacturer Distributor Retailer Customer
CompetitiveStrategy
Product
DevelopmentStrategy
Supply chainStrategy
MarketingStrategy
Expanding Strategic Scope
The different Scope of Strategic Fit Across a Supply Chain
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1. Intra Company Intra operation Scope: The Minimize Local cost View
2. Intra company intra functional Scope: The Minimize Functional Cost Vi
3. Intra company Inter functional Scope: The maximize Company profit Vi4. 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. Increasing variety of Products2. Decreasing product Life Cycles3. Increasingly Demanding Customers
4. Fragmentation of Supply Chain Ownership5. Globalization6. Changing Business Environment7. Difficulty Executing New Strategies
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