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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