Competitive and Supply Chain Strategies

Competitive and Supply Chain Strategies

• Competitive strategy is how a firm aims to meet customer needs through its products and services
• Product development strategy defines the new products a company will develop
• Marketing and sales strategy is how the market is segmented, positioned, priced, and promoted
• Supply chain strategy shapes material procurement, transportation, manufacturing, and distribution
• All functional strategies should reinforce each other and the overall competitive strategy

Achieving Strategic Fit

• Competitive and supply chain strategies must have aligned goals to achieve strategic fit
• Companies can fail due to a lack of strategic fit or resources unable to execute the strategy
• Competitive and functional strategies must combine into one coordinated strategy
• Company functions must structure their processes and resources to execute strategies well
• The supply chain design and each stage's role must align to support the supply chain strategy

How to Achieve Strategic Fit

• Understand the customer and supply chain uncertainty
• Understand the supply chain
• Achieve strategic fit

Step 1: Understanding the Customer and Supply Chain Uncertainty

• Important factors include quantity needed, response time, variety, service level, price, and innovation rate
• Demand uncertainty is the unpredictability of customer demand for a product
• Implied demand uncertainty is the resulting uncertainty for the supply chain, given the demand it must handle

Customer Needs and Implied Demand Uncertainty

• A wider range of quantities can increase implied demand uncertainty
• Decreased lead time leaves less time to react to orders, increasing uncertainty
• Higher product variety disaggregates demand, raising uncertainty
• More acquisition channels disaggregate customer demand, increasing uncertainty
• Faster innovation increases uncertainty given the nature of new products
• Higher service levels require handling unusual demand surges, increasing uncertainty

Implied Uncertainty and Other Attributes

• Products with uncertain demand are often newer with less competition, resulting in higher margins
• Forecasting improves with less demand uncertainty
• Difficulty matching supply with demand increases with implied demand uncertainty, leading to stockouts or oversupply
• Oversupply often results in high markdowns for products with greater implied demand uncertainty

Impact of Supply Source Capability

• Frequent breakdowns increase supply uncertainty
• Unpredictable and low yields increase supply uncertainty
• Poor quality increases supply uncertainty
• Limited supply capacity increases supply uncertainty
• Inflexible supply capacity increases supply uncertainty
• Evolving production process increases supply uncertainty

Step 2: Understanding Supply Chain Capabilities

• Supply chain responsiveness is the ability to respond to wide ranges of quantities demanded
• Supply chain responsiveness includes meeting short lead times
• Supply chain responsiveness incorporates handling a large variety of products
• Supply chain responsiveness includes building highly innovative products
• Supply chain responsiveness entails meeting a very high service level
• Responsiveness has a cost
• Supply chain efficiency is inversely related to the cost of delivering the product
• The cost-responsiveness efficient frontier curve represents the lowest cost for a given responsiveness level

Step 3: Achieving Strategic Fit

• Consistency between supply chain responsiveness and implied uncertainty is important
• Roles should be assigned to different supply chain stages to ensure the correct responsiveness level
• Maintain consistent strategies across all functions that support the competitive strategy

Tailoring the Supply Chain

• Strategic fit should be achieved while serving diverse customer segments and products across numerous channels
• It is necessary to share supply chain links for some products but maintain separate operations for others

Changes Over Product Lifecycle: Beginning Stages

• Initially, demand is uncertain, and supply is unpredictable
• Margins are high, and time is critical for initial sales
• Product availability is crucial for capturing the market
• Cost is often a secondary consideration

Changes Over Product Lifecycle: Later Stages

• Demand becomes predictable, and supply is stable
• Margins decrease due to heightened competition
• Price becomes a significant factor for customers

Expanding Strategic Scope

• Scope of strategic fit includes functions and stages across the supply chain with an integrated strategy
• Intraoperation scope aims to minimize local costs with each stage developing strategy independently
• Intrafunctional view focuses on minimizing total functional costs, aligning operations within a function
• Interfunctional scope attempts to maximize company profit with functional strategies aligning with each other and the competitive strategy
• Intercompany scope aims to maximize supply chain surplus
• Suppliers and customers work together and share information to reduce costs and increase the supply chain surplus
• Agile intercompany scope is a firm's ability to achieve strategic fit when partnering with supply chain stages that change over time

Challenges

• Rising product variety and shrinking lifecycles increase uncertainty and reduce the window for supply chain fit
• Globalization and uncertainty manifest as exchange rate fluctuations, global demand shifts, and crude oil price volatility
• Fragmentation of ownership manifests as firms being less vertically integrated
• Fragmentation provides advantages in supplier/customer expertise
• New ownership structures can make alignment difficult
• Aligning the supply chain becomes critical
• Customers' needs and technology changes forces firms to rethink supply chain strategy
• Environmental sustainability requires accounting when strategizing
• Sustainable opportunities require coordination among various members of the supply chain