Supply Chain Performance: Achieving Strategic Fit PDF

Detailed Summary of Chapter 2: Supply Chain Performance: Achieving Strategic Fit and Scope 2.1 Competitive and Supply Chain Strategies A company's competitive strategy defines the set of customer needs it seeks to satisfy through its products and services relative to its competitors. Supply chain...

Detailed Summary of Chapter 2: Supply Chain Performance: Achieving Strategic Fit and Scope 2.1 Competitive and Supply Chain Strategies A company's competitive strategy defines the set of customer needs it seeks to satisfy through its products and services relative to its competitors. Supply chain strategy must support this competitive strategy to achieve a high level of performance. Example: - Walmart: Aims to provide high availability of various products at low prices. Their supply chain focuses on efficiency to keep costs low while maintaining product availability. - McMaster-Carr: Sells maintenance, repair, and operations (MRO) products and focuses on providing convenience, availability, and responsiveness rather than competing on price. To illustrate the relationship between competitive and supply chain strategies, the chapter uses the value chain for a typical organization, which includes new product development, marketing and sales, operations, distribution, and service. 2.2 Achieving Strategic Fit Strategic fit requires that a company's competitive strategy and supply chain strategy align. This alignment ensures that the supply chain can meet the priorities set by the competitive strategy. Achieving strategic fit involves understanding customer needs and supply chain uncertainty, and then developing supply chain capabilities to match. Example: - Dell: Initially focused on providing customizable products with a responsive supply chain. As customer priorities shifted to low prices and immediate availability, Dell transitioned to a build-to-stock model using contract manufacturers to maintain strategic fit. The chapter describes three basic steps to achieve strategic fit: 1. Understanding the Customer and Supply Chain Uncertainty: Assessing customer needs and the unpredictability these needs impose on the supply chain. Quantity of the product needed in each lot: An emergency order for material needed to repair a production line is likely to be small. An order for material to construct a new pro- duction line is likely to be large. Response time that customers are willing to tolerate: The tolerable response time for the emergency order is likely to be short, whereas the allowable response time for the con- struction order is apt to be long. Variety of products needed: A customer may place a high premium on the availability of all parts of an emergency repair order from a single supplier. This may not be the case for the construction order.  Service level required: A customer placing an emergency order expects a high level of product availability. This customer may go elsewhere if all parts of the order are not imme- diately available. This is not apt to happen in the case of the construction order, for which a long lead time is likely. Price of the product: The customer placing the emergency order is apt to be much less sensitive to price than the customer placing the construction order. Desired rate of innovation in the product: Customers at a high-end department store expect a lot of innovation and new designs in the store’s apparel. Customers at Walmart may be less sensitive to new product innovation 2. Understanding the Supply Chain Capabilities: Evaluating the supply chain’s ability to respond to these needs. 3. Achieving Strategic Fit: Ensuring the supply chain's responsiveness matches the level of implied uncertainty from customer needs and supply characteristics. 2.3 Expanding Strategic Scope Strategic fit must be considered across all stages of the supply chain. The scope of strategic fit can range from narrow (intraoperation scope) to broad (intercompany scope), where all stages of the supply chain coordinate their strategies. Examples: - IKEA: Expands its scope of strategic fit to include all functions and stages within its supply chain, focusing on efficiency across the board. Products are designed for easy assembly, and final assembly and delivery are moved to the customer to reduce costs. - Walmart and P&G: Collaborate to plan promotions that benefit both sides by timing them to maximize sales impact while minimizing cost. Expanding the strategic scope can help firms address the needs of multiple customer segments with varied products across different channels 2.4 Challenges to Achieving and Maintaining Strategic Fit Several challenges can hinder the achievement and maintenance of strategic fit: 1. Increasing Product Variety and Shrinking Life Cycles: Greater variety and shorter life cycles increase uncertainty and reduce the time available to achieve strategic fit. Example: Apple successfully limits product variety while introducing new products, allowing it to deal only with high-demand items. 2. Globalization and Increasing Uncertainty: Globalization introduces risks such as fluctuating exchange rates, varying global demand, and volatile commodity prices. Example: Honda's flexible manufacturing plants allowed it to adapt to changing demand for different vehicle types during economic fluctuations. 3. Fragmentation of Supply Chain Ownership: Increased outsourcing and reduced vertical integration make aligning strategies across the supply chain more complex. 4. Changing Technology and Business Environment: Rapid technological advancements and evolving business landscapes necessitate agile supply chain strategies. 5. Environmental and Sustainability Concerns: Regulatory requirements and sustainability goals must be integrated into supply chain strategies. Example: Starbucks developed sourcing guidelines to ensure environmental and social performance, addressing sustainability issues throughout its supply chain. 2.5 Summary of Learning Objectives The chapter concludes by summarizing the key learning objectives: 1. Importance of Strategic Fit: Critical for overall company success; misalignment between competitive and supply chain strategies can lead to reduced supply chain surplus. 2. Achieving Strategic Fit: Involves understanding customer needs, supply chain uncertainties, and aligning supply chain capabilities to meet these needs. 3. Expanding Strategic Fit: Broadening the scope of strategic fit across all functions and stages of the supply chain to enhance overall performance. 4. Challenges and Opportunities: Addressing challenges such as globalization, product variety, and sustainability to leverage supply chain management for competitive advantage. Case Study: The Demise of Blockbuster The case study explores the strategic missteps that led to Blockbuster's downfall, emphasizing the importance of maintaining strategic fit and adapting to market changes. This detailed summary encapsulates the key concepts and examples from Chapter 2, providing a comprehensive understanding of how companies can achieve and maintain strategic fit to enhance supply chain performance.