Strategy& Strategy into Action. Maturity scan: Strategy Stage of evolution Characteristics Stage I: Ad hoc Ad hoc decisions, fire fighting problems, no.

Strategy &

Strategy into Action

Maturity scan:Strategy

Stage of evolution

Characteristics

Stage I:Ad hoc

Ad hoc decisions, fire fighting problems, no clear strategy

Stage II:Functional

Functional organization with each function making separate decisions in its own silo, based on a functional vision and policy

Stage III:Integral

Shared cross functional strategy and vision, translation to all functional areas not yet implemented on tactical level

Stage IV:Visionary

Shared cross functional strategy and vision, clear translation to all functional areas, guideline for all tactical measures

2

A Supply Chain and its traditional conflicts

• Lowest purchase price

• Full truckloads

• High utilization %

• Long runs – minimize changeovers

• Low unit costs

• High service level

• Safety stocks

• High inventory turns

• Maximum flexibility

Finished productComponents

Supply Production Distribution

VP Supply Chain

VP Purchasing VP Operations VP Sales

3

Competitive strategy

What must your supply chain excel at?

Benefit driven by customer value

Flexibility• customization• variety• volume

Quality : • top quality• consistent quality

Time• delivery speed• on-time delivery• development speed

Cost:• low cost

4

Companies should know their Order Winners (and Order Qualifiers)

5

Competitive factors:If customers value these

Performance objectives:Then we need to excel at these

Low price CostHigh quality QualityFast delivery Speed

Reliable delivery DependabilityInnovative products and services Flexibility (product/service)

Wide range of products and services Flexibility (mix)The ability to change the timing or quantity of products and services Flexibility (volume and/or delivery)

• An order winner is a characteristic that will win the bid or customer's purchase. To provide order winners, firms must be better than their competitors.

• An order qualifier is a characteristic that is required for a product or service to be considered by a customer. Firms must provide the qualifiers to get into or stay in a market. To provide qualifiers, they need only to be as good as their competitors.

Source: Hill, 2000

The relation between competitive strategy and supply chain strategy

• Value is created through a chain of value adding processes/functions that must be performed for a successful sale. Other process/functions support and facilitate

• Supply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product

• Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important

New productdevelopment

Marketingand

SalesOperations Distribution Service

Finance, Accounting, IT and HR

Value Chain

Supply Chain

Source: Sunil Chopra, Peter Meindl, ‘Supply Chain Management’, 3rd ed., 2007 6

Supply Chain strategy

• Supply chain strategy must fit with competitive strategy

Supply Chain Strategy

Resources Processes

Competencies

Cost

Flexibility

Quality

Time

CompetitiveStrategy

Source: Sunil Chopra, Peter Meindl, ‘Supply Chain Management’, 3rd ed., 2007 7

Achieving strategic fit

• Step 1: Understanding the customer and the company’s value proposition

• Step 2: Understanding the supply chain capabilities

• Step 3: Achieving strategic fit

Source: Sunil Chopra, Peter Meindl, ‘Supply Chain Management’, 3rd ed., 2007 8

A one-dimensional world

• Fisher (1997) distinguishes two product types• … and just two relevant supply chain strategies

9

Functional products

Stable, predictable demand

Innovative products

Dynamic, unpredictable demand

responsiveness

efficiency

Source: Marshall L. Fischer ‘What is the right supply chain for your product?’, HBR 1997

Differences in demand

Functional products

Innovative products

Product life cycle More than 2 years 3 months to 1 yearContribution margin 5% to 20% 20% to 60%

Product variety Low HighAvg. forecast error 10% 40% to100%Avg. stockout rate 1% to 2% 10% to 40%

Avg. forced season-end markdown 0% 10% to 25%

Source: Marshall L. Fischer ‘What is the right supply chain for your product?’, HBR 199710

Different supply chains

Physically efficient supply Chain

Market responsive supply chain

Primary goal Supply efficiently a lowest possible cost

Quickest possible response

Manufacturing focus High utilization Capacity flexibility

Inventory strategy

High inventory turns, minimize inventory Buffer stocks

Lead time focus Reduce but not at expense of higher costs

Invest aggressively to reduce lead time

Supplier selection Cost and quality Speed, flexibility and

quality

Source: Marshall L. Fischer ‘What is the right supply chain for your product?’, HBR 199711

Match products and supply chain

product

resp

onsi

vene

ss

innovative

effic

ienc

y

functional

Str

ateg

y

standardize

innovate

refo

cus

on

effi

cie

ncy

refo

cus

on

re

spo

nsi

ven

ess

Source: Marshall L. Fischer ‘What is the right supply chain for your product?’, HBR 199712

Achieving a strategic fit: Choose your ‘right’ supply chain

Demand uncertainty spectrum

Responsive supply chain

Efficient supply chain

Functional products

Innovative products

Responsiveness spectrum Zone of

Strategic Fit

Low shelflife

%

High shelflife

%

Source: Sunil Chopra, Peter Meindl, ‘Supply Chain Management’, 3rd ed., 2007 13

Supply Chain Performance

• Two key points– there is no right supply chain strategy independent of

competitive strategy– there is a right supply chain strategy for a given

competitive strategy

• All functions in the value chain must support the competitive strategy to achieve strategic fit

Source: Sunil Chopra, Peter Meindl, ‘Supply Chain Management’, 3rd ed., 2007 14

Questions ?