04-Jun-11

Competitive & Supply Chain Strategies

Competitive strategy: defines the target market/customer needs. Product Development strategy: portfolio of new products to be developed to achieve competitive strategy. Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted Supply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product etc.

Supply Chain Management

Class 2: Competitive & Supply Chain Strategies

A corporations competitive strategy and supply chain strategy must fit with each other or otherwise, both will fail

The Process of Achieving Strategic Fit

Three steps are involved. 1. Understanding the customer needs regarding attributes of supply. 2. Understanding the supply chain attributes (alternatives available). 3. Achieving strategic fit. Making decision on the supply chain to best serve the needs of the target segment customers.

Understanding the customer needs regarding attributes of supply.

Routine supply Normal variety Normal product availability (normal service level) Cost, a factor Less sensitive to new innovation
Efficiency More Important

Urgent requirement Large variety High product availability (high service level) Premium acceptable for meeting requirement Expects a lot of innovation (features)
Responsiveness More Important

Demand Uncertainty
The uncertainty of customer demand for a product e.g. how many customers will buy our branded jeans

Impact of Customer Needs on Implied Demand Uncertainty

Customer Need Range of quantity increases Lead time decreases Causes implied demand uncertainty to increase because Wider range of quantity implies greater variance in demand Less time to react to orders Demand per product becomes more disaggregated Total customer demand is now disaggregated over more channels New products tend to have more uncertain demand Firm now has to handle unusual surges in demand

Implied Demand Uncertainty

The uncertainty for the portion of the demand that the supply chain plans to satisfy and the attributes the customer desires e.g. how many customers will buy our branded jeans in brown color

Variety of products required increases Number of channels increases Rate of innovation increases Required service level increases

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SUPPLY CHAINS
EFFICIENT VS. RESPONSIVE
QUICK RESPONSE ASSEMBLE TO ORDER HIGHER PRICE AND MARGINS FLEX. CAPACITY MAINTAIN BUFFER REDUCE EVEN WITH HIGHER PRICE SPEED, FLEX., QUALITY QUICK& RESPONSIVE GOAL: LOWEST COST PRODUCT:MAX. PERF. AT MIN COST PRICING: LOWER PRICE AND MARGIN MANU: HIGH EFFICIENCY INVENT: MIN. INVENTORY LEADTIME: REDUCE LEADTIME SUPPLIERS: COST/QUALITY TRANSPORTATION: COST

Responsive & Efficient Chains Attributes

Efficient Supply Chains Predictable/Mature Products Make to Stock Functional Products Example of Efficient SC Corn Flakes, Lawn fertilizer, Ball point pens, Light bulbs, Auto replacement tires, Some industrial chemicals, Tomato soup Efficient SC Strategies Economical production runs Finished goods inventories Economical buy quantities Large shipment sizes Batch order processing Responsive Supply Chains Unpredictable/ Introductory Products Make-to-Order Innovative Example of Responsive SC New music recordings, New computer games, Fashion clothes, Art works, Movies, Consulting services, REsponsive SC Strategies Excess capacity Quick changeovers Short lead times Flexible processing Premium transportation Single order processing

Drivers of Supply Chain Performance

efficiency / responsiveness tradeoff

Efficiency Responsiveness Supply chain structure

Considerations for Supply Chain Drivers

Driver Inventory Transportation Efficiency Cost of holding Consolidation Responsiveness Availability Speed

Inventory

Transportation

Facilities

Information

Facilities Information

Drivers

Consolidation / Proximity / Dedicated Flexibility What information is best suited for each objective

Process view of a supply chain

SUPPLY CHAIN MANAGEMENT

Class 2-B Process view of a supply chain

Cycle view Push/pull view

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Cycle View of Supply Chains

Customer
Customer Order Cycle

Push/Pull View of Supply Chains

Push processes: execution is initiated in anticipation of customer orders Pull processes: execution is initiated in response to a customer order Push/pull boundary separates push processes from pull processes

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier

Push/Pull View of Supply Chains

Procurement, Manufacturing and Replenishment cycles
Customer Order Cycle

Push Strategies
Production decisions based on long-term forecasts Ordering decisions based on inventory & forecasts What are the problems with push strategies?
Inability to meet changing demand patterns Obsolescence The bullwhip effect:
Excessive inventory Excessive production variability Poor service levels

PUSH PROCESSES

PULL PROCESSES Customer Order Arrives

Pull Strategies
Production is demand driven
Production and distribution coordinated with true customer demand Firms respond to specific orders

Pull Strategies result in:

Reduced lead times (better anticipation) Decreased inventory levels at retailers and manufacturers Decreased system variability Better response to changing markets

Traditional Manufacturing Firm: Push (old style MRP / Material Requirements Planning System) The production of items at times required by a given schedule planned in advance

But:
Harder to leverage economies of scale Doesnt work in all cases

Work Station 1

WS 2

WS 3

Material Information (Production Schedule)

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Pull System
The production of items only as demanded for use or to replace those taken for use.

Pull strategies a Kanban system

Inbound buffer Outbound buffer Inbound buffer Outbound buffer

Suppliers

Retailers

Work Station 1

WS 2

WS 3
Move cards Production cards Move cards Production cards

Material Information (via Kanban/Card)

Push-pull systems
A shift from a Push System...
Production decisions are based on forecast

Consider Two PC Manufacturers:

Build to Stock
Forecast demand Buys components Assembles computers Observes demand and meets demand if possible.

Build to order
Forecast demand Buys components Observes demand Assembles computers Meets demand

to a Push-Pull System
Initial portion of the supply chain is replenished based on long-term forecasts
For example, parts inventory may be replenished based on forecasts

Final supply chain stages based on actual customer demand.

For example, assembly may be based on actual orders.

A traditional push system

A push-pull system

Push-Pull Strategies
The push-pull system takes advantage of the rules of forecasting:
Forecasts are always wrong The longer the forecast horizon the worse the forecast Aggregate forecasts are more accurate
Risk Pooling impact

Selecting the Best SC Strategy

Higher demand uncertainty suggests pull High uncertainty/ EOS not important such as the computer industry implies pull Higher importance of economies of scale suggests push Low uncertainty/ EOS important such as groceries implies push
Demand is stable Transportation cost reduction is critical Pull would not be appropriate here.

Delayed differentiation is another example

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Locating the Push-Pull Boundary

The push section:
Uncertainty is relatively low Economies of scale important Long lead times Complex supply chain structures:

Locating the Push-Pull Boundary

Thus
Management based on forecasts is appropriate Focus is on cost minimization Achieved by effective resource utilization supply chain optimization

The pull section:

High uncertainty Simple supply chain structure Short lead times

Thus
Reacting to realized demand is important Focus on service level Flexible and responsive approaches

The end