WHAT IS THE RIGHT SUPPLY CHAIN FOR YOUR PRODUCT?

POINTS FOR DISCUSSION

Introduction Strategic fit Nature of product

Devising ideal SC strategy

Efficient supply of functional products Responsive supply of innovative products Conclusion
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INTRODUCTION

Technology & brainpower has not improved SC performance Framework to decide the best SC Consider nature of demand for product before devising SC strategy Match type of product and type of SC

STRATEGIC FIT

Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy Competitive and supply chain strategies have the same goals All functional strategies support the above

COMPETITIVE AND SUPPLY CHAIN STRATEGIES

Competitive strategy

Defines, relative to its competitors, the set of customer needs a firm seeks to satisfy through its products and services

Supply chain strategy

determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product

NATURE OF PRODUCT

Functional or innovative?

Functional

Stable, predictable demand Long life cycles

Low profit margins

Innovative

Uncertain demand Short life cycles High profit margins

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Physically same products can be either functional or innovative

Causes demand uncertainty to increase because CUSTOMER NEED

Range of quantity required increases

Lead time decreases Variety of products required increases Number of channels increases

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
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Rate of innovation increases Required service level increases

SUPPLY UNCERTAINTY
Supply source incapability like Frequent breakdowns Unpredictable & low yields Poor quality Limited or inflexible supply capacity Evolving production process

causes supply uncertainty to increase

IMPLIED UNCERTAINTY SPECTRUM

Predictable supply & demand

Mix

Highly uncertain supply & Demand

Salt

Existing automobile model

New communication device

Responsiveness
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Price

Customer Need

SUPPLY CHAIN FUNCTIONS

Physical function

Conversion, storage &transportation between points in SC

Efficiency More important for functional products

Market mediation function

Matching supply with demand Responsiveness More important for innovative products
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Sport Obermeyer vs. Campbell Soup

SUPPLY CHAIN EFFICIENCY VS.

RESPONSIVENESS

Supply chain responsiveness -- ability to

Respond to wide ranges of quantities demanded meet short lead times Handle a large variety of products Build highly innovative products Meet a very high service level Handle supply uncertainty

Supply chain efficiency

cost of making and delivering the product to the customer

Increasing responsiveness results in higher costs that lower efficiency

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COST-RESPONSIVENESS EFFICIENT
FRONTIER

High

Responsiveness

Low
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High

Low

RESPONSIVENESS SPECTRUM

Highly efficient

Somewhat efficient

Somewhat responsive

Highly responsive

Integrated steel mill

Ready-made garments

Most automotive production

Dell

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ACHIEVING STRATEGIC FIT

Ensure that what the supply chain does well is consistent with target customers needs All functions in the chain must support the competitive strategy to achieve strategic fit

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UNCERTAINTY/ RESPONSIVENESS MAP

Responsive supply chain

Responsiveness spectrum

Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand
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DEVISING IDEAL SC STRATEGY

Understand type of product

Functional or innovative

Understand supply chain capabilities

Efficient or responsive

Correct any mismatch

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TYPE OF PRODUCTS
Attribute PLC Contribution margin Product variety Avg. forecast error Functional products (predictable demand) > 2 yrs 5-20% Low (10-20) Innovative products (unpredictable demand) 3 months to 1 yr 20-60% High (millions)

10%
1%-2% 0% 6mth-1yr

40%-100%
10%-40% 10%-25% 1day-2wks
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Avg. stock out rate

Avg. forced season-end markdown Lead time for make to order product

SUPPLY CHAIN CAPABILITIES

Efficient Primary goal Lowest cost Responsive Quick response

Product design strategy

Pricing strategy Mfg strategy Inventory strategy Lead time focus Supplier selection strategy Transportation strategy

Max performance & Min product cost

Lower margins High utilization Minimize inventory Reduce but not at expense of greater cost Cost and low quality Greater reliance on low cost modes

Modularity to allow postponement

Higher margins Capacity flexibility Buffer inventory Aggressively reduce even if costs are significant Speed, flexibility, quality
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Greater reliance on responsive (fast) modes

MATCHING SUPPLY CHAIN WITH PRODUCT

Functional Products Efficient Supply Chain

Responsive Supply Chain
Match

Innovative Products
Mismatch

Mismatch

Match

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GETTING OUT OF UPPER RH CELL

Efficient supply of innovative products

Automobile industry Computer industry

Move down Move left

Toothpaste

Functional cars
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EFFICIENT SUPPLY OF FUNCTIONAL

PRODUCTS

Campbell soup

Continuous replenishment program EDI links with retailers Showed negative impact of price promotions viz. forward buying Everyday low price Improved service (in-stock availability) Improved efficiency (reduction of retailers inventory)
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EFFICIENT SUPPLY OF FUNCTIONAL

PRODUCTS

Partners can interact to cut costs Get higher profits for the chain of price sensitive products Cooperation & competition? Share cost information

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RESPONSIVE SUPPLY OF INNOVATIVE

PRODUCTS

Accept, reduce, avoid and hedge against uncertainty

Mass customization at National Bicycles Japan Accurate response at Sport Obermeyer

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OTHER ISSUES AFFECTING STRATEGIC FIT

Multiple products and customer segments

How many supply chains?

Product life cycle

Technological changes As product goes through the life cycle, supply chain changes from one emphasizing responsiveness to one emphasizing efficiency

Competitive changes over time

Mass customization

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CONCLUSION
There is no right supply chain strategy independent of competitive strategy There is a right supply chain strategy for a given competitive strategy

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