Tagged Achieving Strategic fit:, Comparison of Efficient and Responsive Supply Chains, Competitive and Supply Chain Strategy, How is Strategic Fit Achieved?, Product life cycle, The Value Chain Show
Topic Covered in Syllabus: Table of Contents
Competitive and Supply Chain Strategy
The Value ChainTo see the relationship between competitive strategy and supply chain strategy we start with the value chain for a typical organization. New Product Development: creates specifications for the product.
Achieving Strategic fit:
How is Strategic Fit Achieved?There are three basic steps to achieving this strategic fit, which are discussed below.
Demand Uncertainty is the uncertainty of customer demand for a product. Implied demand uncertainty, in contrast, is the resulting uncertainty for only the portion of the demand that the supply chain plans to satisfy based on the attributes the customer desires.
In general customer demand from different segments varies along several attributes as follows: As each individual customer need contributes to the implied demand uncertainty, we can use implied demand uncertainty as a common metric with which to distinguish different types of demand. Implied Demand Uncertainty is demand uncertainty imposed on the supply chain because of the customer needs it seeks to satisfy. The following table shows the Impact of Customer Needs on Implied Demand Uncertainty. Customer NeedCauses implied demand uncertainty to increase because …Range of quantity increasesWider range of quantity implies greater variance in demandLead time decreasesLess time to react to ordersVariety of products required increasesDemand per product becomes more disaggregatedNumber of channels increasesTotal customer demand is now disaggregated over more channelsRate of innovation increasesNew products tend to have more uncertain demandRequired service level increasesFirm now has to handle unusual surges in demandTable: Impact of Customer Needs on Implied Demand UncertaintyThe first step in achieving strategic fit between competitive and supply chain strategies is to understand customers and supply chain uncertainty. Uncertainty from the customer and the supply chain can be combined and mapped on the implied uncertainty spectrum. Fig: The implied uncertainty (Demand and Supply) spectrumAccording to fisher (1997), the implied demand uncertainty is correlated with other characteristics of demand.
Step 2: Understanding the supply chain capabilities
The next step is to consider the characteristics of supply chain and categorize them based on different characteristics that influence their responsiveness and efficiency.
Responsiveness, however, comes at a cost. To respond to a wider range of quantity demanded, capacity must be increased, which increases cost. This increase in cost leads to second definition:
Supply chain efficiency is the inverse of the cost of making and delivering the product to the customer. Increases in cost lower the efficiency.
The Cost-Responsive efficient Frontier is the curve showing the lowest possible cost for the given level of responsiveness. The lowest cost is defined based on existing technology; not every firm is able to operate on an efficient frontier. The efficient frontier represents the cost responsiveness performance of the best supply chain Step 3: Achieving strategic fit After mapping the level of implied demand uncertainty and understanding the supply chain position on the responsive spectrum, the third and final step is to ensure that the degree of supply chain responsiveness is consistent with the implied demand uncertainty. The goal is to target high responsiveness for a supply chain facing high implied demand uncertainty and efficiency for a supply chain facing low implied uncertainty. The relationship is represented by the “Zone of strategic fit” in the following figure.
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