02-Supply_chain_strategy

Northeastern University Supply Chain Strategy Lecture

Lecture Details

• Course: IE 7200 Supply Chain Engineering

• Professor: Paul Pei

• Lecture Focus: Achieving Strategic Fit in Supply Chain Strategy

Supply Chain Strategy Overview

Key Concepts

1. Corporate Competitive Strategy vs. Supply Chain Operation Strategy

2. Achieving Strategic Fit

3. Challenges in Supply Chain Management

Competitive Strategy Elements

• Defines customer needs the firm aims to satisfy.

• Product Development Strategy: Portfolio of new products to develop.

• Marketing and Sales Strategy: Market segmentation, product positioning, pricing, and promotion tactics.

• Supply Chain Strategy: Addresses material procurement, transportation, product manufacturing, and distribution.

• Strategic Fit: Alignment between competitive and supply chain strategies.

Understanding the Customer

Customer Needs

• Quantity: Required product quantities.

• Response Time: Customer tolerance for delivery times.

• Product Variety: Range of products needed.

• Service Level: Desired service quality.

• Pricing: Customer expectations on pricing.

• Innovation Rate: Rate at which product innovations are expected.

Achieving Strategic Fit

Definition of Strategic Fit

• Consistency between competitive priorities and supply chain capabilities.

• Requires aligning the supply chain capabilities with corporate goals.

Competitive Priorities

• Cost/Price: Low cost/price objectives.

• Quality: High-performance standards and consistency.

• Speed: Timeliness in delivery and innovation.

• Dependability: Reliability in on-time delivery.

• Flexibility: Customization and volume flexibility.

Competitive Priorities Breakdown

• Quality:

  • Features, durability, and customer service.

  • Consistency in meeting specifications.

• Speed:

  • Fast delivery and short development times.

  • Timeliness in fulfilling orders.

• Flexibility:

  • Ability to switch production and adapt to customer needs.

  • Adjusting output levels based on demand.

Trade-offs in Competitive Priorities

• Firms cannot excel in all priorities simultaneously.

• Must choose to focus on 2-3 priorities for competitive advantage.

• Firms within an industry will have differing priorities.

Capabilities vs. Priorities

• Capabilities: Characteristics the supply chain can provide.

• If the capabilities do not meet competitive priorities, a strategic fit issue arises.

Strategic Fit Steps

1. Understand Customer and Supply Chain Uncertainty: Assessing demand variability and customer expectations.

2. Understand Supply Chain Capabilities: Evaluating responsiveness and efficiency.

3. Aligning Strategies: Ensuring all functions support competitive strategy.

Buffering Against Variability

• Variability is inherent in supply chains and can be buffered through:

  • Inventory: Storing products to meet uncertain demand.

  • Capacity: Flexible production capabilities.

  • Time: Adjusting lead times to meet demand changes.

  • Money: Financial strategies to absorb variability costs.

Choosing the Right Supply Chain Structure

Product Characteristics

• Functional Products: Predictable demand; focus on cost efficiency.

• Innovative Products: Unpredictable demand; focus on responsiveness and flexibility.

Supply Chain Functions

• Physical Functions: Transforming raw materials to finished goods and managing logistics.

• Market Mediation Functions: Aligning product variety with consumer demands.

Challenges in Achieving Strategic Fit

• Increasing product variety and shorter life cycles add complexity.

• Global uncertainties in demand and economic conditions affect performance.

• Fragmentation in supply chain ownership complicates alignment.

• Technology and societal changes may require reevaluation of strategies.

Conclusion

Key Points

• A proper supply chain strategy hinges on alignment with corporate competitive strategy.

• Successful management of emerging challenges can provide firms with a significant competitive edge.