L6M3 Strategic Supply Chain Management Flashcards
Strategic Supply Chain Management and Corporate Strategy
Definition of Strategy: Strategy is defined as a broad, agreed-upon plan that establishes an organisation’s long-term goals, aims, and direction to achieve operational objectives.
General Characteristics:
Strategy provides the overall direction of the organisation.
It is broad in nature rather than detailed.
Every organisation follows a strategy, regardless of whether it is formally written or unwritten.
Example: Small dental practices often operate on an unwritten strategy where owners understand the scope of their operation and act accordingly without a formal document.
Strategy vs. Tactics:
Strategy: A long-term, broad plan that sets the organisational direction and focuses on high-level goals and objectives.
Tactics: Specific day-to-day actions required to implement the strategy. Tactics focus on execution and deliver the strategy through operational activities.
Four Core Principles of Strategy (Hult, 2007):
Speed: Measured by the time taken to deliver goods or services.
Quality: Refers to the standard of the goods or services provided.
Cost: Includes the cost of the goods themselves and the cost associated with processing them.
Flexibility: The ability of the organisation to adapt to changing circumstances.
Supply Chain Approaches to Changing Markets (Christopher and Holweg, 2011):
Supply chains require a clear purpose to respond to turbulent business environments.
Key Requirements:
Supply chain flexibility: Adapting quickly to shifts.
Demand management awareness: Understanding and responding to customer needs.
Robust sourcing strategies: Utilizing reliable and effective sourcing methods to maximise value.
Company Structures and Geographical Scope
Multi-national Corporation (MNC): Operates across many countries through a structured global operation, often featuring a tiered international structure (e.g., Google, Ford Motors).
Transnational Corporation (TNC): Operates from one country into others, crossing national borders but with less global integration than a typical MNC.
National Company: Operates strictly within a single country or specific geographical territory.
Organisation Differentiation:
Horizontal Differentiation: The organisation separates business functions (Marketing, Production, etc.), where each function serves multiple geographical regions centrally.
Advantages: Functional specialisation, standardisation across the org, and efficient use of specialist expertise.
Example: A central Marketing Department serving North America, Europe, and Asia.
Vertical Differentiation: Business functions are duplicated within each geographical area or region to be closer to customers.
Advantages: Better local coordination, greater regional specialisation, and improved customisation to local needs.
Disadvantages: Increased costs due to duplication, duplication of effort, and units becoming less responsive to corporate direction.
Matrix Organisation: A structure where employees report to both functional managers (Marketing, Finance, etc.) and project managers.
Project Organization Criteria: Can be organized around products, regions, customers, or specific activities.
Advantages: Assignment of best resources to projects, dual oversight, greater flexibility, and equal importance granted to products/functions.
Disadvantages: Shared authority makes responsibilities unclear, potential confusion from multiple owners, difficulty in identifying poor performance accountability, and lack of a single manager with total operational responsibility.
Strategic Levels within an Organisation
Corporate Level: The highest level providing overall direction.
Responsibilities: Setting vision and long-term objectives, determining corporate strategy, overseeing all business units, and managing units across different industries/countries.
Business Level: A division of the corporation with its own function, brand, or product focus.
Responsibilities: Implementing corporate strategy, developing strategies for specific markets/products, and reporting to the corporate level.
Example: A large food company owning several distinct food businesses in different countries.
Functional Level: Departments/business units responsible for specific functions (Finance, Production, Logistics, HR).
Responsibilities: Developing departmental strategies that support business/corporate objectives and focusing on operational excellence.
Alignment Requirement: For an organisation to achieve objectives, all three levels (Corporate, Business, and Functional) must be aligned.
Exceptions to the Three-Level Structure:
Joint Ventures (JVs): Legally established organisations formed by two or more companies for a specific project (e.g., construction, R&D, capital investment). They allow for the combination of resources and expertise.
Corporate Representation: Some functional heads (e.g., Director of HR) may sit on the corporate board, giving that function direct representation at the highest level.
Strategic Goals: Growth, Diversification, and Stability
Goal vs. Strategy vs. Tactics (Family Trip Analogy):
Goal: Visit the beach (Desired end result).
Strategy: Travel by car (Overall plan).
Tactics: Follow directions or use a map (Operational actions).
Growth Strategy: Aims to increase market share, revenue, and profitability by expanding operations, product portfolios, or geographical markets.
Analysis Models: BCG Matrix, McKinsey Matrix, Shell Directional Policy Matrix, Arthur Little Strategic Condition Matrix, Abell and Hammond Investment Opportunity Matrix.
Boston Consulting Group (BCG) Matrix:
Stars: High market share, high market growth. Priority for investment.
Cash Cows: High market share, low market growth. Generate consistent profits and funds to support other units.
Problem Children: Low market share, high market growth. Highly competitive; require strategy review.
Dogs: Low market share, low market growth. Low value; should be reduced or eliminated.
Limitations: Simplistic; doesn't account for all factors; high market share doesn't always guarantee profit (e.g., Netflix, X).
McKinsey Matrix: Developed by McKinsey & Company and GE. Evaluates Industry Attractiveness vs. Company's Competitive Position.
Advantages: More comprehensive/nuanced than BCG; focuses on competitiveness rather than just market share (e.g., Apple has small market share in PCs but a strong competitive/profitable position).
Diversification Strategy: Expanding into different products or services to reduce market dependence.
Reasons: Economies of scale (EOS), knowledge transfer, blocking competitors, vertical integration.
Supply Chain Support:
Agile: Focuses on flexibility and rapid adaptation (Software/Fast-changing sectors).
Lean: Focuses on waste elimination and cost reduction (High efficiency but can be rigid).
Levels of Diversification (Rumelt, 1982): Low (single main business), Moderate ( from one business), High to Very High (unrelated industries).
Case Study (Yamaha): Highly diversified (vehicles, musical instruments, white goods) linked by the corporate philosophy of Kando (satisfaction from quality/value).
Stability Strategy: Aimed at maintaining a stable position rather than aggressive growth.
Example (Boeing): Maintains stable market position and regular dividends while avoiding monopoly concerns.
Competitive Strategies and Porter's Generic Models
Michael Porter's Generic Competitive Strategies (1985):
Cost Leadership: Aiming to be the lowest-cost producer through efficiency, EOS, and effective procurement. Note: Relates to production cost, not necessarily the lowest selling price.
Differentiation: Offering unique/superior products to charge premium prices (e.g., high R&D investment).
Cost Focus: Competitive low pricing within a specific niche market.
Differentiation Focus: Unique products for a specific market segment (e.g., Apple’s quality/retail experience).
SWOT Analysis:
Strengths/Weaknesses: Internal factors.
Opportunities/Threats: External factors.
Supply Chain Management's Impact on Performance and Profitability
Core Performance Impacts:
Improved Material Flow: Faster movement, improved efficiency, shorter design-to-market times.
Improved Information Flow: Better coordination/responsiveness through CRM and SRM systems.
Responsiveness: Quick adjustments to demand and reduction of wasted effort.
Performance Management System (PMS): Focuses on people's behaviour, organisational levels, overall capability, and measurement processes. Implementation can take several years.
Profitability Calculations:
Opportunity Cost: The profit lost by choosing one activity over a more profitable alternative.
Five Sources of Profit:
Mark-up on Profit: Percentage added to production costs ().
Reduction in Production Costs: Renegotiating prices, sourcing alternatives, using generic materials, bulk purchasing, or offshoring. Note: This usually has a greater impact than reducing fulfilment costs.
Reduction in Fulfilment Costs: Logistics, shipping, packaging, and invoicing.
Inventory Management: Reduces capital tied up and storage costs. Includes quantity and variety.
Case Study (IKEA): Standardising fittings (screw sizes) to lower variety and gain EOS.
Supplier Cash Control: Managing payment timing to improve cash flow and interest income, though it risks damaging supplier health.
Working Capital Calculation:
Healthy ratio: to .
Supply Chain Risk Management
Risk vs. Uncertainty (Knight, 1964):
Risk: Measurable likelihood (e.g., tomorrow's weather).
Uncertainty: Non-measurable (e.g., weather next year).
Risk Register: Records hazards, assets at risk, likelihood (), and severity ().
Risk Categories (Manuj & Mentzer, 2008): Supply, Demand, Operational, Security.
Four Risk Management Strategies:
Tolerate: Accept due to low probability/impact or high reward.
Treat: Reduce likelihood/impact (e.g., staffing, controls).
Transfer: Move risk to others (e.g., insurance, outsourcing).
Terminate: Stop the activity entirely.
Operational Resilience Strategies:
Redundancy: Backup capacity (multiple sources, buffer stock).
Fail-safe systems: Controls to prevent human error (matrix structures, approvals).
Maintenance: Preventive maintenance of physical and business processes.
Strategic Sourcing: Offshoring, Outsourcing, and Inshoring
Outsourcing Decision Matrix:
High Strategic / High Operational: Keep in-house.
High Strategic / Low Operational: Build long-term partnerships.
Low Strategic / High Operational: Outsource.
Low Strategic / Low Operational: Reduce dependency/remove.
Offshoring: Relocating to another country. Reasons: lower labour/overhead, tax benefits, avoiding tariffs (e.g., Dell moving to Ireland to avoid finished-good tariffs). Challenges: longer lead times, hidden transport costs.
Nearshoring: Moving work to a nearby country (e.g., US moving production from China to Mexico).
Inshoring/Onshoring: Bringing operations back to the home country. Benefits: shorter lead times, lower transport costs, certainty of supply.
Insourcing: Bringing a previously outsourced activity back in-house to regain control or protect IP.
STEEPLED Analysis of Business Environment
S - Social: Lifestyle, beliefs, labour laws, income levels. Includes avoiding modern slavery.
T - Technological: E-procurement, IoT, Blockchain (smart contracts), AI (demand forecasting).
E - Economic: Interest rates, inflation, exchange rates. Weak currency makes exports cheaper/imports dearer.
E - Environmental: Pollution, carbon reporting, climate change (rising sea levels). Direct, indirect, and cumulative impacts.
P - Political: Systemic shifts, procedural (corruption/red tape), distributive (treatment of FDI).
L - Legal: Tax laws, competition law, rule of law (independent legal systems).
E - Ethical: Bribery, corruption, fair labour. Laws like the UK Bribery Act 2010 apply even to actions overseas.
D - Demographic: Age, life expectancy, population size. Targets specific spending power (e.g., Sony targeting 18–30-year-olds).
Change Management in Markets
Incremental Change: Small, gradual evolution. Quinn's Logical Incrementalism suggests small changes, reviews, and learning.
Disruptive Change: Large, rapid revolution (e.g., streaming replacing DVDs). Makes old models obsolete (e.g., IBM failing to adapt quickly to PCs).
Market Types:
Structural: Changes in market rules (e.g., move to electronic stock trading).
Expansion/Contraction: Driven by technology/demand (e.g., transistors expanding electronics).
Actor-Centric: Changes in competition/mergers without changing the rules.
Globalisation: Integration through trade/culture. Benefits from EOS and global collaboration; suffers from complexity and environmental impact.
ESG (Environmental, Social, Governance)
Environmental: Carbon emissions, renewable resources.
Social: Health & safety, modern slavery, equality, working conditions.
Governance: Anti-bribery, data protection, internal controls.
Standard Certifications: ISO 9001 (Quality), ISO 14001 (Environment), ISO 37001 (Anti-bribery).
Case Studies:
H&M/Zara: Supplier audits, publishing supplier lists, and responsible exit policies.
Adidas: Use of recycled ocean plastic via Parley for the Oceans.
Strategic Relationship Management (SRM and CRM)
Strategic Alignment: Ensuring all levels work in one direction. Strategic Alignment Model (SAM) by Venkatraman et al. (1993) measures functional integration and strategic fit.
Mendelow Matrix (Stakeholder Mapping):
High Power / High Interest: Manage closely.
High Power / Low Interest: Keep satisfied.
Low Power / High Interest: Keep informed.
Low Power / Low Interest: Monitor.
Relationship Implementation Steps:
Consolidation: Protecting existing value.
Value Generation: Finding new ways to improve (KPIs).
Value Transformation: Operating as one integrated network.
Collusion: Illegal cooperation (e.g., price fixing). OPEC is an example of explicit collaboration; the EU Capacitor Case resulted in a million Euro fine for price fixing.