Saturday, February 18, 2012

Aligning Competitive Strategy and Supply Chain Strategy

Competitive Strategy and Supply Chain Strategy

A company's competitive strategy clearly spells out the set of customer needs that it seeks to satisfy through its products and services having a defined set of attributes.
The supply chain design or supply chain strategy must be in alignment with competitive strategy. A supply chain design can be taken up only after the competitive strategy is finalised and a supply chain needs to be redesigned or modified whenever there is a change in competitive strategy.
The supply chain strategy includes supplier strategy, operations strategy, and logistics strategy. Design decisions regarding inventory, transportation, operating facilities, and information flows in the supply chain of a company are all part of supply chain strategy.

The Proces 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 Needs of the Customer Regarding Supply Attributes

Some of the attributes or dimensions of the supply are as follows:
  • The quantity of the product needed in each lot purchased. Preferred purchase quanity of the customer.
  • The response time from customer's enquiry.
  • The variety of products needed (applicable in case of a retail store, restaurant etc.).
  • The service level required (shortage of items)
  • The price of the product or service.
  • The desired rate of innovation.
Chopra and Meindl argued that while there are many attributes of the supply system which are to be understood from customer point of view and built into the supply chain, one key measure captures the variation for many of these attributes. That measure according to them is implied demand uncertainty. It is different from demand uncertainty. Demand uncertainty reflects the uncertainty of customer demand for a product. Implied demand uncertainty is uncertainty for the supply chain.
Implied demand uncertainty is defined in the context multiple supply chains supplying the same product. Multiple supply chains come due to different attributes that they satisfy. An example is a firm supplying a product, say medicines, 24 hours versues a firm that supplies during normal day hours. The implied demand uncertainty for the 24 hour firm can be high as on  some days there is heavy demand and some days very less demand and also the demand for specific medicines can be high on some days and can be even zero on some days.

Understanding the Supply Chain (Characteristics)

Supply chain characteristics contribute to responsiveness and efficiency.
Supply chain responsiveness is measured by the abilities of the chain to do the following:
  • Ability to respond to fluctuations in demand
  • Ability to provide short lead times
  • Ability ot handle large variety of products
  • Ability to come out with innovations and highly innovative products
  • Ability to provide a very high service level
Supply chain efficiency is the cost of making and delivering a product to the customer. Increase in costs lower efficiency.

Cost-Responsiveness Efficient Frontier

It is a chart or graph with cost on the X-axis (origin is high cost) and Responsiveness on the Y axis (origin is low responsiveness). See Example

The frontier shows the minimum cost for a given responsiveness. If a company is operating at a higher cost, it can decrease the cost but keep the responsiveness same. When it is operating on the efficient frontier, any increase in responsiveness can only come by incurring extra cost, except when extra costs are equally matched on a slope to outputs. 

Achieving strategic fit

The greater the implied demand uncertainty, the more responsive a supply chain has to be.  More responsive supply chains are more costly supply chains. When compared directly with less responsive but more efficient supply chains, their costs may look excessive.


Sunil Chopra and Peter Meindl, Supply Chain Management: Strategy, Planning and Operations, Prentice Hall, 2001.
Fisher, Marshall L. "What is the Right Supply Chain for Your Product?" Harvard Business Review, March-April 1997, pp. 83-93.


For Further Reading

The Strategic Fit of Supply Chain Integration in TFL-LCD Industry

Sustaining Strategic Fit across Culturally Diverse Supply Chain Relationships

Relating Structure of Supply Chain Organization to Objectives: Few Propositions and a Pilot Study,%20Rahul%20Sharma,H%20Hazaria%20final.pdf



Originally posted in Knol /aligning-competitive-strategy-and /2utb2lsm2k7a/ 1350

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