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Strategic decisions in SCMIts a matter of survival
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Do we need Customer
relationship Management
Who cares sale is a sale, make one saleand move on to another.
Can we satisfy customers on individualbasis.
Exceed the expectations or at leastmeet them.
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Who is competing? Companies? Or
The supply chains.And the success and failure of supply
chains is ultimately determined by theend customer in the market place.
Getting the right product at the rightplace at the right time is key to survival.
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Cont Service/ support
Why customers leave their suppliers? 09% because of competition
12% because of relocation
28% because of no special reason 51% because of complaints that were
not handled.
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StrategyA set of plan and policies by which a
company aims to gain long termcompetitive advantage.
E.g. of long term SCM decisions
The number location and size of distribution center
Terms and conditions of long term contracts with thesuppliers
Outsourcing
Personnel and system selection.
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ButAll the above depends upon what kind
of strategic fit you are looking for
As supply chain integrates lots offunctions
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Competitive and Supply
Chain Strategies Competitive strategy: defines the set of customer needs a firm seeks to
satisfy through its products and services
Product development strategy: specifies the portfolio of new productsthat the company will try to develop
Marketing and sales strategy: specifies how the market will besegmented and product positioned, priced, and promoted
Supply chain strategy:
determines the nature of material procurement, transportation ofmaterials, manufacture of product or creation of service,distribution of product
Consistency and support between supply chain strategy,competitive strategy, and other functional strategies is important
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New
Product
Development
Marketing
and
Sales
Operations Distribution Service
Finance, Accounting, Information Technology, Human Resources
The Value Chain: Linking Supply
Chain and Business Strategy
Supply chain
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Achieving Strategic Fit How is strategic fit achieved?
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Achieving Strategic Fit Strategic fit:
Consistency between customer priorities of
competitive strategy and supply chain capabilitiesspecified by the supply chain strategy
Competitive and supply chain strategies have thesame goals
A company may fail because of a lack of strategic fitor because its processes and resources do notprovide the capabilities to execute the desiredstrategy
Example of strategic fit -- Dell
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How is Strategic Fit Achieved? Step 1: Understanding the customer
and supply chain uncertainty
Step 2: Understanding the supply chain
Step 3: Achieving strategic fit
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Step 1: Understanding the Customer andSupply Chain Uncertainty
Identify the needs of the customer segmentbeing served
Quantity of product needed in each lot
Response time customers will tolerate
Variety of products needed
Service level required Price of the product
Desired rate of innovation in the product
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Step 1:Cont
Overall attribute of customer demand
D
emand uncertainty: uncertainty ofcustomer demand for a product
Implied demand uncertainty: resultinguncertainty for the supply chain giventhe portion of the demand the supplychain must handle and attributes thecustomer desires
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Implied demand uncertainty also related tocustomer needs and product attributes
First step to strategic fit is to understandcustomers by mapping their demand on theimplied uncertainty spectrum
Step 1:Cont
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What is this implied demand
uncertainty? Consider the following products
Unbranded Salt Indicab car
Nokia E63
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Achieving Strategic Fit Understanding the Customer
Lot size Response time
Service level
Product variety Price
Innovation
ImpliedDemand
Uncertainty
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Impact of Customer Needs on ImpliedDemand Uncertainty
Customer Need Causes implied demand
uncertainty to increase because
Range of quantity increases Wider range of quantity impliesgreater variance in demand
Lead time decreases Less time to react to orders
Variety of products required increases Demand per product becomes more
disaggregated
Number of channels increases Total customer demand is now
disaggregated over more channels
Rate of innovation increases New products tend to have more
uncertain demand
Required service level increases Firm now has to handle unusual
surges in demand
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Levels of Implied Demand
UncertaintyPredictablesupply and
demand
Salt at a
supermarket
A newcommunication
device
Highly uncertainsupply and demand
Predictable supply and uncertaindemand or uncertain supply and
predictable demand or somewhat
uncertain supply and demand
An existingautomobile
model
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Correlation Between Implied DemandUncertainty and Other Attributes
Attribute Low Implied
Uncertainty
High Implied
Uncertainty
Product margin Low High
Avg. forecast error 10% 40%-100%
Avg. stockout rate 1%-2% 10%-40%
Avg. forced season-
end markdown
0% 10%-25%
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Now the question is at what
cost? There is a cost to achieving responsiveness
Supply chain efficiency: cost of making and
delivering the product to the customer
Increasing responsiveness results in highercosts that lower efficiency
Second step to achieving strategic fit is tomap the supply chain on the responsivenessspectrum
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Step 2: Understanding the
Supply Chain
How does the firm best meet demand?
Dimension describing the supply chain is supply chain
responsiveness What is this 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
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Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier
High Low
Low
High
Responsiveness
Cost
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Achieving Strategic Fit Shown on theUncertainty/Responsiveness Map
Implieduncertainty
spectrum
Responsivesupply chain
Efficientsupplychain
Certaindemand
Uncertaindemand
Responsiveness
spectrum
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Step 3: Achieving Strategic Fit Step is to ensure that what the supply
chain does well is consistent with targetcustomers needs
Uncertainty/Responsiveness map
Zone of strategic fit
Examples: Dell,
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Step 3: Cont All functions in the value chain must support the
competitive strategy to achieve strategic fit
Two key points 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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Comparison of Efficient and ResponsiveSupply Chains
Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Allow postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Supplier selection strategy Cost and low quality Speed, flexibility, quality
Transportation strategy Greater reliance on low cost
modes
Greater reliance on
responsive (fast) modes
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Other Issues Affecting Strategic Fit
Multiple products and customersegments
Product life cycle
Competitive changes over time
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Multiple Products and
Customer Segments Firms sell different products to different customer
segments (with different implied demand
uncertainty) The supply chain has to be able to balance efficiency
and responsiveness given its portfolio of productsand customer segments
Two approaches:
Different supply chains
Tailor supply chain to best meet the needs of eachproducts demand
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Product Life Cycle The demand characteristics of a product and the
needs of a customer segment change as a product
goes through its life cycle Supply chain strategy must evolve throughout the life
cycle
Early: uncertain demand, high margins (time isimportant), product availability is most important,cost is secondary
Late: predictable demand, lower margins, price isimportant
pharmaceutical firms, Intel
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Other considerations for
strategic fit Supplier
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Competitive Changes Over
Time Competitive pressures can change over time
More competitors may result in an increased
emphasis on variety at a reasonable price
The Internet makes it easier to offer a widevariety of products
The supply chain must change to meet thesechanging competitive conditions
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Supply chain Communities
Leverage the core competences of each partner
For increased growth and unparalleledefficiency.
Optimize each others efforts.
Flow of information.
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Customer relationship
Management strategy
Supplier relationship
Management strategy
Superior businessperformance
Supply chain strategy
Results in
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Why has it become such an
important issue? In an era where high quality standards
are a minimum requirement just to
compete, quality no longer becomes acompetitive differentiator.
Paying attention to customers after the
sale with responsive and proactiveservice and support can set a companyapart from its competition.
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Dells Business Model. Direct selling
Direct relationship with customers
First hand information Building computers based on components
available in the market.
Less burden of owning assets, research and
development risks. Spread the development and manufacturing
risk among the various suppliers.
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How? Accumulating inventory in the fast moving PC
industry is high risk proposition since thecomponents can become obsolete veryquickly.
Virtual integration. Linking the suppliers and customers on real
time. Sony monitors are picked up at Sony's
Mexican factory and matched at Texas facilityand delivered to customers.
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Essentials for supply chain to
become strategic for CRM. Technology: Front line employees ability to manage customers relations
effectively.
Atmosphere of innovation:
Strategic superiority ultimately comes from innovation.
Organizational environment. Act locally and think globally
Decentralized and flexible
Shared vision