Tutorial 2

Chapter 2 – Supply chain performance: Achieving strategic fit and scope

1. How would you characterize the competitive strategy of the Swedish furniture retailer
IKEA? What are the key customer needs that IKEA aims to satisfy?
- IKEA's overall competitive strategy is to provide *a range of home furnishing products that
are affordable (low cost) to the many people, not just the few." IKEA achieves this by
focusing on function, quality, design and value (IKEA.com, accessed January 9, 2018). Due
to economics of scale and advanced technology, IKEA is able to offer products of reasonable
quality at a low price to their customers. IKEA's competitive strategy serves a wide range of
customer demographics.
- IKEA satisfies a customer's need for a wide variety of well-designed, quality products at an
affordable price. IKEA's retail units are unique they provide room mock-ups illustrating how
the consumer can use IKEA product. it offers the customer choice and usage suggestions in a
very attractive way.
 Focus on function, design, quality, value

2. How would demand uncertainty and implied demand uncertainty differ for a product like the
iphone 6s plus?
- Demand uncertainty refers to the uncertainty of customer demand for a product, while
implied demand uncertainty is the uncertainty that represents the portion of demand that the
supply chain seeks to satisfy based on the attributes desired by the customer. For a product
like the iPhone 6s Plus, a certain portion of its sales can be attributed to customers who
bought it for work or compatibility requirements. The rest of the sales can be attributed to
existing or new iPhone users' desires to have the latest Apple iPhone. In this example, the
demand from the latter category would be the implied demand uncertainty.

3. What would be the impact of increasing product variety on implied demand uncertainty
faced by a supermarket chain like 7-Eleven?
- Implied demand uncertainty is the demand uncertainty due to the portion of demand
that the supply chain is targeting, and not the total demand.
- Customers go to a convenience store chain, such as 7-Eleven, for the convenience of
a nearby store and are not necessarily looking for the lowest price. Implied demand
uncertainty would be high, as customers are looking for a variety of products and
convenience-versus-cost and demand levels are hard to predict.
- Increasing the variety of products in 7-Eleven would increase the implied demand
uncertainty as the demand per product would become less predictable.
- A supermarket chain focuses on cost and quality, with some specialty chains adding
flexibility by carrying a broader range of products that are targeted toward customers
interested in, for example, organic products or ethnic cuisine. Implied demand
uncertainty far a supermarket chain tends to be low; shoppers are typically repeat
customers and have a constant demand level. The supermarket supply chain must be
responsive by receiving produce quickly to ensure freshness and possess a high level
of service. Supermarket supply chains tend to be well-established, and, thus, are able
 to improve their strategic fit by emphasizing speed, in order to maintain freshness.
This increases the perceived quality of the products.
 People buy because they are near from customer house

4. Does implied demand uncertainty correlate with the characteristics of demand,

particularly for high markdown products? Why?
- Yes, the implied demand uncertainty is correlated with some characteristics of
demand, particularly for high-markdown products. This is because a product with
uncertain demand is usually less mature and has less competition; therefore, the
margin is higher. Forecasting is more accurate when demand has less uncertainty
Increased implied demand uncertainty leads to increased difficulty in matching
supply with demand and, thus, leads to higher oversupply as well as a higher stockout
rate. Markdown is higher for products with greater implied demand uncertainty.

5. Reconsider the previous four questions for other companies—an online book seller like
the U.K.-based Book Depository, a retailer like the French multinational Carrefour, an
automotive manufacturer like the Japanese multinational Toyota, and a discount retailer
like the British supermarket retailer ASDA.
- The Book Depository focuses on making huge numbers of book titles available to
customers within 48 hours through free worldwide shipping. Orders are placed online
and shipped via a central warehouse in Gloucester. Economies of scale mean that
attractive shipping terms with fast delivery to the customer are possible.
- In terms of implied demand uncertainty, that of Book Depository is low as they
supply worldwide at very competitive prices. The Book Depository's supply chain
must be responsive in terms of its supply route as they sell in such high volumes. It is
a volume-heavy business with large numbers of products shipped together, thereby
minimizing shipping costs. Therefore, the Book Depository supply chain operates on
low margins. All the links of their supply chain must function on a cost-responsive
efficient frontier in order to support its competitive strategy.
- It is important that Carrefour's supply chain be responsive on the supply side to
restock shelf in a timely manner to maintain a high level of service. Carrefour's
supply chain can improve their strategic fit by investing in increasing speed to
prevent stockouts and therefore maintain the expected quality,
- Auto manufacturers such as Toyota have very complex supply chains that rely on
being flexible and having lean operations that strive to continuously identify and
eliminate waste. Toyota's supply chain prides itself on the use of standardized
operations with level production and one-piece flow. This greatly reduces lead times
and improves responsiveness to customer demand. Therefore, the implied demand
uncertainty for Toyota tends to be high in order to respond to customer demand in a
timely fashion and maintain the promised high-quality customer service.
Responsiveness in the arcas of quality, service, and lead time are being continuously
invested in along the Toyota supply chain in order to improve their strategic fit.
- 'ASDA's supply chain is driven by cost and the availability of a wide variety of
goods. It is enabled by a low implied demand uncertainty and a well established
logistics system. ASDA predominantly focuses on the lower end of the market and
competes using low pricing. Their supply chain is designed to respond quickly in
 order to ensure there is no stockout of products on ASDA's shelves.
- They continuously strive to deliver on this, in order to achieve a strategic fit
throughout their entire supply chain. In order to deliver an available product at an
acceptable cost, ASDA favors large-scale retail units but has found it difficult to get
planning permission for these large-sized units.

6. It is important to have strategic fit between a supply chain and its competitive strategy.
What is the supply chain design that would fulfil this purpose? List the capabilities it
should have.
- Achieving a strategic fit between a supply chain and its competitive strategy, requires
a supply chain whose responsiveness aligns with implied uncertainty. In general, the
supply chain should have a number of capabilities affecting supply chain
responsiveness. These include responding to wide ranges of quantities demanded,
meeting short lead times, handling a large variety of products, building highly
innovative products, providing a high level of service, and handling supply
uncertainty. These abilities are similar to the main characteristics of demand and
supply that lead to high implied uncertainty. The more of these abilities a supply
chain has, the more responsive it is.

7. What do you expect the level of implied demand uncertainty to be for jasmine rice
produced by Thailand and sold at a supermarket? Explain your answer with reference to
Fisher’s model.
- Based on the Fisher's chart of characteristics for products, the implied demand
uncertainty for jasmine rice would generally be low as it has a low price margin,
accurate demand forecast, low stockout rate, and less markdown.

8. Assume a new drug has been developed for the Ebola virus (EVD). Briefly describe the
new drug's demand and supply characteristics at the beginning of its product life cycle.
- Like all new drugs, the drug's initial demand would be highly uncertain.
- However, margins are likely to be very high, so cost would be a secondary
consideration, while the drug's availability would be crucial to capture market share.
For these reasons, the beginning of the EVD drug product life cycle is likely to have
high implied uncertainty given the demand uncertainty and the crucial need for
product availability.

9. What are the problems that can arise if the same roles are assigned to different stages of a
supply chain in order to achieve a strategic fit? Describe how roles should be assigned to
help a retailer and a manufacturer work together to expand the scope of strategic fit.
- Strategic fit is achieved by assigning different levels of responsiveness (supply chain
strategy) and efficiency. These roles ensure that implied demand uncertainty
(competitive strategy) is dealt with in the best way possible. In the event that all
stages of the supply chain have the same responsiveness or efficiency role, this can
lead to stockouts, high inventories, poor quality, loss of flexibility, low customer
service, low response time, and additional costs. In other words, a "one size fits all"
supply chain cannot provide strategic fit. The best combination of roles depends on
the efficiency and flexibility available at each stage. The ideal scenario is to where
 one stage focuses on responsiveness to allow other stages to focus on becoming more
efficient.
- Zara is an example of a company that sells on-trend items with unpredictable demand
along with fashion staples with a more predictable demand. A responsive supply
chain is required for on-trend items with a high implied demand uncertainty.
Therefore, they are produced close-to-market in Europe. Another part of their supply
chain caters to the items with stable demand (low implied demand uncertainty). Since
demand is more predictable, these items are produced in Asia where efficiencies are
achieved as opposed to responsiveness.

10. With the help of examples, identify the five basic levers that can be used to deal with
uncertainty in a supply chain. Describe the role of each lever in enabling a supply chain
to achieve strategic fit and effectively serve the target customer segment.
- The five basic levers are capacity, inventory, time, information, and price. A supply
chain will invest in each of these levers to a greater or lesser degree in order to deal
with uncertainties and to meet the needs of the customer segments) targeted.
o The capacity lever can help deal with uncertainty using excess capacity and
flexible capacity. A paint shop model for mixing colors is one example.
Maintaining excess capacity and flexible capacity is a cost, and the benefits it
offers mast be weighed up against these costs.
o The inventory lever involves maintaining inventory, just in case demand
requires it Holding inventory addresses uncertainty is costly and should be
used sparingly.
o The third basic lever is time, which is used to deal with uncertainty in the
supply chain. For some supplier chains, fast delivery is critical to maintain
customers' expected service level, while for others, customers are willing to
wait. The cost of the response time must be offset against the possibility of
losing custom.
o The fourth lever is information. With the right information, uncertainty can be
minimized in some ways.
o The fifth lever is price which can be changed dynamically to deal with
uncertainty. Reducing the price can increase demand. As with all the other
levers, a cost consideration needs to be justified in terms of the benefits to the
supply chain.
o in order to achieve successful strategic fit along the supply chain, the level of
investment in each of the five basic levers should be tailored according to the
target market and the uncertainties it faces.