Example: Dell’s Supply Chain

What is a Supply Chain? Example: Detergent Supply Chain (Customized PCs)

Customer wants No retailers
● All parties involved, directly or indirectly, in fulfilling P&G or other
Harris Teeter
Harris Teeter detergent and or DCs Customer buys
or third Dell Computers from
CHAPTER 1 a customer request manufacturer
party DC
Supermarket goes
to Harris Teeter
Dell’s website
– Includes manufacturers, suppliers, transporters, warehouses,
distribution centers, retailers, and customers
Chemical
UNDERSTANDING ● Within each company, the supply chain includes all Pactiv Plastic Manufacturer 1st tier 1st tier 1st tier
Supplier Supplier Supplier
THE SUPPLY CHAIN functions involved in fulfilling a customer request Corporation Producer (e.g. Oil
Company)
– Includes product development, marketing, operations,
distribution, finance, customer service, etc. 2nd tier 2nd tier 2nd tier
Paper
Supplier Supplier Supplier
● Probably more accurate to use the term “supply Manufacturer
network”
Timber 3rd tier 3rd tier 3rd tier
Industry Supplier Supplier Supplier

Flows in a Supply Chain The Objective of a Supply Chain A Farm-to-Market Supply Chain Decision Phases of a Supply Chain
Upstream ● Maximize the net value (supply chain surplus)
Downstream Supply chain strategy or design
Formula (Supply chain Surplus = Value to $0.25
$0.33
Suppliers Manufacturers Distributors Retailers Customers
customer -Total Cost) generated: difference between
what the value of the final product is to the customer Supply chain planning
and the costs the supply chain incurs in filling the $0.56

customer’s request $0.48

$1.00 Supply chain operation

Physical materials/products ● SC surplus is correlated to supply chain profitability
– Sources of supply chain revenue: the customer
Information – Sources of supply chain cost: flows of information, Supply chain design, planning and operation
$1.08

products, or funds between stages of the supply chain decisions play a significant role in the success or
Funds $1.29 failure of a firm
● Effective supply chain management involves the
management of supply chain flows to maximize total
supply chain surplus

Supply Chain Strategy or Design Supply Chain Planning Supply Chain Operation Process View of a Supply Chain

● Decisions about the structure of the supply chain over ● Time horizon is a quarter to a year ● Time horizon is weekly or daily ● Cycle view: processes in a supply chain are divided into a
the next several years ● Constrained by the supply chain configuration (design) ● Decisions regarding individual customer orders series of cycles, each performed at the interfaces between
● Strategic supply chain decisions ● Supply chain configuration is fixed and planning two successive supply chain stages
● Defines a set of policies that govern short-term
– Outsourcing or in-house policies are defined – Useful when considering operational decisions because it
operations specifies the roles and responsibilities of each member of the
– Locations and capacities of facilities ● Goal is to handle customer orders effectively
● Planning decisions: supply chain and the desired outcome for each process.
– Products to be made or stored at various locations ● Operating decisions:
– Modes of transportation to be made available – Which markets will be supplied from which locations – Allocate inventory or production to orders ● Push/pull view: processes in a supply chain are divided
– Information systems – Subcontracting, backup locations – Set order due dates into two categories depending on whether they are
● Supply chain design must support strategic objectives – Inventory policies – Allocate an order to a particular shipment executed in response to a customer order (pull) or in
● Supply chain design decisions are long-term and – Timing and size of marketing promotions – Set delivery schedules anticipation of a customer order--forecast (push)
expensive to alter – must take into account market – Place replenishment orders – Useful when considering strategic decisions relating to supply
uncertainty over the next few years – And more chain design.

Subprocesses in Each Supply Chain Push/Pull Processes for

Cycle View of Supply Chains Process Cycle Push/Pull View of Supply Chains L.L. Bean Supply Chain
Custome Push/Pull Boundary

Customer Order Cycle

r

Retaile
Replenishment r
Cycle
Distributor

Manufacturing Push Processes Pull Processes

Cycle (Speculative processes) (Reactive processes)
Manufacturer
Procurement Cycle
Customer
Supplie
Order Arrives
r
 Push/Pull Processes for
Dell Supply Chain (Customized PCs) Supply Chain Macro Processes in a Firm Supply Chain Macro Processes in a Firm Summary of Learning Objectives

● Supply chain processes discussed in the two views can be ● What are the three key supply chain decision phases
classified into (Figure 1.8): and what is the significance of each?
– Customer Relationship Management (CRM): aims to generate
● What is the goal of a supply chain and what is the
customer demand and facilitate the placement and tracking of
orders. impact of supply chain decisions on the success of the
– Internal Supply Chain Management (ISCM): aims to fulfill firm?
demand generated by the CRM process in a timely manner and at ● What are the cycle and push/pull views of a supply
the lowest possible cost.
chain?
– Supplier Relationship Management (SRM): aims to arrange for
and manage supply sources for various goods and services. ● How can supply chain macro processes be classified?
● Integration among the above three macro processes is
critical for effective and successful supply chain
management

The Value Chain: Linking Supply Chain

Outline Competitive Strategy and Business Strategy
● Competitive and supply chain strategies ● Competitive strategy: defines the set of customer needs a firm
seeks to satisfy through its products and services
CHAPTER 2 ● Achieving strategic fit
– Based on its target customers’ priorities: product cost,
● Expanding strategic scope delivery time, variety, quality, etc.
ACHIEVING STRATEGIC FIT IN ● Obstacles to achieving strategic fit – Examples: Walmart, McMaster-Carr, Amazon, Nordstrom

A SUPPLY CHAIN

Supply chain domain

Functional Strategies Achieving Strategic Fit Strategic Fit within a Company Strategic Fit Across a Supply Chain

● Product development strategy: specifies the portfolio of new ● Strategic fit: Competitive
products that the company will try to develop – Consistency between customer priorities of competitive Strategy Supplier Manufacturer Distributor Retailer
Fit Fit
● Marketing and sales strategy: specifies how the market will be strategy and supply chain capabilities specified by the Fit Fit
segmented and product positioned, priced, and promoted supply chain strategy
Product Marketing Supply Other
● Supply chain strategy: determines the nature of material – Competitive and supply chain strategies have the same
Development & Sales Chain Functional
procurement, transportation of materials, manufacture of goals Strategy Support Strategy Support Strategy Support Strategies
product or creation of service, distribution of product, Align Align Align
● A company may fail because of a lack of strategic fit or
follow-up service, and in-house/outsourcing because its processes and resources do not provide the Execute Execute Execute
Execute
capabilities to execute the desired strategy
Processes & Processes & Processes & Processes &
Consistency and support between supply chain strategy, ● Example of strategic fit -- Dell The design of overall supply chain and the role of each stage must
competitive strategy, and other functional strategies is important Resources Resources Resources Resources
be aligned to support the supply chain strategy

Step 1: Understanding the Customer and Impact of Customer Needs on Implied Impact of Supply Source Capability on
How is Strategic Fit Achieved? Supply Chain Uncertainty Demand Uncertainty (Table 2.1) Supply Uncertainty (Table 2.3)
● Step 1: Understanding the customer and supply chain ● Identify the needs of the customer segment being served Customer Need Causes implied demand Supply Source Capability Causes supply uncertainty to
uncertainty – Quantity of product needed in each lot uncertainty to increase because …
– Response time customers will tolerate Range of quantity required increases Wider range of quantity required Frequent breakdowns Increase
● Step 2: Understanding the supply chain capabilities – Variety of products needed One key measure: implies greater variance in demand
– Service level required Implied demand Lead time decreases Less time to react to orders Unpredictable and low yields Increase
● Step 3: Achieving strategic fit uncertainty
– Price of the product
Variety of products required increases Demand per product becomes more Poor quality Increase
– Desired rate of innovation in the product disaggregated
● Demand uncertainty: uncertainty of customer demand for a Number of channels through which Total customer demand is now Limited supply capacity Increase
product may be acquired increases disaggregated over more channels
product
Inflexible supply capacity Increase
● Implied demand uncertainty: resulting uncertainty for the Rate of innovation increases New products tend to have more
supply chain given the portion of the demand the supply chain uncertain demand
Evolving production process Increase
must handle and attributes the customer desires Required service level increases Firm now has to handle unusual
surges in demand
 The Implied Uncertainty (Demand and Step 2: Understanding the Responsiveness Spectrum
Supply) Spectrum Supply Chain Capability Cost-Responsiveness Efficient Frontier (Figure 2.4)
Figure 2.2 Responsiveness
Predictable supply and ● Supply chain responsiveness vs. efficiency
Predictable uncertain Highly uncertain
demand or uncertain supply ● Supply chain responsiveness -- ability to Highly Somewhat Somewhat Highly
supply and and predictable demand or supply and
– respond to wide ranges of quantities demanded High efficient efficient responsive responsive
demand somewhat demand
uncertain supply and – meet short lead times
demand
– handle a large variety of products Integrated Hanes Most Seven-Eleven
Salt at a An existing A new – build highly innovative products steel mill apparel automotive
supermarket automobile communication – meet a very high service level production
model device
– handle supply uncertainty

● There is a cost to achieving responsiveness

First step to strategic fit: understand and map customers and Second step to strategic fit: understand and map the supply chain
supply chain uncertainty on the implied uncertainty spectrum
● Increasing responsiveness results in higher costs that lower Low on the responsiveness spectrum
efficiency Cost
High Low

Comparison of Efficient and Responsive Multiple Products,

Step 3: Achieving Strategic Fit Supply Chains (Table 2.4) Tailoring the Supply Chain for Strategic Fit Customer Segments and Channels
Responsive Efficient Supply Chains Responsive Supply Chains
supply chain
● Multiple products, customer segments and channels ● Firms sell different products to different customer segments
Primary goal Supply demand at the lowest cost Respond quickly to demand
cross multiple channels (with different implied demand
Create modularity to allow ● Product life cycle uncertainty)
Product design Maximize performance at a
of it postponement of product
strategy minimum product cost
Responsiveness ne F differentiation – introduction, growth, maturity, and decline ● Tailoring the supply chain so that it is efficient when implied
Zo egic
spectrum
t r at Lower margins because price is a Higher margins because price is not uncertainty is low and responsive when implied uncertainty is
S Pricing strategy
prime customer driver a prime customer driver
high. This requires
Maintain capacity flexibility to
Manufacturing Lower costs through high – Share some links to achieve maximum possible efficiency
buffer against demand/supply
Efficient strategy utilization
uncertainty
supply chain – Separate some operations to achieve appropriate level of
Inventory Maintain buffer inventory to deal
Certain Implied Uncertain Minimize inventory to lower cost responsiveness to each segment
strategy with demand/supply uncertainty
demand uncertainty demand
spectrum Lead-time Reduce, but not at the expense of Reduce aggressively, even if the
strategy costs costs are significant
Final step to strategic fit: match supply chain responsiveness with the
implied uncertainty from demand and supply. SC design and all Select based on speed, flexibility,
Supplier strategy Select based on cost and quality
functional strategies must support the supply chain responsiveness. reliability, and quality

Different Scopes of Strategic Fit Across a Challenges to Achieving and Maintaining

Product Life Cycle Expanding Strategic Scope Supply Chain Strategic Fit

● The demand characteristics of a product and the needs of a ● Scope of strategic fit ● Increasing product variety and shrinking life cycles
customer segment as well as the supply characteristics change – The functions within the firm and stages across the supply chain
as a product goes through its life cycle that devise an integrated strategy with an aligned objective ● Globalization and increasing uncertainty
– Early: uncertain demand and supply, high margins (time is – One extreme: each function at each stage develops its own
strategy ● Fragmentation of supply chain ownership
important), product availability is most important, cost is
– Other extreme: all functions in all stages devise a strategy jointly ● Changing technology and business environment
secondary
● Five categories:
– Late: predictable demand and supply, lower margins, price is
important – Intraoperation scope: the minimize local cost view ● The environment and sustainability
– Intrafunctional scope: the minimize functional cost view
● Examples: high-tech and pharmaceutical industries – Interfunctional scope: the maximize company profit view
● As the product goes through the life cycle, the supply chain – Intercompany scope: the maximize supply chain surplus view
changes from one emphasizing responsiveness to one – Agile intercompany scope
emphasizing efficiency

Summary of Learning Objectives

● Why is achieving strategic fit critical to a company’s overall

success?
● How does a company achieve strategic fit between its supply
chain strategy and its competitive strategy?
● What is the importance of expanding the scope of strategic fit
across the supply chain?
● What are the major challenges to achieving and maintaining
strategic fit?