Supply Chain Strategy

Supply Chain Strategy

In this lesson, you’re expected to learn about:
– the need for strategic supply chain fit
– product-specific supply chain strategies
– the major types of supply chain strategies

The need for strategic supply chain fit

Strategic fit requires that both the competitive strategy and supply chain strategy of a company have aligned goals

• As we saw previously, the competitive strategy and all functional strategies must form a coordinated overall strategy. That is called strategic fit and also applies to the supply chain strategy.

• Therefore, the design of the overall supply chain and the role of each stage (tier) must be aligned in order to support the supply chain strategy.

References: Fisher (1997); Chopra & Meindl (2013); Slack et al. (2010)
Examples of strategic supply chain decisions are: 

• proximity to suppliers
• proximity to clients
• the degree of vertical integration
• the prospective time frame of the relationship with suppliers
• the quantity of suppliers
• the degree of product modularity
• the inventory location
• the intensity of technology used
• the allocation of production capacity based on forecasting or actual orders

Strategic Supply Chain Decisions 
[Optional] Why is Supply Chain Important?
Watch this 1-minute video in which MIT Professor Yossi Sheffi talks about the role of supply chain in creating competitive advantage:
Product-specific supply chain strategies
A recurrent question in supply chain strategy is:

“How should supply chains be managed when operations compete in different markets?”

Consider the example of a fashion brand (e.g. Zara, H&M, Gap etc.) that sells two types of t-shirts: a classic grey tee, which has barely changed over the years, and a fashion-oriented graphic shirt, that sells for only a few weeks.

• The classic product probably faces stable, predictable demand throughout the year and commands stable prices (but with relatively low margins). This is what we call a “functional” product.

•The fashion shirt might face unstable, unpredictable demand, command higher margins when sold at full price, but is probably marked-down at the end of its selling season. This is what we call an “innovative” product. 

References: Fisher (1997); Chopra & Meindl (2013); Slack et al. (2010)
Functional vs. Innovative Products
Source: adapted from Fisher (1997)
[Optional] Zara’s Supply Chain Strategy
Watch this 3-minute video from ABC TV (Australia) about Zara’s supply chain strategy:
Major types of supply chain strategies
In general, functional products usually require efficient supply chains, while innovative products are likely to require responsive supply chains.

• In order to maintain a stable demand, functional products usually focus on efficient supply chains, which can be attained by achieving high manufacturing utilization, low inventories and by selecting suppliers based on cost.

• On the other hand, innovative products usually require a more responsive supply chain in order to be able to quickly meet unanticipated demands for an ever-changing product.

Physically Efficient vs. Market-Responsive Supply Chains
Source: adapted from Fisher (1997)
Enlarged version:
Strategic supply chain fit can be achieved by matching supply chain activities according to the product characteristics

• Since pure functional or pure innovative products are hardly found in practice (e.g. even a grey t-shirt can be customizable and fashionable), in order to find the zone of strategic fit for your supply chain, you might want to think of types of product and strategy as parts of a continuum.

• Thus, as a general idea, products and supply chain strategies must be matched in order to achieve strategic fit.

Finding the Zone of Strategic Fit
Source: adapted from Fisher (1997)
[Optional] Efficient vs Responsive Strategies
Take a look at this 14-minute video detailing ”efficient” and ”responsive” strategies:

It is important to note that there is no “closed-form solution” for building a supply chain strategy.

Recommendations when using Product-Strategy Matrix:

• Use these ideas just as a reference or intuition-building tool when designing your supply chain strategy. The right supply chain strategy must be a result of a carefully thought out process, not just a simplistic identify and match approach.

• Many firms are required to achieve strategic fit while serving many customer segments, with a variety of products. In such a scenario, a “one size fits all” strategy cannot provide strategic fit and a tailored supply chain strategy is required.

Jim Rohn