Download key configuration components in strategic supply chain

STRATEGIC LOGISTICS MANAGEMENT
LOG 404
AYSU GÖÇER
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
1. OPERATIONS STRATEGY
2. OUTSOURCING STRATEGY
3. CHANNEL STRATEGY
4. CUSTOMER SERVICE STRATEGY
5. ASSET NETWORK
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
1. OPERATIONS STRATEGY
 Decisions about how you’ll produce goods and services
 How you staff and run your factories, warehouses as well as
how you design your processes and information systems
 Dynamic
Key Drivers for Operations Strategy
Product Life Cycle
Number of Product Variants
Competition
Time Sensivity
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
1. OPERATIONS STRATEGY
 Will you choose make to stock, make to order, engineer to order or
some combination?
 Will you outsource manufacturing?
 Will you pursue a low-cost offshore manufacturing strategy?
 Will you complete your final configuration outside the
manufacturing plant and closer to the customer?
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
1. OPERATIONS STRATEGY
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
1. OPERATIONS STRATEGY
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
2. CHANNEL STRATEGY
 How you will get your products and services to buyers or end
user
Indirect sell through distributors or retailers?
OR
Direct sell to customers via the internet or a direct sales force?
Key Drivers for Channel Strategy
Competition
Market segments
(Segmentation-Targeting-Positioning)
Markets
(Distribution of pharmaceuticals)
(USA versus Turkey)
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
2. CHANNEL STRATEGY
Dell’s direct sales model: % 85 of its revenue comes from
dell.com
Wal-Mart’s superstore model
Microsoft’s dealer channels: (provide a range of services to
buyers from leasing to training and help-desk support)
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
2. CHANNEL STRATEGY
CASE
 Multi-billion-dollar bottled water industry
 Two major markets: spring water and distilled water
 Spring water requires on-site bottling
 Distilled water can be bottled at any municipal water source
using any local bottling company
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
2. CHANNEL STRATEGY
CASE
 The industry uses three different distribution methods to serve its
three major consumer segments:
 Traditional retail distributors serve the retail customers
 Vending machines serve the individual consumer market
 Service agents install,maintain and replenish onsite water units
for home and office users
 Each segment requires different supply chain processes, assets,
channels and supplier relationships and performance levels
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
2. CHANNEL STRATEGY
CASE
 You are a new player in the bottled water industry
? Woud you sell your product through distributors that already have
relationships with key retailers or distribute directly to retailers?
? If you chose the distributor channel would you integrate your order
management and inventory management systems with the
distributor’s system? If so, to what extent and who should pay for it?
? Would you maintain dedicated inventory for all distributors or only
those which you consider to be strategic partners?
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
3. CUSTOMER SERVICE STRATEGY
Customer service strategy should be based on two things:
 The overall volume and profitability of your customer accounts
 Understanding of what your customers really want
 Tailoring your customer service strategy to deliver the best
cost/service trade-off by customer segment can pay big dividends,
especially as you design your supply chain for strategic advantage:
THY-first class/business class/economic
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
3. CUSTOMER SERVICE STRATEGY
???
 Should all customers get the same-day delivery or should you aim
for different customer service levels depending on customer
importance?
 What will happen in case of a customer service failure?
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
 Outsourcing decisions in with an analysis of your company’s existing
supply chain skills and expertise
 What is your company really good at?: Core Competence
 What areas of expertise are - or have the potential to become strategic differentiators?
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
 Outside partners can deliver three potential advantages:
1. Scale
Third party providers often can offer services more cheaply because of
a large customer base that keeps utilization rates high and unit costs
low
External partners also can help companies to scale up production
quickly without having to invest in new manufacturing capacity
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
 Outside partners can deliver three potential advantages:
2. Scope
For companies that want to expand into new markets or geographies,
outsourcing partners can provide access to operations in new locations
which would not be economical to replicate internally at current
business models
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
 Outside partners can deliver three potential advantages:
3. Technology Expertise
Outsourcing partners may have mastered a product or proces
technology that would require a sizeable investment to develop
internally
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
 Despite these benefits, outsourcing isn’t always the right decision.
 Before turning to external providers, consider four things:
1.
2.
3.
4.
Your source of differentiation,
Your operating scale,
Your power position,
Uniqueness of your operations
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
Your Source of Differentiation
 What gives you a competitive edge?
If your product or process technology is a source of differentiation,
don’t outsource that aspect of your operations.
e.g. One of the world’s leading brands in watches. The Manufacture
des Montres Rolex SA, known around the world for its Rolex brand, not
only produces the components for its watches, but also produces
machines, tools, and supplies for the manufacture of movements of
other products
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
For many companies, however manufacturing is not strategic!!!
Cisco, Compaq, and IBM outsource most of their production to
contract electronics manufacturers such as Flextronics, Solectron, and
Celestica.
Most industries use third-party logistics providers for transportation,
customs, warehousing, and other value-added services, such as final
packaging, configuration testing, software loading, and site
installation.
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
Your Operating Scale
 Compare the scale of your internal operations against your
requirements
If your operations are at or near full capacity utilization - with no plans
to boost production - you’re unlikely to gain cost benefit from
outsourcing
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
Uniqueness of your Operations
 Consider the uniqueness of your operations
Do you have business processes or unusual products that would be
difficult for an outsider to replicate?
Wal-Mart, for example, has developed a highly customized internal
logistics operation that manages inbound inventory flows from its
central distribution centers to the shelves of its retail locations.
Wal-Mart is the owner of one of the largest warehousing operations in
the world.
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
4. OUTSOURCING STRATEGY
Your Power Position
 Consider the balance of power between you and your sourcing
partner.
Many providers of manufacturing, distribution, and customerfulfillment services are already larger than their customers.
As these service providers consolidate further, they’ll gain even more
power.
Will you get these services that you need at a competitive price if your
volume of business isn’t high enough?
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
5. ASSET NETWORK
 The factories, warehouses, production equipment, order desks, and
service centers that make up your business.
 Most companies choose one of three network models based on
such factors as business size, customer service requirements, tax
advantages, supplier base, local content rules, and labor costs:
1.
2.
3.
Global Model
Regional Model
Country Model
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
5. ASSET NETWORK
Global Model
Manufacturing of a given product line is done in one location for the
global market-ZARA, Ferrari, Porsche
The choice of this model is driven by factors:
the need to collocate manufacturing with research and
development,
 the need to control unit manufacturing costs for very capitalintensive products,
 the need for highly specialized manufacturing skills.
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
5. ASSET NETWORK
Regional Model
 Manufacturing is done primarily in the region where products are
sold, although some cross-regional flows may exist based on
production-center specialization.
 The regional model is often chosen based on a mix of factors:
 customer service levels,
 import duty levels,
 the need to adapt products to specific regional requirements.
KEY CONFIGURATION COMPONENTS IN STRATEGIC SUPPLY CHAIN
MANAGEMENT
5. ASSET NETWORK
Country Model
 Manufacturing is done primarily in the country where the market is
Unilever-Lipton
This is the model of choice for goods that are prohibitively expensive
to transport
Duties and tariffs and market access that is conditional on in-country
manufacturing.
COMPETITIVENESS STRATEGIES IN SCM
WHAT THE ORGANIZATION IS ABLE TO DO TO SUPPORT ATTRIBUTES
VALUED BY THE CUSTOMER? (for competence)
 Price
 Quality
 Time
 Functionality
 Innovate and Be Responsive (for some markets like fashion)
 Service
 Relationships
 The brand and Reputation of the Organization
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
 The four strategies relate to the
extent to which the scope of a
businesses' activities are narrow
versus broad and the extent to which
a business seeks to differentiate its
products.
 The differentiation and cost
leadership strategies seek
competitive advantage in a broad
range of market or industry
segments. By contrast, the
differentiation focus and cost focus
strategies are adopted in a narrow
market or industry.
COMPETITIVENESS STRATEGIES IN SCM
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
COST LEADERSHIP
The objective is to become the lowest-cost producer in the industry
 If the achieved selling price can at least equal (or near) the average for
the market, then the lowest-cost producer will (in theory) enjoy the best
profits
This strategy is usually associated with large-scale businesses offering
"standard" products with relatively little differentiation that are perfectly
acceptable to the majority of customers
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
COST LEADERSHIP
Lower costs and cost advantages result from;
Process innovations,
Learning curve benefits,
Economies of scale,
Product designs that reduce manufacturing time and costs,
Reengineering Activities,
Productivitiy enhancement,
Adoption of advanced process technology,
Locating facilities in countries with low-cost inputs
Sourcing from the world’s most efficient suppliers
Ikea; Wal-Mart; Dell Computers, conventional 3PLs
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
COST LEADERSHIP
Low-Cost Sourcing
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
COST LEADERSHIP
COST LEADERSHIP EXAMPLES
Source
Economies
of Scale
Uniquely
Productive
Processes
Company
Wal-Mart
Southwest
Airlines
Example
Size creates unparalleled
buying power
15-minute “turnaround” to
keep its planes flying and
generating revenue
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
COST FOCUS
 A business seeks a lower-cost advantage in just one or a small number
of market segments
 The product will be basic - perhaps a similar product to the higherpriced and featured market leader, but acceptable to sufficient
consumers. Such products are often called "me-too's"
Many smaller retailers featuring own-label or discounted label products
Transportation companies
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
 Product differentiation fulfills a unique customer need by tailoring the product or the
service, allowing organizations to charge a premium price to capture market share
 The differentiation strategy is effectively implemented when the business provides
unique or superior value to the customer through product/service quality, the product
characteristics, the delivery system, distribution channels, or after-sale support
 The quality may be real or perceived based on fashion, brand name, or image
 This strategy is usually associated with charging a premium price for the product - often
to reflect the higher production costs and extra value-added features provided for the
consumer




Quality
Delivery
Flexibility
Innovation
Mercedes Cars, Ekol Logistics, Arkas Logisics
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
Competing on QUALITY
Often Quality includes both design and manufacturing elements
The product must be designed to live up to or exceed customer expectations
Manufacturing must then conform to the design specifications during production.
Quality must be designed and built into the company’s products and processes.
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
Competing on QUALITY
1.
2.
3.
4.
5.
6.
7.
8.
8 DIMENSIONS OF QUALITY
Performance - the primary operating characteristics of the product.
Features - the “bells and whistles” or extras that distinguish a product from
competitors’ offerings.
Reliability - the notion that a product can be counted on not to fail.
Conformance - measures how well a product matches established
specifications.
Durability - refers to the product’s mean time between failures and its overall
life expectancy.
Serviceability - the speed of repair when quality problems arise.
Aesthetics - perception of fit and finish or artistic value.
Perceived quality - overall perceptions of a product or brand’s quality
reputation
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
Competing on QUALITY
QUALITY MANAGEMENT
Management controls over 80% of quality problems.
Up to 25% of the cost of goods sold can be traced to finding and fixing quality
problems.
Quality drives consumer behavior, thus it may be the most important
competitive factor.
Best-in-class companies seek 6σ level quality
3.4 defects per million opportunities
Six Sigma, TQM, Kaizen
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
Competing on FLEXIBILITY
Flexibility is the capability to adapt to new, different, or changing
requirements
Flexible organizations operate with short lead times, are responsive to
special customer requests, and can adapt rapidly to unexpected events
Flexibility requires investment in information and automated
production and logistics technologies
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
Competing on DELIVERY
Competing on delivery means consistently delivering on-time and in
the correct quantity
Fast, reliable delivery requires the reduction of order cycle time and
the elimination of variability
Delivery capability is cross functional by nature, requiring coordinated
efforts by:
Sourcing
Operations
Logistics
Operations and logistics often represent 90% of total order cycle time.
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
Competing on INNOVATION
Innovation creates new markets and changes industry standards
Early Supplier Involvement (ESI) is a key element of innovation
strategies
Products introduced on-time but 50% over budget, realized only a
4% reduction in profit
Products introduced on budget but six months late experienced a
33% decrease in profits
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
Competing on INNOVATION
SUPPLY CHAIN INNOVATION
(FLINT, 2007)
FedEx created an entirely new market simply through the creation of a
radically new logistics service for which customers were willing to pay
Similarly, Wal-Mart, Ikea, the Walt Disney Co., UPS and many other
similar firms are often highlighted for their own version of supply chain
management mastery and innovation
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION FOCUS
In the differentiation focus strategy, a business aims to differentiate
within just one or a small number of target market segments
The special customer needs of the segment mean that there are
opportunities to provide products that are clearly different from
competitors who may be targeting a broader group of customers - a
valid basis for differentiation
Any successful niche retailers; e.g. The Perfume Shop, lack of 4PLs,
supply chain integration
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION FOCUS
TRADE-OFF VS SYNERGY: TRADITIONAL
Managers believed:
High quality was
inherently expensive
Standardization and
customization are on
opposite ends of the cost
continuum
Rapid delivery reduces
flexibility
Delivery
Cost
Quality
Flexibility
COMPETITIVENESS STRATEGIES IN SCM
PORTER’S FOUR GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION EXAMPLES
Source
Company
Advanced Product
Technology
Airbus
Advanced Process
Technology
Schneider National
Logistics
Extensive
Distribution
Network
Better Designed
Products
Coca Cola
Apple
Example
Pioneered the “fly-by-wire” technology
First motor carrier to employ global
satellite positioning to track shipments
Most ubiquitous producer worldwide;
selling more than 130 beverages and
found in almost every country worldwide
iPod was the first portable digital music
player to use a miniature hard drive to
hold songs; despite higher price,
sophisticated design and user interface
have made the iPod the market leader
COMPETITIVENESS STRATEGIES IN SCM
ALIGNING STRATEGY WITH SYSTEMS
Goals
ValueAdded
System
Innovation
Short concept-tomarket cycle time
Technologically
advanced products
Unique service
options
Availability despite
demand uncertainty
Delivery
Flexibility
Quality
Rapid, consistent
delivery
Availability
High-quality
product/service
Responsiveness to
customer i.e.; ability to
handle small orders
and expedited
shipments
Cost Leadership
 Minimum cost
but ensure an
"acceptable”
service level
COMPETITIVENESS STRATEGIES IN SCM
ALIGNING STRATEGY WITH SYSTEMS
Goals
Purchasing
Innovation
Identify
and develop
suppliers who can
assure:
Design expertise
Technological
support
Flexibility to changes
in specs
Process capabilities
Delivery
Flexibility
Quality
Identify
and develop
suppliers who can
assure:
Rapid, consistent
delivery
Certified quality
Full line availability
Responsiveness
Cost Leadership





Identify and
develop suppliers
who can assure:
Productivity/low
prices
Learning curve
efficiencies
Scale/scope
economies
Quantity price
discounts
COMPETITIVENESS STRATEGIES IN SCM
ALIGNING STRATEGY WITH SYSTEMS
Goals
Production
Innovation
Work
closely with
R&D; i.e., concurrent
engineering
Support process
engineering
Delivery
Flexibility
Quality
Shop
floor control—
due-date performance
Shorten cycle times
Cross-train workers
Extensive process
control
Reduce inventories
Cost Leadership





Reduce
inventories
Increase
repetitiveness
Increase part
commonality
Utilize low-cost
labor
Increase worker
productivity
COMPETITIVENESS STRATEGIES IN SCM
ALIGNING STRATEGY WITH SYSTEMS
Goals
Logistics
Delivery
Flexibility
Quality
Innovation
Utilize
technology
including bar codes,
satellite tracking,
electronic data
interchange, and
automated
picking/packing to offer
customized services
Use
private fleet or
dedicated contract
carrier to assure ontime delivery
Use information
technology to increase
responsiveness and
ability to handle
unexpected events
Implement process
control and other
quality improvement
approaches
Cost Leadership





Use low-cost
transport
Use high
utilization and/or
multiple car
rates
Use volume
contracts
Minimize
inventory
Centralize
decision making