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Before We Start…
It is assumed that after going through the earlier session
you are now able to:
 Explain the Concept of supply chain.

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Session 4

Supply Chain Management

 Topics to be covered in this session:

 Supply chain strategy and customer satisfaction.

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Session Learning Objectives…

At the end of this session you should be able to :

 Explain the role of SCM in fulfilling customer needs.

 Illustrate the importance of achieving strategic fit between
supply chain strategy & competitive strategy.

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Supply chain uncertainty

 A company should always assess the customer
needs for each of their products or business
lines and the uncertainty the supply chain faces
in satisfying these needs.
 These needs help the company define the
desired strategy, sourcing, demand, cost and
service requirements.
 The supply chain uncertainty assists the
company identify the extent of the
unpredictability of demand, disruption or
delay to delivery to customer that the supply
chain must be prepared for.
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Competitive & Supply chain strategy

 A company‟s competitive strategy defines
the set of customer needs to satisfy ;
 A Supply-chain strategy determines to
provide the service & distribution of goods to
the customer.

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Implied uncertainty
 At first glance, it may appear that each of the
customer need categories should be viewed
differently, but in a very fundamental sense each
customer need can be translated into the metrics of
implied demand uncertainty.
 Implied demand uncertainty is demand uncertainty
due to the portion of demand that the supply chain
is targeting, not the entire demand.
 While “Demand Uncertainty” reflects the
uncertainty of customer demand for a product,
“Implied Demand Uncertainty”, in contrast, is the
resulting uncertainty for only the that portion of
demand that the supply chain plans to satisfy and
the attributes the customer desires.
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Contd…
 For example, a firm supplying only emergency
orders for a product will face a higher implied
demand uncertainty than a firm that supplies the
same product with long lead time, as the second firm
has an opportunity to fulfill the orders evenly over
the long lead time.
 Both product demand uncertainty and various
customer needs that the supply chain tries to fill
affect implied demand uncertainty. As each
individual customer need contributes to the implied
demand uncertainty, we can use demand
uncertainty as a common metrics with which to
distinguish different types of demand.

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Competitive & supply chain strategy

 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 products that the company will
try to develop.
 Marketing and sales strategy: specifies how the
market will be segmented and product
positioned, priced, and promoted.

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Supply chain strategy

Supply chain strategy: determines the nature of
material procurement, transportation of
materials, 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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Strategic fit
 Strategic fit means that both the competitive &
supply chain strategies have the same goal.
 It refers to consistency between the customer
priorities that the competitive strategy is designed
to satisfy and the supply chain capabilities that the
supply chain strategy aims to build ;
 The issue of achieving strategic fit is a key
consideration during the supply chain strategy or
design phase.
 A company may fail because of a lack of strategic fit
or because its processes and resources do not
provide the capabilities to execute the desired
strategy.
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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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Step1: understanding the customer & supply chain strategy

 Identify the needs of the customer segment

being 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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Contd..
 Overall attribute of customer demand,
 Demand uncertainty: uncertainty of
customer demand for a product,
 Implied demand uncertainty: resulting
uncertainty for the supply chain given the
portion of the demand the supply chain must
handle and attributes the customer desires.

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Contd..
 implied uncertainty spectrum & Implied
demand uncertainty also related to customer
needs and product attributes.
 Table 2.1, Figure 2.1, Table 2.2
 First step to strategic fit is to understand
customers by mapping their demand.

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The implied uncertainty spectrum

High implied
Low implied Somewhat Somewhat demand
demand certain uncertain uncertainty
uncertainty demand demand

Purely Establishe New models Entirely new

functional d goods: of existing products :
products : Toothpaste cars : Maruti introduction of
Gasoline new product

Figure 2.1

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Impact of customer needs on implied demand uncertainty(Table 2.1)
Customer Need
Range of quantity increases
Lead time decreases
Variety of products required
increases
Number of channels increases
Rate of innovation increases
Required service level increases
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Causes implied demand
uncertainty to increase because …
Wider range of quantity implies
greater variance in demand.
Less time to react to orders.
Demand per product becomes
more disaggregated.
Total customer demand is now
disaggregated over more channels.
New products tend to have more
uncertain demand.
Firm now has to handle unusual
surges in demand.
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Correlation b/w implied demand uncertainty & other attributes

Attribute Low Implied High Implied

Uncertainty Uncertainty
Product margin Low High

Avg. forecast error 10% 40%-100%

Avg. stock out rate 1%-2% 10%-40%

Avg. forced season- 0% 10%-25%

end markdown

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Step2: Understanding the Supply chain

 How does the firm best meet demand?
 Dimension describing the supply chain is
supply chain responsiveness.
 Supply chain responsiveness means 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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Contd…
 There is a cost to achieving responsiveness.
 Supply chain efficiency: cost of making and
delivering the product to the customer.
 Increasing responsiveness results in higher
costs that lower efficiency.
 Figure 2.2: supply chain responsiveness
spectrum.
 Second step to achieving strategic fit is to
map the supply chain on the responsiveness
spectrum.

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Responsive spectrum(Figure 2.2)

Highly Somewhat Somewhat Highly

efficient efficient responsive responsive

Integrated Hanes Most Dell

steel mill apparel automotive
production

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Step 3: Achieving strategic fit

 Step is to ensure that what the supply chain does
well is consistent with target customer’s needs.
 All functions in the value chain must support the
competitive strategy to achieve strategic fit.
 Fig. 2.3: Uncertainty/Responsiveness map and
Zone of strategic fit.
 Two extremes: Efficient supply chains (Barilla)
and responsive supply chains (Dell).
 Two key points : there is no right supply chain
strategy independent of competitive strategy and
there is a right supply chain strategy for a given
competitive strategy.

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Achieving strategic fit

 Understanding the Customer
 Lot size
 Response time
 Service level
 Product variety
 Price
 Innovation

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Achieving strategic shown on the uncertainty/responsiveness

MAP(Fig 2.3)
Responsive
supply chain

Responsiveness
spectrum

Efficient supply
chain
Implied
Certain demand uncertainty Uncertain
spectrum demand
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Comparison of efficient & Responsive supply chain(2.3)

Efficient supply chain Responsive supply chain

Primary goal Supply demand at the lowest cost. Respond quickly to demand.

Product design strategy Maximize performance at minimum cost. Create modularity to allow postponement of
product differentiation.

Pricing strategy Lower margins. Higher margins, as price is not main driver.

Manuf. strategy Lower costs thru higher utilization. Maintain Capacity flexibility for high
demand .

Inv. strategy Minimize inventory to lower cost. Maintain buffer inventory to meet
unexpected demand.

Lead time strategy Reduce, but not at expense of cost. Aggressively reduce, even if cost high.

Supplier strategy Select based on cost & quality. Based on speed, flexibility & quality.

Transportation strategy Greater reliance on low cost modes. Greater reliance on responsive modes.

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Customer service by supply chain

The supply channel’s contribution to customer service
can be found in relative order of importance, as follows :
 Competences & reliability of deliveries,
 High product & service quality,
 Best value for the price,
 Competent sales representative,
 Speed / Frequency of deliveries,
 Least total delivered cost,
 Breadth & depth of available products /
services,
 Lowest price & availability of credit,
 Use of electronic commerce technology, such as
EDI ordering capabilities.
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Customer service
Logistics plays a crucial role in customer service, as the
standard quality of logistics operations help getting a
product to market , at the „right time‟, „in the right
place‟, „at the right cost‟, and „at right quality‟ ;
Who is the customer ?
 within the facet of logistics, the customer is any
delivery destination, typical destinations range
from consumer’s homes to retail and whole sale
businesses to the receiving docks of a firm‟s
manufacturing plants & warehouses,
 In the broader sense, a customer may be external
as well as internal.

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Elements of customer service

Customer Service

Managing Customer Achieving High-

Relationships Value Quality Operational
Performance

Empowering People:
The Value Creators

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Components
 In order to keep the customers happy, loyal &
well-motivated towards the firm so that
competitive advantage can be enjoyed, they need
to consider customers as partners;
 To do so, the firm need careful analysis &
consideration of three sets of components, e.g.
Strategic components, Logistical components,
Non-logistical components.

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Strategic components
 For best ROI, Firms must keep the customers
happy & loyal;
 Firm‟s commitment for long-run association
by means of deploying customer friendly
supply-chain strategy;
 Firm‟s pro-active effort for continuous
improvement in the quality of customer
service.

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Logistical components
 The firm‟s ability to make products available
as per need of the customers;
 Firm‟s ability to offer fixed replenishment
cycle time & to reduce further;
 To ensure zero-defect delivery of products;
 Efficient & prompt reverse logistics system;
 To provide fast & accurate information;
 To emphasize consistency in customer
services.

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Non logistical component

 Firms may be required to provide financial
support, especially for infrastructure
development;
 Firms should offer credit facility on special
occasions;
 Firms should arrange training programmes for
customers & their sales-forces;
 They should prevent from imposing undue
conditions;
 Certain discretionary power to customers to
settle the claims on the spot.

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Before We End…
It is assumed that after going through the earlier session
you are now able to:
 Explain the role of SCM in fulfilling customer
satisfaction.
 Illustrate the importance of achieving strategic fit between
competitive strategy & supply chain strategy.

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THANK YOU…

All information, including graphical representations, etc provided in this presentation is for exclusive use of current GBS
students and faculty. No part of the document may be reproduced in any form or by any means, electronic or otherwise, without
written permission of the owner.

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