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Supply Chain Strategy

N Siva Prasad
Types of Products
• Functional products
– Products of basic need
– Do not change over time
– Stable and predictable demand
– Long life cycle
– High competition
– Less profit margin
• Innovative products
– New fashion goods
– New facilities
– Highly customised and targeted group
– Uncertain life cycle but generally short
– Higher profit margin
– Un-predictable demand
– Could be un stable demand

Summary: The demand characteristics and supply characteristics vary for these two.
Hau Lee’s –supply chain strategies
• Efficient supply chains
– Highest cost efficiency is the goal
• Risk-hedging supply chains
– Pooling and sharing resources in supply chain
– Risk sharing or distribution
• Responsive supply chains
– Responsive and flexible to customer needs
– (build to order type)
• Agile supply chains
– Combination of hedged and responsive supply chains
Hau Lee’s Uncertainty Framework
Service Supply Chains
• They tend to be hubs and not chains( product
flows going in both directions)
• They tend to be short and almost interact with
customers/consumers directly
• Service providers can not treat suppliers who are
customers the same way they would treat
suppliers who are not customers.
• Service operations need to be flexible enough to
handle the variations of customer supplied
inputs. ( as they are customer centric)
• It is the act of moving some of a firm’s internal
activities and decision responsibility to outside
• Outsourcing allows a firm to focus on activities
that represents its core activities.(???)
• Organisation driven reasons
• Improvement driven reasons
• Financially driven reasons
• Revenue driven reasons
• Cost driven reasons
• Employee driven reasons
Total Cost
• Procurement cost
• Owning cost
• Disposal cost
Sourcing/purchasing-system design
• Sourcing/purchasing-system design matrix
– Request for proposal (RFPs)
– Request for bid and reverse auction ( E-bids)
– Electronic catalogue ( gifts, awards, stationery
– Vendor managed inventory( customer specifies
max and/or min limits and rest is left to vendor) (
diesel in DG sets of mobile towers)
Sourcing/Purchasing Design Matrix
Supply Chain Performance
• Measures:
– Inventory turnover= Cost of goods sold/average
aggregate inventory value
– Weeks of Supply= (Average aggregate inventory
value/cost of goods sold) * 52 weeks

Note: These are mathematical inverse of each other

Higher inventory turn over is a sign of positive
growth/status of company
Case Study
• ZARA Supply Chain Strategy
Case Study
• Answer should be based on evidence in the material/study
– Are there any products which can be categorized as”Functional”
? ( if so what are they?)
– Is it true to say that all innovative products of ZARA are sold
out?( what is the stagnation or inventory wrt others)
– How much stock is unsold yearly?
– What type of outsourcing is done by ZARA?
– Any risk taking measure followed by ZARA? If yes, how do they
ensure their “product Image”
– Is the distribution strategy “Cost effective”? If yes, how?, if not,
– Which all practices, followed by ZARA, in “Transportation” do
not consider “minimisation of Cost”?
• Represent the products wrt Hau Lee’s
Uncertainty frame work
• What strategy is followed wrt show rooms?
• Where do you think Zara deviated from
traditional apparel supply chain practices?
• Is it possible to list factors making Zara’s
strategy successful?
• Distinguish the features ( Zara’s strategy) in
Indian context.