Supply Chain Strategy
Lecture 1 – preparations
The Supply-Chain Management Effect: Kopczak & Johnson (2003)
Many executives wonder “What is supply-chain management, really, for me and my company?”.
Supply-chain management has led to six major shifts in business thinking. It is those shifts that have
guided and will continue to guide companies in choosing which supply-chain-management initiatives
and enablers they should implement internally and with their partners.
The simple Supply Chain implies that one just looks at whether the order has been fulfilled. The
process view of Supply Chain is greater than that; from product generation to end-of-life recycling
and disposal.
Supply-chain management has resulted in six major shifts in business focus. Each shift has redefined
management’s view of what questions have to be asked. Advances in information technology, new
accounting and financial measures, and industry initiatives all have facilitated the shifts. The shifts
are:
1. From Cross-Functional Integration to Cross-Enterprise, too.
The OLD QUESTION was: How do we get the various functional areas of our company to work
together to supply product to our immediate customers?
The NEW QUESTION becomes: How do we coordinate activities across companies, as well as
across internal functions, to supply product to the market?
Cross-company integration can take place by private initiatives (e.g. Just In Time), public or
industrial initiatives (companies go on board in a common direction), and semipublic or
shared initiatives.
On the one hand, enhanced coordination can lower supply-chain-related costs and improve
responsiveness within a chain of companies. On the other hand, because industry structure is
generally based on networks, not chains, innovation and benefits may transfer to
competitors and potential competitors, and so weaken a particular company’s competitive
position. The latter typically happens with public or semipublic initiatives, which require
participation of multiple parties and competitors.
Initiatives in supply chains with clear channel leaders (dominant companies) go forward
quickly, whereas industry-level initiatives based in networks of companies progress more
slowly. Furthermore, the benefit of public initiatives tends to be competed away and flows to
customers through reduced prices. Therefore, companies need to trade-off the competitive
risks associated with integration.
Example in class: Apple is also having Samsung as a supplier for some electronic devices.
2. From Physical Efficiency to Market Mediation.
OLD QUESTION: How do we minimize the costs our company incurs in production and
distribution of our products?
NEW QUESTION: How do we minimize the costs of matching supply and demand while
continuing to reduce the costs of production and distribution?
Companies with good supply chain performance tend to manage the aspects of both physical
supply (production, distribution, manufacturing) and market mediation (matching of the
quantity and variety of product supplied through the chain to that which is demanded, e.g.
, safety stock). If the demand is stable, the first aspect is most important. In innovative
industries, the latter is of more importance.
There are three reasons why companies have been slow to address market-mediation costs.
(1) the costs of physical supply are more visible, (2) it is easier to align the goals of the
organizations on the physical supply, and (3) truly innovative industries are more concerned
with innovation than matching supply and demand (only when they mature, they’ll start to
worry about that).
Fisher argued that in industries with high market-mediation costs, supply chains should
respond quickly and responsible. Moreover, the difference in demand risk and supply risk
differs across industries and should be taken into account in this regard.
Example in class: Zara now mostly uses TikTok and looks at whether the clothes would be
popular, and changes their stocks according to their TikTok presence.
3. From Supply Focus to Demand Focus
OLD QUESTION: How can we improve the way we supply product in order to match supply
and demand better, given the demand pattern?
NEW QUESTION: How can we get earlier demand information or affect the demand pattern
to match supply and demand?
Now, marketing and sales departments see supply-chain management as a means to
enhance their relationships with customers and so increase sales.
Three prominent breakthroughs in this area are mitigation of the bullwhip effect, investment
in better demand information and demand-based management.
Bullwhip effect. Companies have sought to reduce the bullwhip effect in several ways.
These ways requires more information sharing to other companies. Each approach
reduces variability, and therefore also the demand pattern upside the supply chain. E.g.
eliminating price promotions or sharing forecasts.
Investment in better demand information. Demand information needs to be combined
with reactive supply chains.
Demand-based management. Under demand-based management, marketing efforts and
demand-management instruments (such as pricing policies) are integrated with supply-
chain initiatives. This leads to cost savings, increased revenues, and increased profits.
What is offered in the market, is also in line with the supply. An example is ticket prices
of flights.
Example in class: Vendor Managed Inventory; the supplier has direct access to the demand
forecast of the company. Like this, they do not have to wait for the client to respond.
Blockchain also is a way to do this.
4. From Single-Company Product Design to Collaborative, Concurrent Product, Process and
Supply-Chain Design
OLD QUESTION: How should our company design products to minimize product cost (our
cost of materials, production and distribution)?
NEW QUESTION: How should collaborators design the product, process and supply chain to
minimize costs?
Companies now know the effect of how a product is designed on supply chain related costs
and they increased supply chain collaboration. Therefore, already in the design phase, supply
chain issues are accounted for. This often happens in high-clock-speed industries. Because
high-clock-speed industries produce innovative products that have high market-mediation
costs, postponement strategies also can be effective. Under a postponement strategy, the
, task of differentiating a product for a specific customer is delayed until the latest possible
point in the supply chain (factory, distribution center, distributor or retailer). That allows
safety stocks of product to be generic rather than customized.
Example in class: for the product ben & jerry’s that now can be sold at higher
temperatures in order to keep the costs low. For the process AI is being implemented in
SCM, like document processing and optimizing warehousing. Amazon collects data from both
customers for better suggestions and they also optimize their supply chain. For the supply
chain shrinkflation, which lowers their production costs.
5. From Cost Reduction to Breakthrough Business Models
OLD QUESTION: How can we reduce our company’s production and distribution costs?
NEW QUESTION: What new supply-chain and marketing approach would lead to a
breakthrough in customer value?
Often the business breakthrough occurs in the following way. The company and chain focus
initially on reducing cost. At some point, however, they discover that there is a bigger
opportunity related to addressing a market need. They may conceive of a different way to go
to market — to interact with customers — that drives them to implement a new supply chain
that, together with the new go-to-market strategy, creates better value for the customer. An
example is IKEA exploring that they can make the customers build the customers themselves.
Example in class: Self scan cash checkouts at grocery stores or DHL pick up stations, which
decreases the distribution costs.
6. From Mass-Market Supply to Tailored Offerings
OLD QUESTION: How should we organize our company’s operations to serve the mass
market efficiently while offering customized products?
NEW QUESTION: How should we organize the supply chain to serve each customer or
segment uniquely and provide a tailored customer experience?
Companies seek to give customers not only what they want or need, but what they deserve.
Dedicating scarce resources to loyal, profitable customers is a powerful way to enhance
loyalty and profitability over the long term.
Tailoring of the offering also involves providing real-time information and allowing customers
to make trade-offs among price, features and product availability. The auto industry does
that by telling customers what vehicles are available in the pipeline, with prices and delivery
dates, and letting the customer choose.
The basis for intelligent, profitable tailoring of service to individual customers or segments is
the use of marketing and supply-chain information to find new offerings that can be provided
cost-effectively by the supply chain and meet the needs of the enterprise’s most loyal
customers.
Example in class: in bridal stores dresses would be bought from designers and alterations
were made in the stores. But now, dresses can be customized already in the stage of the
designers (so at the factory, instead of at the store). At Nike, you can also design your shoes
and Nike would alter it for you. Or McDonalds you can build your burger at these walls, if you
want to take off your onions for your burger.
In the future, we can expect more of the same. Current supply-chain trends — differentiation,
outsourcing, compression and collaboration — will be used to restructure supply networks and
improve coordination, and more companies will integrate with their networks. On another level,
supply-chain management will affect industry structure in exciting, unforeseen ways. Two things can
happen. First, re-intermediation will occur. The companies that function as intermediaries in the
supply chain will seek to re-establish their roles, business models and value propositions. Second,
, rebranding and repositioning will occur. Companies along and across the chain will vie for control of
the customer relationship.
Lecture 1
We’ll look at examples of what the shifts are in examples. These examples are covered in the
preparations part of this lecture.
Lecture 2 – preparations (performance & quality)
Hines et al. (2004)
This paper is about the lean method and it’s development. Lean supply chain management is about
eliminating waste, and as a result reducing cost. Lean is about: satisfying the customer by adding
value and eliminating waste, Long-term relationships with supplier, Measure output-criteria, e.g.
quality, cost and delivery (QCD), Smooth workflow, Plan ahead, Reduce stocks to a minimum
throughout.
Firstly (before 1990s), this lean operations management design approach focused on the elimination
of waste and excess from the tactical product flows at Toyota (the Toyota “seven wastes”) and
represented an alternative model to that of capital-intense mass production. In this awareness
period (up to 1990), the main weaknesses of lean manufacturing were its automotive manufacturing-
based view and limited appreciation of how to handle variability in demand. The implementation was
entirely tool-focused, and generally neglected the human aspects of the high-performance work
system core to the lean manufacturing approach.
After 1990, there was a gradual widening of focus away from the shop-floor. The process was
extended. Principles involved the identification of customer value, the management of the value
stream, developing the capability to flow production, the use of “pull” mechanisms to support flow
of materials at constrained operations and finally the pursuit of perfection through reducing to zero
all forms of waste in the production system. This provided the link between lean and the supply
chain, as for the first time, the production “pull” was extended beyond the boundary of the single
factory to include the up- and downstream partners. As such, lean had moved away from a merely
“shop-floor-focus” on waste and cost reduction, to an approach that contingently sought to enhance
value (or perceived value) to customers by adding product or service features and/or removing
wasteful activities.
This evolution may be summarised as a focus on quality during the literature of the early 1990s,
through quality, cost and delivery (late 1990s), to customer value from 2000 onwards.
