Instructor:Yuansheng Wei

ACHIEVING STRATEGIC FIT

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Learning Objectives

1. Explain why achieving strategic fit is critical to a

company’s overall success.
2. Understand how a company achieves strategic fit
between its supply chain strategy and its
competitive strategy.
3. Discuss the importance of expanding the scope of
strategic fit across the supply chain.

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Competitive Strategy

• Competitive strategy defines, relative to its

competitors, the set of customer needs a firm
seeks to satisfy through its products and
services.

• Competitive strategy defines how firms

differentiate themselves.

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Competitive Strategy
• Competitive strategy focuses on several
important customer priorities including
– Cost
– Delivery time
– Variety
– Quality

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2026/3/10 Achieving Startegic Fit in A Supply Chain 5/36
Supply Chain Strategy
• Principle: All functional strategies must
support one another and the competitive
strategy.

Supply Chain Strategy

Product Fashion
variety Responsive, reliable supply, good
information infrastructure

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Achieving Strategic Fit
• Strategic fit refers to consistency between the customer
priorities that the competitive strategy hopes to satisfy
and the capabilities that the supply chain strategy aims
to build.
1. The competitive strategy and all functional strategies
must fit together to form a coordinated overall
strategy.
2. Different functions in a company must appropriately
structure their processes and resources to be able to
execute these strategies successfully.
3. The design of the overall supply chain and the role of
each stage must be aligned to support the supply
chain strategy.
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 2007

TIME

Product: Product:
Customization Mass
Supply chain: Supply chain:
Responsive, low Low flexible, high
inventory inventory

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How is Strategic Fit Achieved?

Three basic steps to achieve strategic fit:

1. Understanding the customer and supply
chain uncertainty;
2. Understanding the supply chain capabilities;
3. Aligning the responsiveness (efficiency) of
SC with uncertainty.

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Step 1: Understanding the Customer and
Supply Chain Uncertainty

Customer demand varies

❖Quantity in each lot
❖Response time
❖Product variety
❖Service level
❖Desired Innovation

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Step 1: Understanding the Customer and Supply
Chain Uncertainty

• Demand uncertainty – uncertainty of

customer demand for a product.
• Implied demand uncertainty – resulting
uncertainty for only the portion of the
demand that the supply chain plans to
satisfy based on the attributes the
customer desires.

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Customer Needs and Implied Demand
Uncertainty
Customer Need Causes Implied Demand Uncertainty to …
Range of quantity required increases Increase because a wider range of the quantity required implies
greater variance in demand
Lead time decreases Increase because there is less time in which to react to orders

Variety of products required increases Increase because demand per product becomes more
disaggregate
Number of channels through which Increase because the total customer demand is now
product may be acquired increases disaggregated over more channels
Rate of innovation increases Increase because new products tend to have more uncertain
demand
Required service level increases Increase because the firm now has to handle unusual surges in
demand

Table 2-1

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Implied Demand Uncertainty and Other
Attributes

Low Implied High Implied

Demand Demand
Uncertainty Uncertainty
Product margin Low High
Average forecast error 10% 40% to 100%
Average stockout rate 1% to 2% 10% to 40%
Average forced season-end markdown 0% 10% to 25%

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Question

• Whether the following product categories

have high implied demand uncertainty or low
implied demand uncertainty
– Smart Technology Products
– Health and Wellness Products
– Household Detergents
– Fashion Apparel
– Utility Services
– Movies and Entertainment Content

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Supply Uncertainty

Supply Source Capability Supply Uncertainty

Frequent breakdowns Increase
Unpredictable and low yields Increase
Poor quality management Increase
Inflexible manufacturing system Increase
Evolving production technology Increase

Table 2-3

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Step 2: Understanding Supply Chain Capabilities

• Achieving strategic fit is all about designing a

supply chain whose responsiveness aligns with
the implied uncertainty it faces.
• Supply chain responsiveness is the ability to
– Respond to wide ranges of order quantities
– Meet short lead times
– Handle a large variety of products
– Build highly innovative products
– Meet a high service level
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Step 2: Understanding Supply Chain Capabilities

• Responsiveness comes at a cost;

• High responsiveness leads to low supply
chain efficiency and needs investment in
– Inventory
– Manufacturing flexibility
– Production capacity
– Transportation
• We need to strike a balance!

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 Cost-Responsiveness Efficient Frontier

The cost-responsiveness
Increase
efficient frontier curve responsiveness
shows the lowest
possible cost for a given Decrease cost
level of responsiveness.

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Supply Chain Levers to Adjust Responsiveness
• Five basic levers:
– Capacity
– Inventory
– Time
– Information
– Price

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Step 3: Achieving Strategic Fit

• Ensure that the degree of supply chain

responsiveness is consistent with the implied
uncertainty;
• The goal is to target high responsiveness for a
supply chain facing high implied uncertainty,
and efficiency for a supply chain facing low
implied uncertainty .

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Zone of Strategic Fit

Figure 2-5

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 Efficient and Responsive Supply Chains

Efficient Supply Chains Responsive Supply Chains

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

Manufacturing Maintain capacity flexibility to buffer

Lower costs through high utilization
strategy against demand/supply uncertainty
Maintain buffer inventory to deal with
Inventory strategy Minimize inventory to lower cost
demand/supply uncertainty

Lead-time strategy Long with low costs Short even if costs are significant

Select based on speed, flexibility,

Supplier strategy Select based on cost and quality
reliability and quality

Table 2-4
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Roles and Allocations of Implied
Uncertainty

Figure 2-6
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 Stores absorbing
most of the
Limited variety
uncertainty and
Replenishment being responsive,
Stock all orders are stable
product and the suppliers
modules in absorbing little
inventory uncertainty and
being efficient

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 How about SHEIN?

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Roles and Allocations of Implied
Uncertainty

Figure 2-6
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Changes Over Product Life Cycle

• Beginning stages
1. Demand is very uncertain, and
supply may be unpredictable
2. Margins are often high, and time is
crucial to gaining sales
3. Product availability is crucial to
capturing the market
4. Cost is often a secondary
consideration

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Changes Over Product Life Cycle
• Later stages
1. Demand has become more certain, and supply is
predictable
2. Margins are lower as a result of an increase in
competitive pressure
3. Price becomes a significant factor in customer
choice

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Expanding Strategic Scope

• Scope of strategic fit– the functions within the

firm and stages across the supply chain that
devise an integrated strategy with an aligned
objective.

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Expanding Strategic Scope

• Intraoperation scope– minimize local cost

– Each stage of the supply chain devises strategy
independently
• Intrafunctional scope– minimize functional
cost
– Firms align all operations within a function

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Expanding Strategic Scope
• Interfunctional scope– maximize company
profit
– Functional strategies are developed to align with
one another and the competitive strategy
• Intercompany scope– maximize supply chain
surplus
– Two parties work together to reduce inventory
and total cost, thus and increasing the supply
chain surplus

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Summary of Learning Objectives

1. Explain why achieving strategic fit is critical to a

company’s overall success;
2. Describe how a company achieves strategic fit
between its supply chain strategy and its
competitive strategy
3. Discuss the importance of expanding the scope of
strategic fit across the supply chain;

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