Supply Chain Management:

From Vision to Implementation

Chapter 1: Supply Chain Management and

Competitive Strategy
Chapter 1: Learning Objectives
1. Define supply chain management and
identify how supply chain collaboration can
improve performance.

2. Discuss the extent to which supply chain

strategies are being implemented.

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Chapter 1: Learning Objectives
3. Define strategic management and discuss
how supply chain management supports the
development and execution of a winning
competitive strategy.

4. Identify the four process steps involved in

designing and implementing a supply chain
strategy.

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Theory of Supply Chain Management
Companies seek to design business models that
meet customer needs better than competitors.
Success depends on the ability to

Design, Make, and Deliver

innovative, high quality, low cost products and

services that customers demand.
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Theory of Supply Chain Management
 Supply chain management allows companies
to focus on their unique skill sets.

 Supply chain management requires a common

understanding of supply chain objectives and
individual roles, an ability to work together,
and a willingness to adapt in order to create
and delivery the best products and services
possible.

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Supply Chain: Manufacturing Example

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Supply Chain: Manufacturing Example

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Supply Chain: Service Example

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Supply Chain: Service Example

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Supply Chain Management Defined

Supply chain management is the design and

management of seamless, value-added
processes across organizational boundaries to
meet the real needs of the end customer.

- Institute for Supply Management

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Supply Chain Integration
 Internal Process Integration: increase collaboration
among the company’s functional groups.
 Backward Process Integration: collaboration with
1st-tier and 2nd-tier (leading companies) suppliers.
 Forward Process Integration: collaboration with 1st-
tier customers.
 Complete Integration: collaboration from the
“suppliers’ supplier to the customers’ customer.”

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Supply Chain Integration
Common

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Internal Value Chain Elements
 Executive Management defines company strategy and
allocates resources to achieve it.
 Supply Management coordinates the upstream supply base,
finding the right suppliers and building the right relationships
with them.
 Operations transforms the inputs acquired from suppliers into
more highly valued products.
 Logistics moves and stores materials so they are available
when and where they are needed.
 Marketing manages the downstream relationships with
customers, identifying their needs and communicating to
them how the company can meet those needs.

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Internal Value Chain Elements
 Human Resources designs the systems used to hire, train, and
develop the company’s employees.
 Accounting maintains business records that provide
information needed to control operations.
 Finance acquires and controls the capital required to operate
the business.
 Information Technology builds and maintains the systems
needed to capture and communicate information among
decision makers.
 Research and Development (R&D) is responsible for new
product design.

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Internal Value Chain: Local Focus
Executive
R&D
Management

Information
Operations
Technology

Supply
Logistics
Management

Finance Marketing

Human
Accounting Resource
Management
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Internal Value Chain: Company Focus
Executive
R&D
Management

Information
Operations
Technology

Upstream Downstream
Supply
Suppliers Logistics Customers
Management

Finance Marketing

Human
Accounting Resource
Management
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Internal Value Chain: Company Focus
Executive
R&D
Management

Information
Operations
Technology

Upstream Downstream
Supply
Suppliers Logistics Customers
Management

Finance Marketing

Human
Accounting Resource
Management
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 SCM: Linked Value Chains
Executive
R&D
Management

Information
Operations
Technology
Executive Executive Executive Executive
R&D R&D R&D R&D
Management Management Management Management

Information Information Information Information

Operations Operations Operations Operations
Technology Technology Technology Technology

Supply Supply Supply Supply Supply

Management Management
Logistics Logistics
Management Logistics
Management
Logistics Logistics
Management

Finance Finance Marketing Marketing Finance Finance

Marketing Marketing

Human Human Human Human

Accounting Resource Accounting Resource Accounting Resource Accounting Resource
Management Management Management Management

Finance Marketing

Supplier’s Supplier Focal Human Customer Customer’s

Accounting Resource
Supplier Firm Management Customer
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Supply Chain Integration
Common

Theoretical Ideal 19
Supply Chain Management Problems
 The goal of supply chain management is to
use technology and teamwork to build
efficient and effective processes that create
value for the end customer.

 The goal is compromised when processes,

value chain elements, and/or companies work
toward local rather than global optimum.

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The Bullwhip Effect
 Variation in demand is exaggerated as
information moves upstream away from the
point of use.

 Variation in demand is exaggerated due to

infrequent demand and/or inventory level
information exchange and order batching.

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The Bullwhip Effect

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The Bullwhip Effect
 Bullwhip effect costs can be as high as 12 to
25%

 Bullwhip can be effectively mitigated by:

 Sharing point of sale data
 Collaborative forecasting
 Collaborative future product promotion planning

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Integrating SCM and Strategy

What makes Dell and Wal-Mart successful? It’s

the business model, and supply chain is an
enabler. That’s why you’re seeing this growing
importance of supply chains. People realize this
is the weapon of the future.

- Robert W. Moffat Jr., IBM

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Strategy
 Strategy is the basis from which a consistent
allocation of resources is made to achieve
some objective.

 The objective of “for-profit” organizations is

to make money; the best way to achieve this
objective may be to focus on satisfying the
customer.

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Contingency Theory
 Contingency theory recognizes the need for
managers to consider the relationship between
a changing environment, managerial decision-
making, and performance.

 Situational awareness is key to effectively

aligning company resources in a changing
competitive environment.

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Industrial Organization Theory
 Market forces constrained by the power of
suppliers, buyers, existing rivals, potential
rivals, and providers of substitute
products/services should drive decision-
making.

 Industrial Organization core questions:

1. Where does market power exist?
2. What are the sources of that power?

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Resource-Based Theory
 Resource-based theory emphasizes
management of internal sources to establish a
unique skill set.

 Unique skills/processes (core competence)

lead to competitive advantage, the ability to
deliver distinctive products/services in a way
that adds value in the eyes of the customer.

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Four Decision Areas for Strategy
1. Environment
 Internal – company culture, functional
relationships, reward and measurement system
 External – competitive, economic, legal, and
political environments

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Environmental Considerations

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Four Decision Areas for Strategy
1. Environment
 Internal – company culture, functional
relationships, reward and measurement system
 External – competitive, economic, legal, and
political environments
2. Resources – all assets a firm can bring to
bear, including: people, technology,
infrastructure, materials, and money.
 Success requires investment in knowledge and
processes
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Four Decision Areas for Strategy
3. Objectives – unifies decision-making throughout a
company.
 Focusing on the right objectives is the key to a winning
business strategy.
4. Feedback –input to the control mechanism, insuring
the company strategy adapts to a changing
competitive environment.
 Marketplace – custom expectations, company capabilities,
and competitor actions
 General – exchange rates, government policies,
technologies, weather and other natural occurrences

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Strategic Thinking: Traditional View
A valid business model must answer two
questions:
1. What is our business?
 Who are our customers?
 What is the real value that we offer them?
2. How can we do it better than anyone else?
 Unique organizational capabilities
 Almost always process based

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Supply Chain Strategy
 Seeks to leverage the resources and skills of
diverse companies in the supply chain to
deliver exceptional value to the end customer.
 Addresses:
 How the capabilities of other chain members can
be used to create value for the end customer
 How their own strategy and actions impact the
ability of the supply chain to create value for
the end customer
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Supply Chain Strategy
Rather than “What is our business?” the SC
strategist inquires:
 What is the overall supply chain’s value
proposition?
 How does our company uniquely help the
chain deliver on its value proposition?

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Supply Chain Strategy
Rather than “How can we do it better than anyone else?” the SC
strategist asks:
 What valued capabilities do other members of the chain
possess?
 How can we bring these complementary competencies
together in a way customers value?
 What type of relationships should we maintain with other
members of the supply chain?
 Are any customer-valued competencies missing? If so, who is
best positioned to develop them?
 How much of the value-added process should we control?

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SCM Impact on Strategic Thinking

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SCM Impact on Strategic Thinking
Great firms will fight the war for dominance in the
marketplace not against individual competitors in their
field but fortified by alliances with wholesalers,
manufacturers, and suppliers all along the supply chain.
In essence, competitive dominance will be achieved by
an entire supply chain, with battles fought supply chain
versus supply chain.

- Roger Blackwell

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