2.3 Models in Supply Chain Strategy
Supply chain strategy is a complex and dynamic field that requires constant adaptation and innovation. It involves a multitude of elements, including procurement, manufacturing, distribution, and customer service, all of which are interconnected and constantly changing. This complexity arises from various factors such as evolving customer demands, technological advancements, global market dynamics, and regulatory changes.
To navigate this complexity, various models have been developed to help design and implement effective supply chain strategies. These models provide a structured approach to decision-making, taking into account the various elements and their interrelationships. In this section, we will discuss three such models: Skinner’s model, Fisher’s model, and Chopra’s model.
2.3.1 Skinner’s Model
Skinner’s model emphasizes the critical link between corporate strategy and operations strategy. The traditional focus of operations strategy has been on achieving high productivity and low cost. However, this approach may not align with the business strategy of certain companies. For instance, Apple’s strategy of offering high-quality, innovative products would not align with an operations strategy that prioritizes low cost over quality and innovation. Therefore, it’s crucial that the operations strategy is in sync with the organization’s overall strategy.
Skinner observed a disconnect between operations and organization strategy in many firms. He attributed this disconnect to the top management of these firms, who often fail to recognize the importance of operations strategy and the concept of tradeoffs. As a result, operations strategy is often designed by technical experts and is disjoint from the business strategy. This disjointed approach can lead to high costs, including the cost of inefficiencies, missed opportunities, and misaligned resources.
For example, a company that focuses on producing high-quality, customized products may have an operations strategy that emphasizes efficiency and low cost. However, the production of customized products often requires flexible and responsive operations, which may not be the most efficient or cost-effective. If the top management fails to recognize this tradeoff, the company may end up with high production costs, low product quality, and dissatisfied customers. Another example could be a company that aims to provide a wide range of products to cater to diverse customer needs. If the operations strategy is focused on efficiency and cost reduction, it might lead to a standardized production process that is not capable of producing a wide variety of products. This could result in a limited product range that does not meet customer expectations, leading to lost sales and reduced market share.
Skinner’s model underscores the need for top management to understand and acknowledge the tradeoffs inherent in operations strategy. By aligning operations strategy with corporate strategy and making informed decisions about tradeoffs, companies can create a more effective and efficient operations strategy that supports their business objectives.
2.3.2 Fisher’s Model
Fisher’s model, as discussed in the Harvard Business Review article “What Is the Right Supply Chain for Your Product?”, provides a framework for understanding the nature of the demand for a company’s products and devising the supply chain that can best satisfy that demand. Fisher classifies products based on their demand patterns into two categories: functional products and innovative products.
Functional products have stable, predictable demand and long product life cycles. These products are typically commodities or staple items, and their supply chains should be designed for efficiency. Efficient supply chains focus on cost minimization and maximizing economies of scale. Innovative products, on the other hand, have unpredictable demand and short product life cycles. These products are typically characterized by high profit margins and their supply chains should be designed for responsiveness. Responsive supply chains focus on flexibility, speed, and service.
However, it’s important to note that products can move from being functional to innovative and vice versa, creating potential misalignment between the product and the supply chain. For instance, a product that starts as innovative may become functional over time as it becomes widely adopted and its demand stabilizes. Conversely, a functional product may become innovative if new features or technologies are introduced. This dynamic nature of products necessitates that supply chain strategies be reviewed and updated regularly to ensure alignment with the product characteristics.
2.3.3 Chopra’s Model
Chopra’s model introduces the concept of “implied uncertainty” and “strategic fit” in supply chain strategy. Implied uncertainty refers to the uncertainty that a supply chain faces due to the portion of demand that the supply chain itself has to handle. For example, as product variety increases, implied uncertainty also increases because the supply chain has to manage a wider range of products. Similarly, shorter product life cycles, higher product innovation, and more demanding service levels can all increase implied uncertainty.
To manage this uncertainty, supply chains need to be designed appropriately. For high implied uncertainty, supply chains need to be more agile and flexible. Agile supply chains are capable of responding quickly to changes in demand or supply, while flexible supply chains can handle a wide range of products without significant increases in cost or decreases in service quality.
However, instituting flexibility and agility in supply chains can be expensive. For instance, using airplanes to transport goods instead of ocean liners can ensure faster delivery but costs significantly more. Similarly, maintaining the capability to produce a wide variety of products requires more complex and costly manufacturing processes compared to producing a standard set of products. Therefore, firms must institute only the degree of flexibility that is necessary to match the degree of implied uncertainty. This is the idea of strategic fit.
Strategic fit, in this context, refers to the alignment between the degree of implied uncertainty and the supply chain’s responsiveness. A good strategic fit means that the supply chain has the right mix of responsiveness and efficiency to meet the customer’s needs and support the company’s competitive strategy.
In conclusion, the models proposed by Skinner, Fisher, and Chopra provide valuable insights into the design of supply chain strategies. They highlight the need for a proactive and strategic approach to supply chain management, taking into account the various elements of the supply chain, their interrelationships, and the dynamic nature of the business environment. By applying these models, companies can design more effective supply chain strategies that support their competitive position and enhance their overall performance.
