Chapter 3 - Discussion Questions - Answers
1. What information do strategic planners expect to get from performing external and internal business environmental scanning?
Answer:
External and internal environmental scanning provide planners with a window
into the enterprise's marketplace and the strengths and weaknesses of its resources and capacities. External environmental scanning reveals the business's
competitive strengths, the forces driving marketplace change, the actions of
competitors, opportunities for future success, and attractiveness of the firm to
customers. An effective understanding of the marketplace enables planners to
understand how closely the firm's strategies, value propositions, products, services, and supply channel delivery systems match the needs of the customer.
The purpose of internal environmental scanning is assessing the degree to
which the enterprise's current internal capabilities match the needs of its market
strategies. Often, the failure of companies to survive and prosper is the result
of the failure of their productive resources (people competencies, capital, plant
and equipment, and other assets) to execute the strategies the firm has tried to
pursue in the marketplace. In the end, the goal of internal business scanning is
to measure how far the organization's resources and internal strategies are out
of synchronization with the external business strategies guiding their marketplace efforts.
2. Detail the steps used to craft a corporate business strategy.
Answer:
The development of effective corporate-level plans involves five steps. The
first step is the definition of the enterprise's long-term vision and corporate mission culminating in the formulation of the objectives management wants to
achieve as well as serving as the basis for tracking the company's progress and
performance. The second step is concerned with determining the concrete
courses of action the enterprise must follow if it is to realize the corporate mission and objectives. In the next step, the corporate strategy is translated into
business unit mission, goals, and strategies. Step four is concerned with the
development of functional business unit strategies. In this area, the functional
business departments (marketing, sales, production, logistics, and so on) must
each have a strategy that details how departmental competencies and capabilities will support the business unit strategy. The final level of corporate-level
planning is the creation of business unit operating strategies. Operating strategies are concerned with the management of operating units, such as plants, distribution warehouses, and transportation, and specific operating activities such
as logistics, marketing campaigns, product development, and budgeting.
3. Discuss Michael Porter's five generic competitive strategies.
Answer:
Porter maintains that there are five competitive strategies.
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Low-cost provider. In this strategy, the business pursues tactical and operational strategies that will enable it to achieve low production and distribution costs so that it can capture competitive price leadership and win
market share. The source of cost advantage may focus on economies of
scale, proprietary technologies, supply chain efficiencies, geography, outsourcing of processes, and other factors. This strategy is best when there
are rival sellers with similar pricing and products, product differentiation
is hard to achieve, buyers can easily switch, and buyers have the power to
bargain down prices.
Broad differentiation. In this strategy, the firm seeks to offer some product or service that is unique and highly valued by a broad base of customers. Differentiation can be based on products, the delivery systems by
which the product is transacted, the marketing approach, and intangible
features of the product or service, such as image and prestige, the buying
experience, and service. This strategy depends on having a unique strategic competency in efficient product, distribution, design and engineering
quality, innovation, or technical superiority that protects the differentiation strategy. This strategy is best when there are many ways to differentiate the product and customers perceive these differences as providing
value; customers wants and needs are diverse; and there are few competitors possessing a similar product/service differentiation.
Best-cost provider. In this hybrid approach, a company seeks to blend
product with high differentiation with a lower cost than what competitors
can match. The product offered is significantly better than competing
low-cost products and sometimes almost as good as a high-cost alternative. The customer base is value- and price-conscious and constitutes a
sizeable part of the overall market.
Focused low-cost provider. In this strategy, the business focuses its product and service offerings on a well-defined, but narrow market segment
and seeks to underprice competitors by utilizing operations that have
lower production, services, and distribution costs. Market focus is characterized by geographical uniqueness, specialized requirements, or special
product/service attributes appealing to a small market niche.
Focused differentiation. In this strategy, the business unit offers highly
differentiated products with customized attributes to a well-defined, but
narrow market segment. The product/service appeals to specialized customer wants and needs. Customers normally are willing to pay a premium for the product or service.
4. Why is a supply chain strategy so important for an effective corporate business strategy?
Answer:
Supply chain strategy has arisen in response to a multitude of factors ranging
from globalization, new technologies, and outsourcing to the growth of channel
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partnerships and the "leaning" of channels of supply that affect the business on
a strategic level. Because of the impact of these and other factors, three key
facets of the importance of the supply chain to the success of the business strategy have emerged. First, the scope of supply chain management is much larger
than just the execution of daily operations functions−it is also concerned with
the strategic coordination and collaboration of the business with supply channel
partners. Second, supply chain management is not limited to just optimizing
the performance of logistics functions−it also is a powerful strategy that not
only supports but also drives sustainable competitive advantage. The objective
of this dynamic is creating net value, building a competitive supply and delivery infrastructure, synchronizing supply with demand, and measuring performance globally. And third, supply chain strategy is the function where the business's objectives and the capabilities of the supply chain network are
reconciled. This dynamic is, in fact, perhaps the central goal of supply chain
strategy.
5. How does supply chain strategy create value?
Answer:
Supply chain strategy creates value through five functions.
 Operating cost reduction. Operating cost reduction through effective supply chain management is crucial to the success of the business strategy.
Value creation levers include supply chain efficiency in old and new
markets, response time to react, risk plans, and suppliers willing to take
favorable terms.
 Value creation through increasing revenues. The supply chain has a very
important role in increasing revenues. Value creation levers include differentiation from competition with value-added services and increasing
customer loyalty.
 Competitive advantage through differentiated customer service capabilities. Competitive advantage achieved through differentiated customer
service. Value creation levers include customer value of on-time, dependable delivery; quick response; flexibility in executing schedule and order
changes; and influencing the customer's purchasing decisions.
 Competitive advantage through strategic supplier engagement. Value
creation levers include strength of collaborative relationships, strength of
supplier loyalty, product development cycle time reduction, on-schedule
product introduction, and fast production ramp up.
 Value creation through long-term equity improvement (e.g. brand equity). The importance of the supply chain's ability to grow the company's
equity in the eyes of the marketplace.
6. Explain the basic trade-off between responsiveness and efficiency for each of
the six supply chain performance drivers discussed in the text.
Answer:
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The fundamental trade-off when making customer focus decisions is between the cost of providing order winning products and services and the
level of responsiveness that these products and services provide the company’s customers.
The fundamental trade-off when making channel design decisions is between the cost of the number, location, and type of facilities (efficiency)
and the level of responsiveness that these facilities provide the company’s customers.
The fundamental trade-off when making product sourcing decisions is
between the cost of acquiring and running production plants, process
choices, the level of capacities, the amount of production inventories, and
the depth of backward vertical integration and the level of responsiveness
gained by outsourcing product sourcing.
The fundamental trade-off when making inventory decisions is the increased responsiveness attained by stocking more inventory in the channel system and the decline in efficiencies caused by the cost of additional facilities, extra safety stocks, and outbound transportation.
The fundamental trade-off for transportation is between the cost of transporting a given product (efficiency) and the speed with which that product is transported (responsiveness). The transportation choice influences
other drivers such as inventory and facilities.
Good information systems can help a firm improve both responsiveness
and efficiency. The information driver is used to improve the performance of other drivers. Accurate information can help a firm improve efficiency by decreasing inventory and transportation costs. Accurate information can improve responsiveness by helping a supply chain better
match supply and demand.
7. Explain the role of each of the supply chain performance drivers in supply
chain strategy.
Answer:
 Customer focus. This resource driver contains the strategy as to how supply chain resources support market requirements. Being responsive to the
market strategy requires that the supply chain possess the ability to meet
both the daily requirements as well as the long-term needs of the customer by developing a distinct set of competencies and capabilities that
supply the market strategy with a unique source of competitive advantage.
 Channel design. The design of the supply channel is a fundamental component in structuring strategies related to responsiveness and efficiency.
Design decisions are important because they determine the overall performance of the supply chain configuration. Several design decisions
must be taken into consideration. First, what is the role each facility is to
play in the supply chain strategy? Included are decisions regarding what
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processes, inventories, and transportation functions are to be performed
by each channel node. Second, how is channel network design to balance
efficiency with responsiveness? As the number of supply chain facilities
are reduced and inventories consolidated, supply chain efficiency increases and vice versa. Third, decisions regarding the number and location of facilities are very critical since they represent a long-term commitment. And finally, what are the types and capacities of supply chain
resources needed to meet strategic performance targets.
Sourcing. Companies must acquire inventories either through purchase or
internal production. The choice between the two or a mixed strategy impacts the competitive performance attributes of the supply chain strategy.
The decision to purchase inventories is the result of cost trade-off analysis where it is found that outsourcing production is more competitive,
provides access to missing core competencies, and decreases overall
plant and operations costs than performing production using companyowned resources. The decision to source internally or externally should
be based on responsiveness and efficiency goals.
Inventory. Inventory contributes to supply chain strategy in several ways.
For example, if the marketing strategy requires high levels of responsiveness, the supply chain can locate a complex supply network with quantities and delivery points close to the customer. On the other hand, for a
firm pursuing a low-cost strategy, inventory costs would be reduced by
centralized stocking. Inventories can also be driven by manufacturing
strategies. Make-to-stock production would result in potentially large finished good and safety stock inventories. Assemble-to-order and make-toorder strategies would result in almost no finished goods but potentially
extensive inventories of production inventories. The basic trade-off when
designing supply chain inventory strategy is establishing the cost of a
level of desired inventory against potential lost customer sales.
Transportation. The availability of inexpensive, efficient, and easily accessed transportation activates several critical drivers of competitive advantage. To begin with, transportation enables companies to bridge the
geographical gap between the place where products are produced and the
place where they are consumed. Second, the more developed the transportation system, the greater the ability of businesses to compete with
other companies in distant markets on an equal footing. Third, the wider
the product distribution and the greater the demand, the more producers
can leverage economies of scale in production and channel transportation
costs. Finally, the more efficient and the lower the cost of transportation,
the lower the selling price. Because transportation costs to the producer
are normally calculated into the price of products, as costs decline and
delivery capabilities rise, producers and distributors normally pass on the
savings to their customers in the form of lower prices, thereby increasing
marketplace advantage.
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Technology. Technology enables supply chains to perform two essential
tasks. The first is the collection and application of information to facilitate the improvement of the efficiency and responsiveness of supply
chain resources and assets. The value and utility of information is dependent on the supply chain structure and the markets served. Information enables supply chains to position inventory at the optimal points
in the supply channel, ensure inventory is available to meet customer demand and the lowest cost, and source product from the most appropriate
suppliers. Technology enables companies to share vital information with
their customers and suppliers, develop forecasts to project demand into
the future, and to validate the availability of productive capacities. The
second task of technology is to either directly drive or provide the supporting infrastructure for supply chain transformational, marketing, sales
and service, financial, and distribution processes.
8. Establishing strategic "fit" can be undertaken from two directions. What does
this mean?
Answer:
The first direction implies that there is a low level of existing fit between market
requirements and supply chain capabilities. In this environment, market requirements drive supply chain resource. Achieving strategic fit begins with a
comprehensive definition of the market requirements and competitive position.
Next, the market requirements must be translated into meaningful content that
describes how the performance attributes of the existing supply chain resources
will respond to market objectives. Finally, gaps occurring in supply chain performance drivers must result in the enhancement of resource capabilities to
meet responsiveness targets. The second direction implies, on the other hand,
that the supply chain possesses unique and strategic competitive capabilities
and that markets should be shaped that fully exploit these core capabilities. The
direction of achieving strategic fit is not absolute: the ongoing interplay between markets and supply chain resources continually expose the company to
new challenges and opportunities.
9. What are some of the obstacles planners face when attempting to establish a
strategic fit?
Answer:
There are many obstacles inhibiting the achievement of strategic fit. Some of
these obstacles are the result of growing uncertainty in demand and supply
caused by market decisions. For example, a company may decide to increase
its market responsiveness by reducing delivery lead times. Such a decision will
require potentially significant changes to supply chain performance attributes
and resource drivers. Possible responses would be to development postpone-
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ment processes to delay product differentiation, increased manufacturing capacity flexibility, increased buffer inventories to deal with growing demand and
supply uncertainty, increased number of locations, and the selection of transportation functions based on speed, flexibility, reliability, and quality. Other
obstacles are increases in customer demand for shorter delivery times, lower
cost, and higher product performance; globalization of the supply base; changing business and technology environments; and the development of new business and marketplace strategies.
10. Why is supply chain risk management important?
Answer:
Supply chain risk management is important for the several reasons. To begin
with, risk management stimulates supply chain best practices. For example, risk
management is a key driver in the implementation of lean concepts and practices. Second, risk management generally improves supply chain partner relationships as risk sharing and risk information improves. It also increases trust
among channel members since risk management practice demonstrates commitment and capability the supply chain can count on. Visibility to supply
chain-wide risk stimulates recognition of the reality of the constant exposure to
risk experienced by internally and external supply chain functions. Third, risk
management creates a heightened sense of the reality of soft risk (risk that is
difficult to measure) and unintended consequences in business management
and the need for constant awareness and vigilance toward decisions, practices,
and goals that may unintentionally increase or decrease risk in the supply chain.
Finally, every business faces the balance point of risk and reward. Conventionally, earning a greater reward generally requires enduring a greater risk. Risk
management ensures that risk exposure is minimized while the organization
seeks optimal reward by efficiently and effectively leveraging its people, assets, capabilities, and resources
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