3. 1. Understanding the Customer and
Supply Chain Uncertainty
• Understanding customer (demand) uncertainty
– Demand varies along certain attributes
• Quantity in each lot, response time, variety of products
needed, service, price, innovation, etc
– Implied demand uncertainty
• Demand uncertainty due to the portion of demand that the supply chain
is targeting, not the entire demand
Customer need Causes implied demand uncertainty to…
Range of quantity increases Increase
Response time decreases Increase
Variety of products increases Increase
Number of channels through which Increase
product may be aquired increases
Rate of innovation increases Increase
Required service level increases Increase
4. 1. Understanding the Customer and
Supply Chain Uncertainty
• Understanding supply uncertainty
– Supply uncertainty is strongly affected by the life-cycle position of
the product. New products being introduced have higher supply
uncertainty than mature products
Supply source capability Causes supply uncertainty to…
Frequent breakdowns Increase
Unpredictable and low yields Increase
Poor quality Increase
Limited suppy capacity Increase
Infexible supply capacity Increase
Evolving production process Increase
5. 2. Understanding the Supply Chain
Capabilities
• Supply chain capabilities
– Supply chain responsiveness
• Respond to wide ranges of quantity demanded, meet short
lead times, large variety, innovative products, high service
level, etc
– Supply chain efficiency (low cost)
Highly Somewhat Somewhat Highly
efficient efficient responsive responsive
Integrated steel Hanes apparel Most automotive Seven-Eleven
mills production Japan
6. Achieving Strategic Fit
• Strategic fit
– Given a competitive strategy, what should a company’s supply chain
do particularly well?
• Wal-Mart
– Everyday low prices (low cost retailer for a wide variety of products)
– Buys from low cost producers, owns its infrastructure and
distribution network
• Coors
– The coldest tasting beer in the world, brewed with Rocky Mountain
spring water
– Refrigerated transport, main facility near Rocky Mountains
• Dell
– Custom-made computer systems at a reasonable cost
– Online ordering, no middle-man
7. Achieving Strategic Fit
What is the right supply chain for
your product?
Responsive
supply chain
Cost-effective
supply chain
Implied demand
uncertainty
Low High
(functional products) (innovative products)