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Part - VIII

Step 2: Understanding the Supply Chain

After understanding the characteristics of the demand that the company faces, the next question is: How does the firm best meet that demand? Creating strategic fit is all about creating a supply chain strategy that best meets the particular type of demand that a company has targeted. Next step is to consider characteristics of supply chains and categorize them. Similar to the way demand was placed on a one-dimensional spectrum (the implied uncertain spectrum), supply chain can also be placed on such a spectrum. If we search for a single idea to which all characteristics of the supply chain contribute, it is the idea of the trade-off between responsiveness and efficiency.

Supply chain responsiveness includes a supply chain's ability to do the following: -

• Respond to wide ranges of quantities demanded

• Meet short lead times

• Handle a large variety of products

• Build highly innovative products

• Meet a very high service level

These abilities are similar to many of the characteristics of demand that led high implied uncertainty. The more of these abilities that a supply chain has, the more responsive it is.

To respond to a wider range of quantities demanded, capacity must be increased, which increases costs. This increase in cost leads to the second definition: Supply chain efficiency is the cost off making and delivering a product to the customer. For every strategic choice to increase responsiveness, there are additional costs that lower efficiency.

Supply chains range from those that focus on being responsive to those that focus on efficiency with a goal of producing and supplying at the lowest possible cost. Figure 3 shows the responsiveness spectrum and where some different supply chains fall on this spectrum.

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* Contributed by -
Amit Mishra,
PGP 19188,
Indian Institute Of Management, Lucknow.