WEBVTT Kind: captions Language: en 00:00:08.800 --> 00:00:13.920 Organizational strategy refines  the organization’s generic strategy   00:00:13.920 --> 00:00:21.600 and clarifies how to direct supply chain strategy.  For example, if an organization’s generic strategy   00:00:21.600 --> 00:00:26.240 is to be the low-cost leader, its  organizational strategy directs how   00:00:26.240 --> 00:00:32.800 it needs to function in its environment  to offer these low costs. Organizational   00:00:32.800 --> 00:00:39.680 strategies that relate directly to supply chain  strategy include customer focus and alignment,   00:00:39.680 --> 00:00:46.720 the forecast-driven enterprise, the demand-driven  enterprise, and product-type-driven strategy. 00:00:47.920 --> 00:00:53.920 When designing an organizational strategy,  it is best to begin with the end in mind   00:00:53.920 --> 00:01:01.120 and let these goals drive all other decisions. The  goal should be a plan that can satisfy customers,   00:01:01.120 --> 00:01:06.400 grow the organization, thrive against  the competition, and make money. 00:01:08.000 --> 00:01:12.320 We start with a customer  focus and alignment strategy.  00:01:12.320 --> 00:01:17.120 Customer focus means that what is best  for the customer has priority in this   00:01:17.120 --> 00:01:23.840 strategy. It drives every decision.  Rather than maximizing quality, price,   00:01:23.840 --> 00:01:30.320 or availability exclusively, this strategy seeks  the balance that is just right for the customer.  00:01:31.040 --> 00:01:37.920 A supply chain includes many independent  entities. Each entity expects to make a profit   00:01:37.920 --> 00:01:45.040 and will have its own strategies. Failing to align  these strategies can hinder end-customer focus.  00:01:46.240 --> 00:01:51.200 Therefore, a nucleus firm needs  to use its clout with partners   00:01:51.200 --> 00:01:57.520 to align these strategies with customer  requirements. Moreover, incentives need to be   00:01:57.520 --> 00:02:03.680 designed to help persons in each organization  work toward these customer-focused goals. 00:02:05.200 --> 00:02:11.840 In the next organizational strategy, the  forecast-driven enterprise, forecasts of demand   00:02:11.840 --> 00:02:20.000 are used to plan production in advance, which is  called a push system. However, forecasts are often   00:02:20.000 --> 00:02:27.440 wrong. Moreover, when forecasts are based just  on orders from the immediate downstream customer,   00:02:27.440 --> 00:02:32.560 the lack of information on actual  demand can lead to poor decision making. 00:02:33.520 --> 00:02:37.440 This can cause the bullwhip  effect. It starts like this.   00:02:38.400 --> 00:02:43.520 Given no additional information,  a customer order for cycle stock, 00:02:44.720 --> 00:02:51.040 some additional safety stock, and some  additional inventory for a sales promotion   00:02:51.040 --> 00:02:56.720 will be interpreted as all being an order for  just cycle stock by the upstream supplier.   00:02:57.840 --> 00:03:03.840 This supposed increase in customer demand  results in a ramp up of production.   00:03:04.400 --> 00:03:07.920 At each upstream location, the variability in   00:03:07.920 --> 00:03:14.880 order size gets more severe because of things  like fixed production or ordering lot sizes. 00:03:16.240 --> 00:03:21.600 Similarly, when the next period arrives,  if orders are lower than normal,   00:03:21.600 --> 00:03:25.280 this drop in demand is also  magnified up the chain.  00:03:27.200 --> 00:03:33.200 Breaking this cycle of feast and famine  requires better visibility in both directions.   00:03:34.240 --> 00:03:38.160 Another solution is to become  a demand-driven enterprise. 00:03:39.120 --> 00:03:44.320 A demand-driven enterprise replaces  forecasts with actual demand   00:03:44.320 --> 00:03:50.960 data as much as possible. A demand-driven  enterprise will use demand-driven planning 00:03:51.840 --> 00:03:55.440 to maintain strategic buffers in key locations 00:03:56.560 --> 00:03:59.840 rather than spreading inventory  throughout the system. 00:04:01.280 --> 00:04:05.760 In manufacturing it will use  things like fast changeovers 00:04:05.760 --> 00:04:08.080 to produce just what is in demand. 00:04:09.440 --> 00:04:17.600 DDP’s key ordering process is called demand-driven  material requirements planning or DDMRP.   00:04:18.720 --> 00:04:25.200 DDMRP translates customer orders  directly into MRP component requirements. 00:04:27.040 --> 00:04:32.560 Another enabler of demand-driven  strategies is moving the push-pull frontier 00:04:33.200 --> 00:04:36.800 back up the supply chain  at least to manufacturing, 00:04:37.680 --> 00:04:41.840 but often also to the first tier of suppliers. 00:04:43.120 --> 00:04:48.560 The last organizational strategy,  the product-type-driven strategy,   00:04:48.560 --> 00:04:53.040 assumes that the organization needs  more than one distinct supply chain. 00:04:54.240 --> 00:04:59.040 For example, they could have one  supply chain for functional products   00:04:59.040 --> 00:05:05.600 and one for innovative products. Functional  products tend to be low profit margin,   00:05:05.600 --> 00:05:11.840 predictable demand items, while innovative  products tend to be high profit margin,   00:05:11.840 --> 00:05:17.920 unpredictable demand items. Each will  have distinct supply chain requirements. 00:05:19.520 --> 00:05:27.760 To be profitable, functional products need both  predictability and low cost. Predictability can   00:05:27.760 --> 00:05:35.200 include minimal variation in quality so there  will be few returns. Low cost can be achieved   00:05:35.200 --> 00:05:42.000 through high manufacturing utilization rates,  tightly controlled inventory, and high turnover. 00:05:43.360 --> 00:05:49.520 Conversely, for an innovative product to be  profitable, it needs market responsiveness.   00:05:50.480 --> 00:05:56.800 Responsiveness can be gained through generous  inventory buffers and by using postponement to   00:05:56.800 --> 00:06:03.120 delay committing to make final units.  Suppliers also need to be responsive.   00:06:03.680 --> 00:06:12.800 They need agility to modify capacity and must be  committed to aggressive lead time reduction. We   00:06:12.800 --> 00:06:19.840 hope you enjoyed this overview of organizational  strategies related to supply chain management.