Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

1.3.2 Supply Chain Strategy, Opportunity and Opportunity Cost

Intended learning outcomes: Produce an overview on the supply chain strategy and the business plan. Describe opportunity and opportunity cost.

The relative weighting of target areas and the individual objectives of companies or supply chains are determined by the strategy.

A company’s strategy, or a supply chain strategy, identifies how the company or the supply chain will function in its environment with regard to product line, fill rate, make-or-buy decisions, distribution and supplier channels, people and partner­ship, organizational development, and financial objectives ([ASCM22]).

Strategic planning is the corresponding planning process.

Strategic planning develops the strategic plan, the busi­ness plan for the whole company. The plan reflects top management’s view of

  • The market and other companies in the market
  • Product and service positioning[note 110] in the market segment
  • Competitive advantages and product differentiation[note 111]
  • Order qualifiers and order winners [note 112]
  • The type of production and procurement

The surrounding systems that influence the company’s perspective include economic considerations (such as the relationship between supply and demand), probable customer behavior (whether the products will be seen as investment goods or consumer goods, for example), competition, available suppliers, the costs of short- and long-term financing, and expected economic and political trends.

The actual quantitative weighting of these areas and objectives represents a challenge to the company. Objectives are not readily comparable. One method of comparison is to translate objectives outside of the area of costs into monetary values.

Opportuneness is the suitability of an action in a particular situation. Opportunity cost is defined by [ASCM22] as the return on capital that could have resulted had the capital been used for some purpose other than its present use.

Opportunity costs arise when for some reason customer demand cannot be fulfilled. In this case, the invested capital is used for something other than the gain that would have been made through meeting customer demand. Such costs result if entrepreneurial objectives with regard to concrete demand have not been weighted appropriately.As an example of translating non-cost objectives into monetary values in order to determine the opportunity cost, let us take the objective of high fill rate. What does it cost to be unable to deliver? There can be loss of:

  1. The non-deliverable order item.
  2. The complete order, even though other items can be delivered.
  3. The customer, even if other orders can be filled.
  4. All customers, due to the company’s resulting poor reputation.

This example shows how difficult it is to determine opportunity cost. Translating other non-cost objectives into monetary values is just as complex. Thus, the weighting of objectives is unquestionably an entre­preneurial matter that must be conducted within the framework of the normative and strategic orientation of the enterprise.

In contrast to QCDF objectives in the areas of costs and delivery, logistics, operations, and supply chain management have only a limited influence on the achievement of QCDF objectives with regard to quality and flexibility.

  • Target area quality: Clearly, product and process design as well as the choice of production infrastructure, employees, and the supply chain community are the main determinants of the quality of products, processes, and the organization.
  • Target area flexibility: The flexibility to enter as a partner in supply chains is, first of all, a question of the culture of an enterprise. The potential for flexibility in achieving customer value develops through product and process design and the choice of production infrastructure. Flexibility in the use of resources is determined initially by the qualifications of personnel and by the choice of product infra­structure.

Section 1.7.1 contains a scenario on possible improvements in achieving entrepreneurial objectives in the different areas.

Continuation in next subsection (1.3.2b).

Course section 1.3: Subsections and their intended learning outcomes