Strategic Fit in Supply Chain Management: A Coordination Perspective

Abstract

A supply chain (SC) consists of all companies involved in the procurement, production, distribution and delivery of a product to a customer. Because different economic entities participate in the SC, it is significantly more complicated to manage than a single organization. Decision making in SCs is difficult due to differences between the objective functions of different SC members. Locally optimal decisions made by individual members are not necessarily optimal for the SC as a whole. In today’s market, competition between individual companies is being supplemented and supplanted by rivalries between SCs. Obtaining a larger market share means winning the competition. When a SC is not able to satisfy customer’s needs, its market share will be lost to competitors. Supply Chain Management (SCM) as a field of study intends to organize, coordinate and control the activities toward the ultimate goal of winning this competition. One of the critical issues in the SCM is the consistency between “what the supply chain performs” and “what the customer expects”. The survival of supply chains in a competitive business environment depends on the consistency between “Customer expectation” and “SC performance”, which forms the concept of “Strategic Fit”. To examine the concept of strategic fit, we first describe its elements in detail. There are two main elements that constitute strategic fit: (1) the customer’s expectation, which is the main building block of the “competitive strategy” of a SC and (2) the SC’s performance, which is associated with the “SC strategy” in responding to the established competitive strategy. The customer’s expectation is defined by the target customers that the company intends to serve. A company’s “competitive strategy” is its basic method of satisfying more of the customer’s expectations than its competitors. Indeed, the competitive strategy of a company includes its target customers and their specific needs, such as the product type, orders, information, special services, and so on. Porter (1979) introduces the following five competitive forces that shape the strategy: bargaining power of buyers, threats of new entrants, bargaining power of suppliers, threats of substitute products or services, and rivalry among existing competitors. The strongest competitive force can be considered as the basis for the strategy formulation (Porter, 2008). Based on Porter’s model, the competitive advantage of a company can be based on product differentiation or lower prices (Porter, 1985). Porter’s generic competitive strategies model (Porter, 1980) introduces three main competitive strategies, including product differentiation, cost leadership and focus (market segmentation). Applying the appropriate strategy depends on the targeted market scope