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Supply Chain Drivers & Metrics

This document discusses the key drivers of supply chain performance: facilities, inventory, transportation, information, sourcing, and pricing. Each driver plays a role in the supply chain by affecting efficiency and responsiveness, and also influences competitive strategy. The document analyzes the components and trade-offs involved in decisions for each driver.

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Aalok Ghosh
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131 views

Supply Chain Drivers & Metrics

This document discusses the key drivers of supply chain performance: facilities, inventory, transportation, information, sourcing, and pricing. Each driver plays a role in the supply chain by affecting efficiency and responsiveness, and also influences competitive strategy. The document analyzes the components and trade-offs involved in decisions for each driver.

Uploaded by

Aalok Ghosh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Supply Chain Drivers &

Metrics
Drivers of Supply Chain Performance
• Facilities
– places where inventory is stored, assembled, or fabricated
– production sites and storage sites
• Inventory
– raw materials, WIP, finished goods within a supply chain
– inventory policies
• Transportation
– moving inventory from point to point in a supply chain
– combinations of transportation modes and routes
• Information
– data and analysis regarding inventory, transportation, facilities throughout the
supply chain
– potentially the biggest driver of supply chain performance
• Sourcing
– functions a firm performs and functions that are outsourced
• Pricing
– Price associated with goods and services provided by a firm to the supply chain
A Framework for Structuring Drivers
Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers


• Role in the supply chain
• Role in the competitive strategy
• Components of Drivers decisions
Facilities
Role in the supply chain
– the “where” of the supply chain
– manufacturing or storage (warehouses)
Role in the competitive strategy
– economies of scale (efficiency priority)
– larger number of smaller facilities (responsiveness
priority)
Facilities
Components of Facilities Decisions
• Location
– centralization (efficiency) vs. decentralization (responsiveness)
– other factors to consider (e.g., proximity to customers)
• Capacity (flexibility versus efficiency)
• Manufacturing methodology (product focused versus
process focused)
• Warehousing methodology (SKU storage, job lot storage,
cross-docking)
• Overall trade-off: Responsiveness versus efficiency
Inventory
Role in the Supply Chain
• Inventory exists because of a mismatch between supply and
demand
• Source of cost and influence on responsiveness
• Impact on
– material flow time: time elapsed between when material enters the
supply chain to when it exits the supply chain
– throughput
• rate at which sales to end consumers occur
• I = RT (Little’s Law)
• I = inventory; R = throughput; T = flow time
• Example
• Inventory and throughput are “synonymous” in a supply chain
Inventory
Role in Competitive Strategy
• If responsiveness is a strategic competitive
priority, a firm can locate larger amounts of
inventory closer to customers
• If cost is more important, inventory can be
reduced to make the firm more efficient
– Example: Economies of Scale
Inventory
Components of Inventory Decisions
• Cycle inventory
– Average amount of inventory used to satisfy demand between shipments
– Depends on lot size
• Safety inventory
– inventory held in case demand exceeds expectations
– costs of carrying too much inventory versus cost of losing sales
• Seasonal inventory
– inventory built up to counter predictable variability in demand
– cost of carrying additional inventory versus cost of flexible production
• Overall trade-off: Responsiveness versus efficiency
– more inventory: greater responsiveness but greater cost
– less inventory: lower cost but lower responsiveness
Transportation
Role in the supply chain
• Moves the product between stages in the
supply chain
• Impact on responsiveness and efficiency
• Faster transportation allows greater
responsiveness but lower efficiency
• Also affects inventory and facilities
Transportation
Role in the competitive strategy
• If responsiveness is a strategic competitive
priority, then faster transportation modes can
provide greater responsiveness to customers
who are willing to pay for it
• Can also use slower transportation modes for
customers whose priority is price (cost)
• Can also consider both inventory and
transportation to find the right balance
Transportation
Components of transportation decisions
• Mode of transportation:
– air, truck, rail, ship, pipeline, electronic transportation
– vary in cost, speed, size of shipment, flexibility
• Route and network selection
– route: path along which a product is shipped
– network: collection of locations and routes
• In-house or outsource
• Overall trade-off: Responsiveness versus efficiency
Information
Role in the supply chain
– The connection between the various stages in the supply
chain – allows coordination between stages
– Crucial to daily operation of each stage in a supply chain –
e.g., production scheduling, inventory levels
Role in the competitive strategy
– Allows supply chain to become more efficient and more
responsive at the same time (reduces the need for a trade-
off)
– Information technology
– What information is most valuable?
Information
Components of information decisions
– Push (MRP) versus pull (demand information transmitted
quickly throughout the supply chain)
– Coordination and information sharing
– Forecasting and aggregate planning
– Enabling technologies
• EDI
• Internet
• ERP systems
• Supply Chain Management software
– Overall trade-off: Responsiveness versus efficiency
Sourcing
Role in the supply chain
– Set of business processes required to purchase
goods and services in a supply chain
– Supplier selection, single vs. multiple suppliers,
contract negotiation
Role in the competitive strategy
– Sourcing decisions are crucial because they affect
the level of efficiency and responsiveness in a
supply chain
– In-house vs. outsource decisions- improving
efficiency and responsiveness
Sourcing
Components of sourcing decisions
– In-house versus outsource decisions
– Supplier evaluation and selection
– Procurement process
– Overall trade-off: Increase the supply chain profits
Pricing
Role in the supply chain
• Pricing determines the amount to charge customers in a
supply chain
• Pricing strategies can be used to match demand and
supply
Role in the competitive strategy
• Firms can utilize optimal pricing strategies to improve
efficiency and responsiveness
• Low price and low product availability; vary prices by
response times
Pricing
Components of pricing decisions
• Pricing and economies of scale
• Everyday low pricing versus high-low pricing
• Fixed price versus menu pricing
• Overall trade-off: Increase the firm profits

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