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CH 03 Supply Chain Drivers

This document discusses the key drivers of supply chain performance - facilities, inventory, transportation, information, sourcing, and pricing. It provides details on the role of each driver in the supply chain and competitive strategies. The drivers can be used to achieve efficiency or responsiveness goals, and often require trade-offs between the two. Components of decisions for each driver are also outlined.

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Shweta Chauhan
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161 views21 pages

CH 03 Supply Chain Drivers

This document discusses the key drivers of supply chain performance - facilities, inventory, transportation, information, sourcing, and pricing. It provides details on the role of each driver in the supply chain and competitive strategies. The drivers can be used to achieve efficiency or responsiveness goals, and often require trade-offs between the two. Components of decisions for each driver are also outlined.

Uploaded by

Shweta Chauhan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter 3

Supply Chain Drivers


• Drivers of supply chain performance
• A framework for structuring drivers
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing
Drivers of Supply Chain
Performance
• Facilities
– places where inventory is stored, assembled.
– 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


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)
• Example 3.1: Toyota
• Components of facilities decisions
Components of Facilities Decisions
• Location
– centralization (efficiency) vs. decentralization
(responsiveness)
– other factors to consider (e.g., proximity to customers)
• Capacity (flexibility versus efficiency)
• Warehousing methodology (SKU 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
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
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
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
Information:
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?
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
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
Sourcing:
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
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
Pricing:
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
• Example : Amazon
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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