Supply Chain Drivers and Obstacles - Review Notes


The supply chain strategic fit concept requires that a company achieve the desired responsiveness and efficiency in its supply chain that best meets the needs of the company's competitive strategy.


The performance of a supply chain (responsiveness and efficiency) is determined by decisions in the areas of inventory, transportation, facilities and information. Hence these four areas are identified as drivers of supply chain performance.

A Framework for Structuring Supply Chain Drivers

Supply chain managers have to take research and development efforts to improve both responsiveness and efficiency of their supply chains on a continuous basis. In the past there were technological and managerial breakthroughs which improve one of them without any deterioration in the other and also improvement in both dimensions simulataneously. Actual economic theory tells, new technologies (capital investments) are adopted for capital productivity. Capital productivity in the context of supply chains comes through improvement in responsiveness and efficiency.

But at a certain point in time, there can be tradeoffs between resonsiveness and efficiency.  Hence supply chain designers come with supply chains with that give various combinations of responsiveness and efficiency (responsiveness - efficiency frontier) and the optimal combination is chosen based on the competitive strategy considerations.

Definition/Explanation of Four Drivers


Inventory: It consists of all raw material, work in process, and finished goods within a supply chain.
Transportation: It involves moving inventory from one point in the supply chain to another point.
Facilities: A facility is a place where inventory is stored, manufactured or assembled. Hence facilities can be categorised into production facilities and storage facilities.
Information: It consists of data and results of analysis regarding inventory, transportation, facilities, customer orders, customers, and funds.



Inventory

Inventory is maintained in the supply chain because of mismatches between supply and demand.

Types of inventory based on reasons for keeping them:


Cycle inventory: This results due to producing or buying larger lots to minimize acquisition costs related to processing each purchase order or production order.
Safety Inventory: It is held to counter against uncertainty or variability of demand.
Seasonal Inventory: It is inventory maintained to satisfy higher demands in a period compared to production capacity. It arises due to the decision to service predicted variability in demand through extra production during slack period or low demand periods.


Increasing inventory gives higher responsiveness but results in higher inventory carrying cost.

Transportation

Number of decisions have to taken in designing a supply chain regarding transportation.

Mode of Transportation: Six basic modes exist

Air

Truck (Road)
Rail
Ship
Pipeline
Electronic transportation (the newest mode for music, documents etc)


Route and Network Selection

Network is a set of facilities or destinations which can be used for transportation of goods. Route is a specific selection of facilities or destinations through which goods move.

Own Transport or Outsourced Transport


Facilities

Within a facility, inventory is either transformed into another state or stored.

Facilities Related Decisions

Location

Capacity
Manufacturing Methodology or Technology
Warehousing methodology


Information

Issues related to Information


Push Process Information and Pull Process Information
Coordination and information sharing across various facilities in the supply chain.
Forecasting
Aggregate Planning
Enabling technologies




References

Sunil Chopra and Peter Meindl, Supply Chain Management: Strategy, Planning and Operations, Prentice Hall, 2001.

Marien, Edward J. "The Four Supply Chain Enablers," Supply Chain Management Review, March/April 2000, pp. 60-68

Presentation slides on the topic
www.clt.astate.edu/asyamil/SCM_Chopra/chopra3_ppt_ch03.ppt
Presentation - Supply chain drivers and metrics

Article originally posted at
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