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Drivers of Supply chain


To : Prof. Naresh Malhan
By : Chandan Kumar Das

Supply Chain Drivers
Drivers determine supply chain
performance. For each driver,
managers must make tradeoffs
between efficiency (cost) and

Drivers of Supply Chain Performance Inventory Transportation Facilities Information .

Inventory All of the raw materials. . and finished goods within the supply chain. work in process (WIP). Inventory policies can dramatically alter a supply chain’s efficiency and responsiveness.

and uncertainty is growing) Short product life cycles Product proliferation .Why hold inventory? Unexpected changes in customer demand (always hard to predict.

Why hold inventory? Uncertain supply Quantity Quality Costs Delivery time .

More inventory increases responsiveness. and purchasing. less inventory increases efficiency (reduces cost). transportation. .Inventory’s Impact Inventory can increase amount of demand that can be met by increasing product availability. Inventory can reduce costs by exploiting economies of scale in production. Inventory can be used to support a firm’s competitive strategy.

you don’t need as much inventory (inventory velocity). . In other words: If you move your inventory faster. Little’s law: Inventory = flow time x throughput rate.Inventory’s Impact Inventory can significantly affect material flow/cycle/ throughput time.

.Transportation Modes and routes for moving inventory throughout the supply chain.

Transportation’s Impact Faster transportation allows a supply chain to be more responsive but generally less efficient. . Transportation can be used to support a firm’s competitive strategy. Customers may demand and be willing to pay for a high level of responsiveness. Less than full truckloads allows a supply chain to be more responsive but generally less efficient.

ship. Routes are paths along which a product can be shipped. In house or outsourcethe transportation function. .Transportation Decisions Mode of transportationis the manner in which a product is moved (air. cost. size of shipments. Each mode differs with respect to speed. truck. rail. pipeline. electronic). Many companies use third-party logistics providers (3PL) to perform some or all of their transportation activities. and flexibility.

Decisions on location.Facilities Places within the supply chain where inventory is stored. assembled. . or fabricated. and flexibility of facilities have a significant impact on performance. capacity.

. Centralization of facilities uses economies of scale to increase supply chain efficiency (fewer locations and less inventory) usually at the expense of responsiveness (distance from customer). retailers) or transform inventory into another state (fabrication or assembly plants). distribution centers.Facilities Impact Facilities either store inventory between supply chain stages (warehouses.

infrastructure. cost of facility. Excess capacity allows a company to be more responsive to changes in the level of demand. etc. taxes. Capacity. Other issues include quality and cost of workers. quality of life. but at the expensive of efficiency.Facility Decisions Location. Centralize to gain economies of scale or decentralize to be more responsive. .

Decisions between a product or functional focus. between flexible or dedicated capacity. Warehousing Methodology.Facility Decisions Manufacturing Methodology. . or cross-docking. Job lot storage (stores different products together to satisfy a particular customer or job). Chose between SKU storage (stores all of one type of product together).

transportation.Information Data and analysis regarding inventory. . It is potentially the biggest driver since it affects all the other drivers. and customers throughout the supply chain. facilities.

An information system can enable a firm to get a high variety of customized products to customers rapidly An information system can enable a firm to understand changing consumer needs more quickly. Information is crucial to the daily operations of each stage of the supply chain.Information’s Role Information connects various supply chain stages and allows them to coordinate activities. .

Enabling Technologies. Which information technologies will be used and integrated throughout the supply chain? electronic data interchange (EDI).Information Decision Components Push versus Pull. . Pull system (like JIT) need accurate and quick information on actual demand to move inventory and schedule production in the chain. supply chain management (SCM) software. the Internet. Push systems (like MRP) need information on anticipated demand to create production and purchasing schedules. enterprise resource planning (ERP) systems.

Considerations for Supply Chain Drivers .

Obstacles to Achieving Strategic Fit Increasing variety of products Decreasing product life cycles Increasingly demanding customers Fragmentation of supply chain ownership Difficulty executing new strategies .