Chapter 3

The supply chain drivers (component)

There are two supply chain drivers which are explain below.

1. Logistic Drivers: Logistic drivers are those which provides logistic supports such as inventory
(warehouse), transportation (road, air, water, railways) and facilities to ensure effective supply
chain management.
I. Inventory: Inventory refers the number of units or value of stock of goods held by a
company, inventory exist in order to reduce mismatch between demand and supply and to
support firm’s competitive position. Inventory ensure smooth supply of material such as raw
materials, semi-finished goods or finished goods on time.
II. Transportation: Transportation moves the product (. i.e. raw material, semi-finished goods,
finished goods and other support) between different location in a supply chain. Transportation
ensures movement of product from point of production to the point of consumption. The
faster transportation makes supply chain more responsive. Transportation is more prominent
in a company’s competitive strategy. There are different modes of transportation available for
supply chain such as road, water, railway and air ways.
III. Facilities: Facilities includes all location in the supply chain such as store, assembly line,
manufacturing, fabricating, and inventory. It includes various facilities such as factory floor,
office building, warehouse etc. (i.e. manufacturing site, repair site, storage site and
distribution sites.)
2. Cross functional drivers
I. Information:Information consist of information, data and analysis of various information and
data regarding customer, competitors, government policies and other stakeholders for smooth
functioning of supply chain, the analysis concerning facilities, inventory, transportation is the
most important driver of performance in the supply chain because it directly affects other
drivers of supply chain. Information helps the organization to grab the opportunities in order
to make supply chain more responsive and efficient.
II. Sourcing:It is the selection of who will perform a particular supply chain activity such as
production, storage, transportation and management of information. These decisions
determine which functions are performed by the organization itself and which functions are
to be outsourced. Sourcing decisions affect both the responsiveness and efficiency of supply
chain.
 III. Pricing:Price is what customer pay for what they get. It is the amount of money that
customer pays for the product/service. Pricing is concerned with determination of monetary
value of product which largely affect the demand for the product. Pricing determines how a
firm will change for goods and services that it makes available in the supply chain. Pricing
affects the behavior of buyer (customer) with supply chain performance. Similarly, supply
chain activities also affect pricing.
In conclusion, supply chain management includes the use of logistical drivers and cross
functional drivers to increase the supply chain surplus. There drivers do not act
independently but interact with each other to determine the overall supply chain
performance.

Trade-off in designing supply chain drivers/Balancing among supply chain

drivers/Balancing various supply chain drivers

 A trade-off is the situational decision that involves diminishing or losing one quality, quantity or
property of a set or designs in return for gains of other aspect.
 The supply chain drivers such as facilities, inventory, transportation, sourcing, pricing,
informationare influenced by many factors. It is important to see how the manager constantly
review these decisions because these factors are dynamic and influenced by competitive
situations.
 The manager should be able to assess at what frequency such conflicts are to be reckoned
(guessed) and resolved.
 The various supply chain drivers influence the activities of each other, so there should be proper
balancing among those drivers. Example, when pricing is down Demand goes up.
 There are number of trade-off that must be taken into account while designing supply chain. They
are:
a. Demand and supply condition:The changes in the character of demand and supply conditions
considerably influence the configuration of supply chain drivers. There is certain product for
which facility, location decisions are driven by availability of raw materials, transportation
etc.
b. Negotiation power of supplier: the bargaining power of suppliers needed to be assessed. If
there are only few suppliers, the bargaining power of suppliers is high which ultimately
affects pricing and inventory.
 c. Negotiation power of buyers: Porter’s five force model on competitive analysis explains the
importance of bargaining power of buyers. If there are only few buyers, their bargaining
power is high, they can bring down prices. In the case of differentiated products available in
the market, the customers are brand-conscious, expect high level of post-sale services, thus
bargaining power of customer is high. In such situation, the supply chain structure should be
responsive, there is the need to establish more facilities, inventory and outbound
transportation.
d. Innovation & competitive behavior: There are certain businesses whose innovation is the
regular feature impacting competitive behavior of firm. In such business, supply chain drivers
should be responsive, not only be cost effective. But in actual sense, supply chain decisions
and drivers should be responsive as well as cost-effective, so this is challenging responsibility
because one part of supply network needs efficiency and other part responsiveness.
e. Resources: The availability & unavailability of resources largely affected the responsiveness
and cost-efficiency of supply chain drivers.
f. Technology: Technologies as a competitive force would impact the configuration of supply
chain drivers. Technology could be related with product and services as well as processing of
data and information. Information technology is bringing transparency and visibility in the
supply networks. Technology increase the efficiency of supply chain drivers but innovative
technology requires capital investment.
g. Government policies: Government policies impact/influence the configuration of supply
chain drivers. The facilities like manufacturing and warehousing locations are influenced by
government policies. The policies formulated by government should be favorable for the
performance of supply chain drivers.
h. Inventory & Transportation Trade off: Suppliers prefers to ship full load on transportation
instead of partial load in order to minimize shipping cost as many units as possible, this leads
to higher holding cost.
i. Product Variety & Inventory Trade off: Higher product variety generally means smaller size
which results in higher set up cost as well as higher transportation & inventory management
cost.

Supply chain Driver configuration/structure/Design (factors to be considered while structuring

supply chain configuration)

 Resources
 Technology
 Government
 Inventory and transportation
 Product variety