SUPPLY CHAIN DRIVERS and

OBSTACLES
SUPPLY CHAIN DECISION-MAKING FRAME WORK

Competitive Strategy

Supply Chain Strategy

Efficiency Responsiveness

Facilities Inventory Transportation Information

Drivers
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 FACILITIES
Facilities : where material is either processed or transformed into
another state (manufacturing), or
it is stored before being shipped to the next stage (warehousing)

Role in Competitive Strategy

Location and capacity influence the responsiveness and efficiency of the chain

Components of Facilities Decisions

➢Location
• A large part of design of the chain
• Centralized (efficient - by gaining economies of scale) or decentralized (more responsive)
• Macro-economic factors – quality of workers, cost of workers, cost of facility, availability
of infrastructure, proximity to customers and the rest of network,
tax effects, and other strategic factors.
➢Capacity
• Excess - to respond to swings in demand but efficiency ↓
➢Operation Methodology
• Product focused (many different functions but for a single product)
• Functional focused ( few functions on many products)
• Flexible vs dedicated capacity
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 FACILITIES
Facilities : where material is either processed or transformed into
another state (manufacturing), or
it is stored before being shipped to the next stage (warehousing)

Role in Competitive Strategy

Location and capacity influence the responsiveness and efficiency of the chain

Warehousing Methodology
Stock keeping unit (SKU) storage
• all of one type of product stored together
(storage space utilization ↑)
➢Job lot storage
• all the different types of products needed to perform a particular type of job or satisfy
a particular type customer are stored together
(storage space utilization ↓ ; picking and packing efficiency ↑)
➢Cross-docking
• goods are not actually warehoused; trucks from suppliers each carrying a different type of
product deliver to a location; inventory is broken into smaller lots and quickly loaded onto
store bound trucks that carry a variety of products, some from each of the supplier.
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 INVENTORY
Role in the Supply Chain
Inventory
• exists because of mismatch between supply and demand
stock

demand

supply

time
•mismatch – intentional (when economical to manufacture/distribute in large
lots or when inventory held in anticipation of demand)
• is spread throughout the supply chain
raw materials – supplier
work-in-process – manufacturer
finished goods – distributor and retailer
• a major source of costs
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 INVENTORY
Role in the Supply Chain (contd.)
• has a huge impact on responsiveness – location and quantity of inventory
can move the supply chain from one end to the
• has significant impact on material flow time
• has significant impact on throughput (rate of sales
inventory = throughput rate x flow time (Little’s law)

Role in the Competitive Strategy

• inventory can be (is) used to achieve responsiveness by locating large

amount of inventory close to customers
•Inventory can be used to achieve efficiency by centralized stocking

efficiency responsiveness

low inventory high inventory

inventory
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 INVENTORY
Components of Inventory Decisions

• Cycle Inventory : average amount of inventory used to satisfy demand

between receipt of supplier shipments
• Safety Inventory : amount of inventory held to satisfy demand beyond
expectation
• Seasonal Inventory : amount of inventory used to satisfy predictable
variability in demand
• Sourcing : set of business processes required to purchase goods
and services
tasks to outsourced and those to be done in house
single supplier / a portfolio of suppliers

efficiency Overall Tradeoff responsiveness

low inventory inventory high inventory

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 TRANSPORTATION
Role in the Supply Chain :
• moves products between different stages in the chain
• type of transportation affects the inventory and facility location

Role in Competitive Strategy

• has a large impact on both responsiveness and efficiency
• a company may use both inventory and transportation to increase responsiveness
or efficiency, find the right balance between the two
Components of Transportation Decisions
➢Mode of Transportation
• Air, Truck, Rail, Ship, Pipeline, Electronic
• Criteria : speed, size of shipments, cost, and flexibility
➢Route and Network Selection
➢In-house or Outsource

OVERALL TRADEOFF : Responsive vs Efficiency

•Cost of transportation (efficiency)
•Speed of transportation (responsiveness)

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 INFORMATION
Role in the Supply Chain :
• important for decision making – design, tactical and operational
• connects various stages in the chain allowing them to coordinate
• brings about many of the benefits of maximizing total supply chain profitability
• crucial for daily operations

Role in Competitive Strategy

• just the key for every thing
• identification of the right information about responsiveness and efficiency

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 INFORMATION

Components of Information Decisions

➢Push versus Pull

➢Coordination and Information Sharing
➢Forecasting and Aggregate Planning
➢Pricing and Revenue Management
➢Enabling Technologies
❖ Electronic Data Exchange
❖ Internet (more information, more visibility, www exists)
❖ Enterprise Resource Planning (ERP) (transactional tracking and global visibility)
❖ Supply Chain Management (SCM) software adds a higher layer to ERP providing
analytical decision support system

OVERALL TRADEOFF : Responsive vs Efficiency

• used to improve the performance of other drivers
• accurate information leads to improvement in efficiency and responsiveness

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 OBSTACLES
in Achieving Strategic Fit

➢ Increasing Variety of Products

➢ Decreasing Product Life Cycle

➢ Increasing Demanding Customers

➢ Fragmentation of Supply Chain Ownership

➢ Globalization

➢ Difficulty executing New Strategies

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