Supply Chain Drivers and

Metrics
Chapter 3
What we will learn in Chapter 3

• Identify major drivers of supply chain performance

• Role of each driver in creating strategic fit between supply chain
strategy and competitive strategy
• Define key metrics that track the performance of supply chain in
terms of each drivers
• Describe major obstacles that must be overcome to manage a supply
chain successfully
Drivers of Supply Chain Performance

 Strategic fit requires that a company’s supply chain achieve the

balance between responsiveness and efficiency that best meets the
company’s competitive strategy.

Logistical Cross-functional
Drivers Drivers

Facilities Information

Inventory Sourcing

Transportation Pricing
Framework for structuring drivers
Facilities

Role in the Supply Chain: Facilities are locations to/from which inventory is
transported. It transforms and stores the inventory

Role in Competitive strategy: Facilities are key drivers in supply chain

performance in terms of responsiveness and efficiency. One location or
multiple locations can impact the cost.
 Facilities (contd.)

Role: Flexible/Dedicated/Combination.
In addition to this whether it be product focused or
functional focus

Location: Decide if want to centralize or de-centralize the

facility. With this there is any local aspects like
Components of macroeconomic, labor quality, cost of labor, cost of location,
Facilities Decisions infrastructure and proximity

Capacity: Company has to determine the capacity of facility

and act according to the demand it has to cater
Facilities (contd.)

Capacity Service
level Product
Theoretical variety
flow/cycle time of
production

Metrics Volume
Contribution
Actual average
flow/cycle time

Processing/ Average
Utilization production
Setup/idle time batch
Inventory

Role in the Supply Chain: In supply chain, inventory has multiple faces i.e. raw
material, WIP & finished. It holds a major part in the cost. It also impacts on
Material Flow time,

Role in Competitive strategy: If a firm’s competitive strategy requires a high

level of responsiveness, a company can achieve it through by locating large
amount of inventory close to customer and vice versa.
Inventory (contd.)

Cycle Inventory: Cycle inventory is avg. amount of inventory

used to satisfy demand between receipt
of supplier shipment

Safety Inventory: It is the inventory held in case of demand

Components of exceeds expectation.
Inventory
Decisions Seasonal Inventory: It is built to counter predictable
variation in the demand.

Level of Product Availability: is the fraction of demand

served on time from product held in inventory.
Inventory (contd.)

Average No. of days of

inventory inventory

Fraction of time
out of stock Obsolete
Inventory
Metrics

Avg.
Fill Rate Replenishment
Seasonal batch size
inventory
Avg. Safety
inventory
Transportation

Role in the Supply Chain: It moves between different stages of supply chain. Like
other drivers, Transportation has huge impact on responsiveness and efficiency.

Role in Competitive strategy: Role of transportation in competitive strategy

is defined by company’s preference to cater the customer’s needs.
Transportation (contd.)

Design of network: it is a network of transportation

modes, locations and routes along which product can be
Components of shipped
Transportation
Decisions Choice of Transportation mode: it is collection of
transportation mode used in the supply chain i.e. rail,
road, sea, air & pipeline
Transportation (contd.)

Average inbound
transportation cost Avg. Incoming
shipment size

Fraction transported Average inbound

by mode Metrics transportation
cost/shipment

Average
Average outbound Avg. outbound outbound
transportation shipment size transportation
cost/shipment
cost
Information

Role in the Supply Chain: it affects every part of supply chain and is easy to
underestimate:
1. It serves as connection between various stages of supply chain
2. It is crucial to daily operations of each stage

Role in Competitive strategy: tremendous growth of importance of IT is a

testimony to the impact information has on the competitive strategy of a
company.
Information (contd.)

Push/Pull: each system required different type of

information flows and model i.e. push required MRP while
pull need actual data of demand

Forecasting: it is art and science of predicting future

demand through employing various methods
Components of
Information
Decisions Enabling technologies: various methods and innovation in
technology can be deployed: RFID, EDI, ERP, SCM,

Coordination and information sharing: SC coordination

occurs when all the stages work towards the objective of
maximizing total supply chain profitability based on shared
information
Information (contd.)

Forecast Horizon Frequency of

update

Ratio of demand and Metrics

Forecast error
order variability

Variance from plan

Seasonal factors
Sourcing

Role in the Supply Chain: Sourcing is a set of process required to purchase goods
and services. Managers must decide which tasks will be outsourced and what they
are going to undertake. For outsourced tasks (it must be from single or multiple
source).

Role in Competitive strategy: Sourcing are crucial decisions because they

affect efficiency and responsiveness. Eg outsourcing deliveries.
Sourcing (contd.)

In-house/outsource: very important decision whether to

perform a task in house/outsource

Components of Supplier selection: Buying decision which managers take in

Sourcing Decisions selection of suppliers

Procurement: is a process in which supplier sends products

in response to the customer’s order.
Sourcing (contd.)

Supply lead time Avg. purchase

price

Metrics Range pf purchase

Supply quality
price

Fraction on-time
Avg. purchase
deliveries
quantity
Pricing

Role in the Supply Chain: is a process by which firm decide what they are going to
charge for their product/services. Pricing affects the customer segments that
choose to buy the product, as well as customer’s expectations.

Role in Competitive strategy: Pricing is a significant attribute through which

a firm executes its competitive strategy.
Pricing (contd.)

Pricing and economies of scale: Most supply chain activities

display economies of scale.

Components of Everyday low pricing/high-low pricing: it’s a firm’s choice to

either position itself as low price provider or offer periodic
Pricing Decisions schemes.

Fixed price/ menu pricing: a firm’s discretion whether they

want to charge a standard/customized price
Pricing (contd.)

Day sales
Avg. order size Profit margin
outstanding

Incremental fixed
Range of sale cost/order
price Metrics

Range of Incremental
variable
periodic sales cost/unit
Avg. sale price
Obstacles to achieving strategic fit

 The key to achieving strategic fit is a company’s ability

to find balance between responsiveness and efficiency:
 Increasing variety of products
 Decreasing product life cycle
 Increasingly demanding customers
 Fragmentation of SC ownership
 Globalization
 Difficulty executing new strategies