Supply Chain Management : Overview

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Chapter -3
SUPPLY CHAIN DRIVERS AND METRICS

DRIVERS OF SUPPLY CHAIN PERFORMANCE :

Logistical drivers:

Facilities, Inventory, and Transportation

Cross-functional drivers:

Information, Sourcing, and Pricing

These drivers interact with each other to determine the supply chain's performance in terms of responsiveness and efficiency. As a result, the structure of these drivers determines if and how strategic fit is achieved across the supply chain.

Drivers: Meaning and Impacts :

Facilities are the actual physical locations in the supply chain network where product is stored, assembled, or fabricated. The two major types of facilities are: production sites and storage sites. Decisions regarding the role, location, capacity, and flexibility of facilities have a significant impact on the supply chain's performance.

Inventory encompasses all raw materials, work in process, and finished goods within a supply chain. Changing inventory policies can dramatically alter the supply chain's efficiency and responsiveness.

A large inventory increases the retailer's cost, thereby making it less efficient. Reducing inventory makes the retailer more efficient but hurts its responsiveness.

Transportation entails moving inventory from point to point in the supply chain. Transportation can take the form of many combinations of modes and routes, each with its own performance characteristics. Transportation choices have a large impact on supply chain responsiveness and efficiency.

Information consists of data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain. Information is potentially the biggest driver of performance in the supply chain because it directly affects each of the other drivers. Information presents management with the opportunity to make supply chains more responsive and more efficient.

Sourcing is the choice of who will perform a particular supply chain activity such as production, storage, transportation, or the management of information. At the strategic level, these decisions determine what functions a firm performs and what functions the firm outsource. Sourcing decisions affect both the responsiveness and efficiency of a supply chain.

Pricing determines how much a firm will charge for goods and services that it makes available in the supply chain. Pricing affects the behavior of the buyer of the good or service, thus affecting supply chain performance.

Supply chain management includes the use of logistical and cross-functional drivers to increase the supply chain surplus. Cross-functional drivers have become increasingly important in raising the supply chain surplus in recent years. While logistics remains a major part, supply chain management is increasingly becoming focused on the three cross-functional drivers.

It is important to realize that these drivers do not act independently but interact with each other to determine the overall supply chain performance. Good supply chain design and operation recognizes this interaction and makes the appropriate trade-offs to deliver the desired level of responsiveness.

FRAMEWORK FOR STRUCTURING DRIVERS:

The goal of a supply chain strategy is to strike the balance between responsiveness and efficiency that fits with the competitive strategy. To reach this goal, a company must structure the right combination of the three logistical and three cross-functional drivers. For each of the individual drivers, supply chain managers must make a trade-off between efficiency and responsiveness based on interaction with the other drivers. The combined impact of these drivers then determines the responsiveness and the profits of the entire supply chain.

The supply chain strategy determines how the supply chain should perform with respect to efficiency and responsiveness. The supply chain must then...
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