Supply Chain Responsiveness and Efficiency

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Supply Chain Responsiveness and Efficiency – Complementing or Contradicting Each Other? Dennis Minnich1 Frank H. Maier2 International University in Germany Campus 1 76646 Bruchsal, Germany Phone +49 7251 700-341 Fax +49 7251 700-350 e-mail dennis.minnich@i-u.de

Abstract Balancing responsiveness to market requirements with overall efficiency is an important issue in supply chain design and management. The objective of the system dynamics model introduced in this paper is to capture generic structures and the intrinsic dynamic behaviour modes of supply chains considering aspects of responsiveness and efficiency. The research strives for a better understanding of these aspects: what are the structural consequences of implementing strategies striving for efficiency or responsiveness in the real world, and how can they be represented in a System Dynamics model? Furthermore, simulations will be used to assess the dynamic consequences of these different strategic alternatives. Future research will then focus on identifying policies to balance responsiveness and efficiency in a specific industry and by that resolve the trade-off between the two.

Keywords:

Supply Chain Management, Supply Chain Responsiveness, Supply Chain Efficiency, System Dynamics

1. Introduction
The responsiveness of supply chains to changing market requirements and their overall efficiency are important issues in supply chain design and management and therefore currently receive wide attention in the scientific community as well as in practice. Responsiveness can be defined as the “ability to react purposefully and within an appropriate time-scale to customer demand or changes in the marketplace, to bring about or maintain competitive advantage” (Holweg, 2005, p. 605). In contrast, a supply chain would be considered efficient if the focus is on cost reduction and no resources are wasted on non-value added activities (Naylor, Naim and Berry, 1999, p. 108). Dennis Minnich, MSc, is Research and Teaching Associate at the Department of Operations Management at the International University in Germany, Bruchsal, and PhD student at the Industrieseminar of the University of Mannheim. 2 Prof. Dr. Frank Maier is Professor of Operations Management and Dean of the School of Business Administration at the International University in Germany, Bruchsal. 1

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Companies have three principal means to buffer against changes in quantity demanded for specific products, namely inventory, capacity and time. Safety stocks, excess capacity and safety lead times all provide a time buffer to be able to react to demand variability (Hopp and Spearman, 2004, p. 145). One could argue that one sensible approach to increase responsiveness could be to raise the inventory levels of finished goods or components, which would allow more flexibility for reactions to changes in customer demand. Increased inventory levels do, however, reduce the efficiency of the supply chain since they are costly, both in terms of storage cost and cost of capital. This suggests that such an increase in inventory may not be the optimal approach to increase responsiveness – or, as Hopp and Spearman phrased it: “inventory is the flower of all evil, and variability is its root” (2004, p. 146), i.e. high inventory levels are a sign that something is suboptimal in the supply chain, and other strategies such as variability reductions may be more beneficial than inventory increases. In an efficient supply chain, suppliers, manufacturers and retailers manage – implicitly through independent ordering processes between tiers or through explicit coordination of ordering decisions of the different supply chain elements – their activities in order to meet predictable demand at the lowest cost. A responsive supply chain, in contrast, requires an information flow and policies from the market place to supply chain members in order to hedge inventory and available production capacity against uncertain demand (Fisher,...
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