Supply Chain Drivers and Metrics
After reading this chapter, you will be able to:
I. Identify the major drivers of supply chain performance.
2. Discuss the role of each driver in creating strategic fit between the supply chain strategy and the competitive strategy.
3. Detine the key metrics that track the performance of the supply chain in terms of each driver. In this chapter, we introduce the three logistical drivers-facilities, inventory, and transportation-and the three cross-functional drivers-information, sourcing, and pricing-that determine the performance of any supply chain. We discuss how these drivers are used in the design, planning, and operation of the supply chain. We define several metrics that can be used to gauge the performance of each driver. 3.1 DRIVERS OF SUPPLY CHAIN PERFORMANCE
The strategic fit discussed in Chapter 2 requires that a company's supply chain achieve the balance between responsiveness and efficiency that best supports the company's competitive strategy. To understand how a compa- ny can improve supply chain performance in terms of responsiveness and efficiency, we must examine the logisti- cal and cross-functional drivers of supply chain performance: facilities, inventory, transportation, information, sourcing, and pricing. These drivers interact with each other to determine the supply chain's performance in terms of responsiveness and efficiency. The goal is to structure the drivers to achieve the desired level of responsiveness at the lowest possible cost.
First we define each driver and discuss its impact on the performance of the supply chain. 1. 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. For instance, an auto parts distributor striving for responsiveness could have many warehousing facilities located close to customers even though this practice reduces efficiency. Alternatively, a high-efficiency distributor would have fewer warehouses to increase efficiency despite the fact that this practice will reduce responsiveness. 2. 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. For example, 41
Part I • Building a Strategic Framework to Analyze Supply Chains a clothing retailer can make itself more responsive by stocking large amounts of inventory and satisfying customer demand from stock. A large inventory, however, increases the retailer's cost, thereby making it less efficient. Spanish apparel retailer Zara has worked hard to shorten new product and replenishment lead times. As a result, the company is very responsive but carries low levels of inventory. Zara thus provides responsiveness at low cost. 3. 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 respon- siveness and efficiency. For example, a mail-order catalog company can use a faster mode of .' transportation such as FedEx to ship products, thus making its supply chain more responsive, but also less efficient given the high costs associated with using FedEx. McMaster-Carr and W.W. Grainger, however, have structured their supply chain to provide next-day service to most of their customers using ground transportation. They are providing a high level of responsiveness at lower cost.
4. Information consists of data and analysis concerning facilities, inventory, transportation,...
Bibliography: Hofman, Debra. "The Hierarchy of Supply Chain Metrics." Supply
Chain Management Review (September 2004): 28-37
Marien, Edward J. "The Four Supply Chain Enablers." Supply
Chain Management Review (March-April 2000): 60-68
O 'Marah, Kevin. "The Top Twenty Five Supply Chains" Supply
Chain Management Review (September 2007): 16-22
(September 2007): 32-38.
60 Part I • Building a Strategic Framework to Analyze Supply Chains
States. On September 1, 2005, Seven & I Holdings Co., Ltd.,
was established as the holding company for Seven-Eleven
resulting in 12,034 stores by 2007.
On October 24, 1990, the Southland Corporation
entered into bankruptcy protection. Southland asked for
Ito-Yokado 's help, and on March 5, 1991, IYG Holding was
TABLE 3-2 Financial Figures for Seven-Eleven Japan (2000-2004)
For Fiscal Years Ending | | | | | |
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