Supply chain, its management, performance measures and improvement approaches. As an extension of the systems point of view, the system dynamics inherent in the supply chain are illustrated and the coordination in the supply chain is emphasized. Five areas where measurement of supply chain performance should be made are discussed. The five areas are on-time delivery, quality, time (business cycle) total delivered cost and flexibility.
The first step in devising an effective supply chain is to consider the nature of demand for the product. For this many aspects are important: Product life cycle, demand predictability, product variety etc. But any product can be broadly classified into as either a Functional Product or an Innovative Product based on their demand patterns. Root cause for ineffectiveness of any supply chain is the mismatch between the type of product and the type of supply chain.
Functional Products are generally staples or those generally bought from the grocery stores or retail outlets. They have stable demands are price variations do not affect the demand drastically. Such products have long life cycles but they invite competition and usually have low profit margins.
The supply chain performs two different types of functions: 1) A physical function and 2) A market mediation function. The physical function deals with production for goods, movement of raw materials etc; while the market mediation function ensures that the variety of products reaching the marketplace match those that the consumers want to buy. Each of these functions incurs different costs. The physical costs include costs of production, inventory shortage and transportation while the market mediation costs arise when there is a mismatch between demand and supply. If supply > demand, the