This chapter introduces 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. To understand how a company can improve supply chain performance in terms of responsiveness and efficiency, we must examine these driversof supply chain performance. The goal is to structure the drivers to achieve the desired level of responsiveness at the lowest possible cost.
Facilities: The actual physical locations in the supply chain network where the product is stores, assembled of fabricated.
Inventory: all raw materials, work in process, and finished goods within a supply chain.
Transportation: entails movinginventory from point to point in the supply chain; it can take form of many combinations of modes and routes, each with its own performance characteristics.
Information: consists of data and analysis concerning facilities, inventory, transportation costs, prices, and customers throughout the supply chain. It’s potentially the biggest driver of performance in the supply chain.
Sourcing: Is thechoice of who will perform a particular supply chain activity such as production, storage, transportation, or the management information.
Pricing: how much a firm will charge for goods and services that it makes available in the supply chain.
The key to achieving strategic fit across the supply chain is to structure the supply chain drivers appropriately to provide the desired level ofresponsiveness. 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, a company must structure the right combination of the three logistical and three cross-functional drivers.
Role in the supply chain: facilities are the where of the supply chain. Within a facility, inventory is eithertransformed into another state or it is stored.
Role in the competitive strategy: facilities are a key driver of supply chain performance in terms of responsiveness and efficiency.
Components of facilities decisions
Role: For production facilities, firms must decide whether they will be flexible, dedicated or a combination of the two.
Location: Deciding where a company will locate itsfacilities constitutes a large part of the design of a supply chain; to centralize in order to gain economies of scale or to decentralize to become more responsive by being closer to the customer.
Capacity: Companies must determine a facility’s capacity to perform its intended function or functions. A large amount of capacity allows the facility to be flexible but costs money; little excess capacitywill be more efficient per unit of product but will have difficulty to demand fluctuations.
Facility-related metrics: A manager should track some facility-related metrics that influence supply chain performance, such as capacity, utilization, production cost per unit among others.
Role in the supply chain: To increase the amount of demand that can be satisfied by having the productready and available when the customer wants it. Also, to reduce cost by exploiting economies of scale that may exist during production and distribution.
Role in the competitive strategy: the trade-off implicit in the inventory driver is between the responsiveness that results from more inventory and the efficiency that results from less inventory.
Components of inventory decisions:
Cycleinventory: Is the average amount of inventory used to satisfy demand between receipts of suppler shipments. The cycle inventory decisions the retailer must make are how much to order for replenishment and how often to place these orders.
Safety inventory: Is inventory held in case demand exceeds expectations; it is to held uncertainty. Managers face a key decision when determining how much safety...