3 1 Supply Chain Management Outline Drivers of supply chain performance A framework for structuring drivers Facilities Inventory Transportation Information Sourcing Pricing Obstacles to achieving fit ID: 1020849
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1. Supply Chain Drivers and Obstacles3-1Supply Chain Management
2. OutlineDrivers of supply chain performanceA framework for structuring driversFacilitiesInventoryTransportationInformationSourcingPricingObstacles to achieving fit3-2
3. Drivers of Supply Chain PerformanceFacilitiesplaces where inventory is stored, assembled, or fabricatedproduction sites and storage sitesInventoryraw materials, WIP, finished goods within a supply chaininventory policiesTransportationmoving inventory from point to point in a supply chaincombinations of transportation modes and routesInformationdata and analysis regarding inventory, transportation, facilities throughout the supply chainpotentially the biggest driver of supply chain performanceSourcingfunctions a firm performs and functions that are outsourcedPricingPrice associated with goods and services provided by a firm to the supply chain3-3
4. A Framework for Structuring Drivers3-4
5. FacilitiesRole in the supply chainthe “where” of the supply chainmanufacturing or storage (warehouses)Role in the competitive strategyeconomies of scale (efficiency priority)larger number of smaller facilities (responsiveness priority)Example 3.1: Toyota and HondaComponents of facilities decisions3-5
6. Components of Facilities DecisionsLocationcentralization (efficiency) vs. decentralization (responsiveness)other factors to consider (e.g., proximity to customers)Capacity (flexibility versus efficiency)Manufacturing methodology (product focused versus process focused)Warehousing methodology (SKU storage, job lot storage, cross-docking)Overall trade-off: Responsiveness versus efficiency3-6
7. InventoryRole in the supply chainRole in the competitive strategyComponents of inventory decisions3-7
8. Inventory: Role in the Supply ChainInventory exists because of a mismatch between supply and demandSource of cost and influence on responsivenessImpact onmaterial flow time: time elapsed between when material enters the supply chain to when it exits the supply chainthroughputrate at which sales to end consumers occurI = RT (Little’s Law)I = inventory; R = throughput; T = flow timeExampleInventory and throughput are “synonymous” in a supply chain3-8
9. Inventory: Role in Competitive StrategyIf responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customersIf cost is more important, inventory can be reduced to make the firm more efficientTrade-offExample 3.2 – Nordstrom3-9
10. Components of Inventory DecisionsCycle inventoryAverage amount of inventory used to satisfy demand between shipmentsDepends on lot sizeSafety inventoryinventory held in case demand exceeds expectationscosts of carrying too much inventory versus cost of losing salesSeasonal inventoryinventory built up to counter predictable variability in demandcost of carrying additional inventory versus cost of flexible productionOverall trade-off: Responsiveness versus efficiencymore inventory: greater responsiveness but greater costless inventory: lower cost but lower responsiveness3-10
11. TransportationRole in the supply chainRole in the competitive strategyComponents of transportation decisions3-11
12. Transportation: Role inthe Supply ChainMoves the product between stages in the supply chainImpact on responsiveness and efficiencyFaster transportation allows greater responsiveness but lower efficiencyAlso affects inventory and facilities3-12
13. Transportation: Role in the Competitive StrategyIf responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for itCan also use slower transportation modes for customers whose priority is price (cost)Can also consider both inventory and transportation to find the right balanceExample 3.3: Laura Ashley3-13
14. Components ofTransportation DecisionsMode of transportation: air, truck, rail, ship, pipeline, electronic transportationvary in cost, speed, size of shipment, flexibilityRoute and network selectionroute: path along which a product is shippednetwork: collection of locations and routesIn-house or outsourceOverall trade-off: Responsiveness versus efficiency3-14
15. InformationRole in the supply chainRole in the competitive strategyComponents of information decisions3-15
16. Information: Role inthe Supply ChainThe connection between the various stages in the supply chain – allows coordination between stagesCrucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels3-16
17. Information: Role in the Competitive StrategyAllows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off)Information technologyWhat information is most valuable?Example 3.4: Andersen WindowsExample 3.5: Dell3-17
18. Components of Information DecisionsPush (MRP) versus pull (demand information transmitted quickly throughout the supply chain)Coordination and information sharingForecasting and aggregate planningEnabling technologiesEDIInternetERP systemsSupply Chain Management softwareOverall trade-off: Responsiveness versus efficiency3-18
19. SourcingRole in the supply chainRole in the competitive strategyComponents of sourcing decisions3-19
20. Sourcing: Role inthe Supply ChainSet of business processes required to purchase goods and services in a supply chainSupplier selection, single vs. multiple suppliers, contract negotiation3-20
21. Sourcing: Role in the Competitive StrategySourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chainIn-house vs. outsource decisions- improving efficiency and responsivenessExample 3.6: Cisco3-21
22. Components of Sourcing DecisionsIn-house versus outsource decisionsSupplier evaluation and selectionProcurement processOverall trade-off: Increase the supply chain profits3-22
23. PricingRole in the supply chainRole in the competitive strategyComponents of pricing decisions3-23
24. Pricing: Role inthe Supply ChainPricing determines the amount to charge customers in a supply chainPricing strategies can be used to match demand and supply3-24
25. Sourcing: Role in the Competitive StrategyFirms can utilize optimal pricing strategies to improve efficiency and responsivenessLow price and low product availability; vary prices by response timesExample 3.7: Amazon3-25
26. Components of Pricing DecisionsPricing and economies of scaleEveryday low pricing versus high-low pricingFixed price versus menu pricingOverall trade-off: Increase the firm profits3-26
27. Obstacles to Achieving Strategic FitIncreasing variety of productsDecreasing product life cyclesIncreasingly demanding customersFragmentation of supply chain ownershipGlobalizationDifficulty executing new strategies3-27
28. SummaryWhat are the major drivers of supply chain performance?What is the role of each driver in creating strategic fit between supply chain strategy and competitive strategy (or between implied demand uncertainty and supply chain responsiveness)?What are the major obstacles to achieving strategic fit?In the remainder of the course, we will learn how to make decisions with respect to these drivers in order to achieve strategic fit and surmount these obstacles3-28