1. Supply Chain Drivers and Obstacles Sana Ullah Khan

2. Outline Drivers of supply chain performance
A framework for structuring drivers
Facilities
Inventory
Transportation
Information
Sourcing
Pricing
Obstacles to achieving fit

3. Learning Objectives
Describe key financial measures of firm performance
Identify the major drivers of supply chain performance
Discuss the role of each driver in creating strategic fit between the supply chain strategy and the competitive strategy

4. Drivers of Supply Chain Performance
Facilities
places where inventory is stored, assembled, or fabricated
production sites and storage sites
Inventory
raw materials, WIP, finished goods within a supply chain
inventory policies
Transportation
moving inventory from point to point in a supply chain
combinations of transportation modes and routes
Information
data and analysis regarding inventory, transportation, facilities throughout the supply chain
potentially the biggest driver of supply chain performance
Sourcing
functions a firm performs and functions that are outsourced
Pricing
Price associated with goods and services provided by a firm to the supply chain

5. A Framework for Structuring Drivers

6. Facilities Role in the supply chain Role in the competitive strategy
the “where” of the supply chain
manufacturing or storage (warehouses)
Role in the competitive strategy
economies of scale (efficiency priority)
larger number of smaller facilities (responsiveness priority)
Components of facilities decisions

7. Components of Facilities Decisions
Location
centralization (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 (i.e cross-docking)
Overall trade-off: Responsiveness versus efficiency

8. Overall Trade-Off Responsiveness versus efficiency
Cost of the number, location, capacity, and type of facilities (efficiency)
Level of responsiveness
Increasing number of facilities increases facility and inventory costs, decreases transportation costs and reduces response time
Increasing the flexibility or capacity of a facility increases facility costs, decreases inventory costs and response time

9. Inventory Role in the supply chain Role in the competitive strategy
Components of inventory decisions

10. Inventory: Role in the Supply Chain
Inventory exists because of a mismatch between supply and demand
Source of cost and influence on responsiveness
Impact on
material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain
throughput
rate at which sales to end consumers occur
I = RT (Little’s Law)
I = inventory; R = throughput; T = flow time
Inventory and throughput are “synonymous” in a supply chain

11. Inventory: Role in Competitive Strategy
If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers
If cost is more important, inventory can be reduced to make the firm more efficient
Form, location, and quantity of inventory allow a supply chain to range from being very low cost to very responsive
Objective is to have right form, location, and quantity of inventory that provides the right level of responsiveness at the lowest possible cost

12. Components of Inventory Decisions
Cycle inventory
Average amount of inventory used to satisfy demand between shipments
Depends on Order size
Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible production
Overall trade-off: Responsiveness versus efficiency
more inventory: greater responsiveness but greater cost
less inventory: lower cost but lower responsiveness

13. Inventory Overall trade-off: Responsiveness versus efficiency
Increasing inventory generally makes the supply chain more responsive
A higher level of inventory facilitates a reduction in production and transportation costs because of improved economies of scale
Inventory holding costs increase

14. Transportation Role in the supply chain
Role in the competitive strategy
Components of transportation decisions

15. Transportation: Role in the Supply Chain
Moves the product between stages in the supply chain
Impact on responsiveness and efficiency
Faster transportation allows greater responsiveness but lower efficiency
Also affects inventory and facilities

16. Transportation: Role in the Competitive Strategy
If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it
Can also use slower transportation modes for customers whose priority is price (cost)
Can also consider both inventory and transportation to find the right balance

17. Components of Transportation Decisions
Mode of transportation:
air, truck, rail, ship, pipeline, electronic transportation
vary in cost, speed, size of shipment, flexibility
Route and network selection
route: path along which a product is shipped
network: collection of locations and routes
In-house or outsource
Overall trade-off: Responsiveness versus efficiency

18. Transportation Overall trade-off: Responsiveness versus efficiency
The cost of transporting a given product (efficiency) and the speed with which that product is transported (responsiveness)
Using fast modes of transport raises responsiveness and transportation cost but lowers the inventory holding cost

19. Information Role in the supply chain Role in the competitive strategy
Components of information decisions

20. Information: Role in the Supply Chain
Improve the utilization of supply chain assets and the coordination of supply chain flows to increase responsiveness and reduce cost
Information is a key driver that can be used to provide higher responsiveness while simultaneously improving efficiency
The connection between the various stages in the supply chain – allows coordination between stages
Crucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels

21. Information: Role in the Competitive Strategy
Right information can help a supply chain better meet customer needs at lower cost
Improves visibility of transactions and coordination of decisions across the supply chain
Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off)
Information technology
information is most valuable

22. Components of Information Decisions
Push (Material Requirement Planning) versus pull (demand information transmitted quickly throughout the supply chain)
Coordination and information sharing
Supply chain coordination, all stages of a supply chain work toward the objective of maximizing total supply chain profitability based on shared information
Sales and operations planning (S&OP)
The process of creating an overall supply plan (production and inventories) to meet the anticipated level of demand (sales)
Forecasting and aggregate planning
Enabling technologies
Electronic data interchange (EDI)
The Internet
Enterprise resource planning (ERP) systems
Supply chain management (SCM) software
Radio frequency identification (RFID)
Overall trade-off: Responsiveness versus efficiency

23. Information Overall trade-off: Complexity versus value
Good information helps a firm improve both efficiency and responsiveness
More information is not always better
More information increases complexity and cost of both infrastructure and analysis exponentially while marginal value diminishes
Evaluate the minimum information required to accomplish the desired objectives

24. Sourcing Role in the supply chain Role in the competitive strategy
Components of sourcing decisions

25. Sourcing: Role in the Supply Chain
Set of business processes required to purchase goods and services in a supply chain
Will tasks be performed by a source internal to the company or a third party
Globalization creates many more sourcing options with both considerable opportunity and potential risk
Supplier selection, single vs. multiple suppliers, contract negotiation

26. Sourcing: Role in the Competitive Strategy
Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain
In-house vs. outsource decisions- improving efficiency and responsiveness
Outsource to responsive third parties if it is too expensive to develop their own
Keep responsive process in-house to maintain control

27. Components of Sourcing Decisions
In-house or outsource
Perform a task in-house or outsource it to a third party
Supplier selection
Number of suppliers, evaluation and selection criteria, direct negotiations or auction
Procurement
The supplier sends product in response to customer orders
Overall trade-off: Increase the supply chain profits

28. Sourcing Overall trade-off: Increase the supply chain surplus
Increase the size of the total surplus to be shared across the supply chain
Impact of sourcing on sales, service, production costs, inventory costs, transportation costs, and information cost
Outsource if it raises the supply chain surplus more than the firm can on its own
Keep function in-house if the third party cannot increase the supply chain surplus or if the outsourcing risk is significant

29. Pricing Role in the supply chain Role in the competitive strategy
Components of pricing decisions

30. Pricing: Role in the Supply Chain
Pricing determines the amount to charge customers for goods and services
Affects the supply chain level of responsiveness required and the demand profile the supply chain attempts to serve
Pricing strategies can be used to match demand and supply

31. Pricing: Role in the Competitive Strategy
Firms can utilize optimal pricing strategies to improve efficiency and responsiveness
Pricing strategies vary to meet different customer responsiveness requirements
Low price and low product availability; vary prices by response times

32. Components of Pricing Decisions
Pricing and economies of scale
The provider of the activity must decide how to price it appropriately to reflect these economies of scale
Everyday low pricing versus high-low pricing
Different pricing strategies lead to different demand profiles that the supply chain must serve

33. Components of Pricing Decisions
Fixed price versus menu pricing
If marginal supply chain costs or the value to the customer vary significantly along some attribute, it is often effective to have a pricing menu
Can lead to customer behavior that has a negative impact on profits

34. Pricing Overall trade-off: Increase firm profits
Understand of the cost structure of performing a supply chain activity and the value this activity brings to the supply chain
Strategy may support efficiency in the supply chain, lower supply chain costs, defend market share, or steal market share
Differential pricing may be used to attract customers with varying needs
Strategy should help either increase revenues or shrink costs or preferably both

35. Obstacles to Achieving Strategic Fit
Increasing variety of products
Decreasing product life cycles
Increasingly demanding customers
Disintegration of supply chain ownership
Globalization
Difficulty executing new strategies

36. Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map (Fig. 2.5)
Implied uncertainty spectrum
Responsive supply chain
Efficient supply chain
Certain demand
Uncertain demand
Responsiveness spectrum
Zone of Strategic Fit

37. Summary What 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 learnt how to make decisions with respect to these drivers in order to achieve strategic fit and overcome these obstacles

38. Quiz No 1 Supply Chain Management SZABIST Islamabad Campus
 How one can differentiate Strategic, Tactical and Operating supply chain Issues from one another?
What is the multifactor productivity “MFP”? if 7500 Units Produced and Sold for Rs.10/unit with Cost of labor of Rs.10,000, Cost of materials: Rs.5,000 and Cost of overhead: Rs.20,000?

39. Quiz 1 3.
Draw a typical Supply Chain Management diagram with labels cover all steps and explain the role of Logistics in this chain? 4.
Why Organization use Electronic Data Interchange (EDI)?