Supply Chain Drivers

BBA IVth Semester (BBA-401)

Veeresh Tripathi, Assistant Professor, SMS - Varanasi
Flow of Presentation
❖Drivers of supply chain performance
❖A framework for structuring drivers
❖Facilities
❖Inventory
❖Transportation
❖Information
❖Sourcing
❖Pricing
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
A Framework for Structuring Drivers
Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers

Facilities
❖Role in the supply chain
❖Firms can increase responsiveness by increasing the number of facilities, making them more
flexible, or increasing capacity.
❖Each of these actions, however, comes at a cost. Increasing the number of facilities increases
facility and inventory costs but decreases transportation costs and reduces response time.
❖Increasing the flexibility or capacity of a facility increases facility costs but decreases inventory
costs and response time.
❖Thus, each supply chain must find the appropriate tradeoff when designing its facilities
network.
Components of Facilities Decisions
❖Role - Firms must decide whether production facilities will be flexible, dedicated, or a combination of
the two. Flexible capacity can be used for many types of products but is often less efficient, whereas
dedicated capacity can be used for only a limited number of products but is more efficient. Firms must
also decide whether to design a facility with a product focus or a functional focus. A product-focused
facility performs all functions (e.g., fabrication and assembly) needed for producing a single type of
product. A functional-focused facility performs a given set of functions (e.g., fabrication or assembly) on
many types of products. A product focus tends to result in more expertise about a particular type of
product at the expense of the functional expertise that comes from a functional methodology.
❖For warehouses and DCs, firms must decide whether they will be primarily cross-docking facilities or
storage facilities. At cross-docking facilities, inbound trucks from suppliers are unloaded; the product is
broken into smaller lots and is quickly loaded onto store-bound trucks. Each store-bound truck carries a
variety of products, some from each inbound truck. For storage facilities, firms must decide on the
products to be stored at each facility.
Components of Facilities Decisions
Location - Deciding where a company will locate its facilities constitutes a large part of the design
of a supply chain. A basic trade-off here is whether to centralize to gain economies of scale or to
decentralize to become more responsive by being closer to the customer. Companies must also
consider a host of issues related to the various characteristics of the local area in which the facility
is situated. These include macroeconomic factors, quality of workers, cost of workers, cost of
facility, availability of infrastructure, proximity to customers, the location of that firm’s other
facilities, tax effects, and other strategic factors.
❖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 (SKU storage, job lot storage, cross-docking)
❖Overall trade-off: Responsiveness versus efficiency
Inventory
❖Inventory exists because of a mismatch between supply and demand
❖Reasons For Carrying Inventory
❖Balancing Supply & Demand.
❖Seasonal Variation.
❖Scale Economics.
❖Operational Support.
❖Customer Service.
❖Anticipated Future Requirements.
Inventory Related Cost
❖Investment Cost.

❖Ordering Cost.

❖Storage Cost.

❖Handling & Transportation Cost.

❖Insurance Cost.

❖Damage, pilferage & Obsolesce Cost.

❖Exchange Rate Fluctuation

Cyclic Stock
Safety Stock
Reserve Stock
Components of Inventory Decisions
❖Cycle inventory
❖Average amount of inventory used to satisfy demand between shipments
❖Depends on lot 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
Transportation
❖Role in the supply chain
❖Enabler to movement of products.
❖Most visible function of logistics operation.
❖Significant share in logistics cost.
❖Needs thorough planning to control.
❖Supply Chain Success is linked with transportation strategy.
❖Support to Competitive strategy
❖Collaborative Transportation Management (CTM)
❖Basic Purpose - Product Movement & In-transit Product Storage.
❖Guiding Principle - Least cost per unit weight/volume of the product moved over the unit distance.
❖In India
❖60 % cargo movement through road transport.
❖30 % through Rail transport.
❖10 % through inland water, air & sea transport.
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
❖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
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
Information
❖Role in the supply chain

❖Role in the competitive strategy

❖Components of information decisions

Information: Role in the Supply Chain
❖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
❖Role in the Competitive Strategy
❖Allows supply chain to become more efficient and more responsive at the same time
(reduces the need for a trade-off)
❖Information technology
❖What information is most valuable?
Components of Information Decisions
❖Push (MRP) versus pull (demand information transmitted quickly throughout the
supply chain)
❖Coordination and information sharing
❖Forecasting and aggregate planning
❖Enabling technologies
❖EDI
❖Internet
❖ERP systems
❖Supply Chain Management software
❖Overall trade-off: Responsiveness versus efficiency
Enabling Technologies
1. Electronic data interchange (EDI) was developed in the 1970s to facilitate the placement of instantaneous, paperless purchase orders
with suppliers. Its proprietary nature, however, required significant upfront investment and often some translation between the
communicating parties. It did, however, make transactions faster and more accurate than when they were paper based.
2. Relative to EDI, the Internet conveys much more information using a standard infrastructure allowing supply chains to improve both
efficiency and responsiveness. The beginning of the twenty-first century has seen the Internet become the dominant medium of
communication across all the macro processes (CRM, ISCM, and SRM, discussed in Chapter 1) that link the supply chain from suppliers
to customers.
3. Enterprise resource planning (ERP) systems provide the transactional tracking and global visibility of information from within a
company and across its supply chain. This realtime information helps a supply chain improve the quality of its operational decisions.
ERP systems keep track of the information, whereas the Internet provides one method with which to view this information.
4. Supply chain management (SCM) software uses the information in ERP systems to provide analytical decision support in addition
to the visibility of information. ERP systems show a company what is going on, whereas SCM systems help a company decide what it
should do.
5. Radio frequency identification (RFID) consists of an active or passive radio frequency (RF) tag, applied to the item being tracked,
and an RF reader/emitter. A passive tag draws energy from the reader, whereas an active tag has its own battery and draws power from it.
RFID has many potential uses. It can be used in manufacturing to check availability of the entire bill of materials. The technology can
make the receiving of a truck much faster and cheaper. Full implementation of RFID could eliminate the need for manual counting and
bar-code scanning at the receiving dock. It can also be used to get an exact count of incoming items and items in storage.
Sourcing
❖Role in the supply chain

❖Role in the competitive strategy

❖Components of sourcing decisions

Sourcing: Role in the Supply Chain
Set of business processes required to purchase goods and services in a supply chain

❖Supplier selection,

❖single vs. multiple suppliers,

❖contract negotiation

❖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
Components of Sourcing Decisions
❖In-house versus outsource decisions

❖Supplier evaluation and selection

❖Procurement process

❖Overall trade-off: Increase the supply chain profits

Pricing
❖Role in the supply chain

❖Role in the competitive strategy

❖Components of pricing decisions

Pricing: Role in the Supply Chain
❖Pricing determines the amount to charge customers in a supply chain

❖Pricing strategies can be used to match demand and supply

❖Role in the Competitive Strategy

❖Firms can utilize optimal pricing strategies to improve efficiency and
responsiveness

❖Low price and low product availability; vary prices by response times
Components of Pricing Decisions
❖Pricing and economies of scale

❖Everyday low pricing versus high-low pricing

❖Fixed price versus menu pricing

❖Overall trade-off: Increase the firm profits

Questions:
❖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)?
Recommended Texts:
❖Chopra, Sunil, Meindl, Peter and Kalra, D. V.; Supply Chain Management: Strategy, Planning
and Operation; Pearson Education
❖Rushton, Alan., Croucher, Phil. & Baker, Peter.(2017) The Handbook of Logistics and
Distribution Management, Kogan Page,
❖Mahadevan, B.; (2018), Operations Management Theory & Practice, Pearson.
❖Richards, Gwynne. (2014) Warehouse Management, Kogan Page.
❖Sople, Vinod V. (2012); Logistics Management, Pearson.
❖Vijayaraghavan , T. A. S.., (2021), Supply Chain Analytics:, Wiley
❖Gopalakrishnan, P. & Haleem., Abid; (2015) Handbook of Materials Management, PHI Learning.
❖Case studies (Indian & International)
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