Chapter 3
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Supply Chain Drivers and Metrics
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Learning Objectives
• Describe key financial measures of firm performance.
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.
• 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.
• Define the key metrics that track the performance of the supply
chain in terms of each driver.
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Drivers of Supply Chain Performance
• Facilities
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The physical locations in the supply chain network where
product is stored, assembled, or fabricated
• Inventory
All raw materials, work in process, and finished goods within a
supply chain
• Transportation
Moving inventory from point to point in the supply chain
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Drivers of Supply Chain Performance
• Information
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Data and analysis concerning facilities, inventory,
transportation, costs, prices, and customers throughout
the supply chain
• Sourcing
Who will perform a particular supply chain activity
• Pricing
How much a firm will charge for the goods and services that it
makes available in the supply chain
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Facilities
Role in the supply chain
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•
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)
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Facilities
• Components of facilities decisions
Role
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▪ Flexible, dedicated, or a combination of the two
▪ Product focus or a functional focus
Location
• Where a company will locate its facilities
• Centralize/decentralize: macroeconomic factors, workers, cost of
workers and facility, availability of infrastructure, proximity to
customers, location of other facilities, tax effects
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Facilities
• Components of facilities decisions
Capacity
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▪ A facility’s capacity to perform its intended function or functions
▪ Excess capacity – responsive, costly
▪ Little excess capacity – more efficient, less responsive
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Inventory
• Role in the supply chain
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• Mismatch between supply and demand
• Satisfy demand
• Exploit economies of scale
• Impacts assets, costs, responsiveness, material flow time
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Inventory
• Role in competitive strategy
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• 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
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Components of Inventory Decisions
• Cycle inventory
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• Average amount of inventory used to satisfy demand between
shipments
• Function of lot size decisions
• Safety inventory
• Costs of carrying too much inventory versus cost of losing
sales
• Inventory held in case demand exceeds expectations
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Components of Inventory Decisions
• Seasonal inventory
• Inventory built up to counter predictable variability in demand
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• Cost of carrying additional inventory versus cost of flexible
production
• Level of product availability
• The fraction of demand that is servedon time from product
held in inventory
• Trade off between customer service and cost
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Transportation
Role in the supply chain
• Moves the product between stages in the supply chain
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• Impact on responsiveness and efficiency
• Faster transportation allows greater responsiveness but
lower efficiency
Role in the competitive strategy
• Allows a firm to adjust the location of its facilities and inventory
• to find the right balance between responsiveness and efficiency
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Transportation
• Components of transportation decisions
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Design of transportation network
▪ Modes, locations, and routes
▪ Direct or with intermediate consolidation points
▪ One or multiple supply or demand points in a single run
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Transportation
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Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Information
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• 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
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Information
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• 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
Share the minimum amount of information required to
achieve coordination
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Components of Information Decisions
• Push versus pull
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Different information requirements and uses
• 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)
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Components of Information Decisions
• Enabling technologies
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Electronic data interchange (EDI)
The Internet
Enterprise resource planning (ERP) systems
Supply chain management (SCM) software
Radio frequency identification (RFID)
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Sourcing
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• Role in the supply Chain
Set of business processes required to purchase goods
and
services
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
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Sourcing
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• Role in the competitive strategy
Sourcingdecisions are crucial because they affect the level
of
efficiency and responsiveness in a supply chain
Outsource to responsivethird parties if it is too
expensive to develop their own
Keep responsive process in-house to maintain control
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Components of Sourcing Decisions
• In-house or outsource
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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
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Pricing
• Role in the supply chain
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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
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Pricing
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• 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
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Components of Pricing Decisions
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• Pricing and economies of scale
The provider of the activity must decide how to price
appropriately to reflect these economies of scale it
• Everyday low pricing versus high-low pricing
Different pricing strategies lead to different demand profiles that
the supply chain must serve
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Components of Pricing Decisions
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.
• 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 hasa negative
impact on profits
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Summary of Learning Objectives
• Describe key financial measures of firm performance
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.
• 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
• Define the key metrics that track the performance of the supply
chain in terms of each driver
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
