Tutorial 3

Chapter 3 – Supply chain drivers and metrics

1. Are there any exceptions to the claim that sourcing decisions are always an
important factor affecting the supply chain performance for all industries?
- No, there are no exceptions as sourcing decisions are always an important
element affecting the performance of the supply chain for all industries.
Sourcing relates to the supplier's choice and it is the factor that determines
who performs a particular function within the supply chain. In other words,
sourcing decisions also determine whether a firm performs all activities itself
or if it outsources them. Consequently, sourcing decisions significantly affect
both the responsiveness and the efficiency of a supply chain.
- Sourcing  go, find and search is there any supplier that can supply you
(usually you search overseas, to get cheaper price, best quality, etc.)
o Sourcing is not only one supplier but many

2. The flow of information is becoming increasingly important in supply chain

management. Describe the key effects of information on supply chain
performance in terms of responsiveness and efficiency with reference to the
logistics industry.
- In the logistics industry, a lot of valuable information, especially real-time
cargo (goods) tracking data, can be obtained from facilities, inventory,
transportation, and customers throughout the supply chain. Information can be
the most important driver of performance in logistics operations and it affects
all the other supply chain drivers directly. Moreover, information presents
management with opportunities to make the supply chain more responsive as
well as more efficient.
- Information flow = you get the important and valuable message (that useful) –
ex. customer demand
- Real-time movement is good

3. Discuss the following proposition with reference to an automobile garage that

handles maintenance and repair: “Modal choice decisions could improve the
responsiveness of the supply chain performance.”
- Modal choices refer to the selection of transportation modes that help to move
inventory from one place to another within the supply chain. As a result, the
modal decision has a significant impact on supply chain performance in terms
of responsiveness. In the case of an automobile garage (car workshop), a
shorter transit time will definitely improve the responsiveness of the supply
chain because auto parts can be obtained within a shorter period of time. It can
also significantly reduce the inventory level as the garage does not need to
stock many different inventories because of the shorter transit time.
- Mode of transportation: road (land – for truck), air, sea, rail, pipeline (usually
for petroleum and natural gas)
4. “Price decisions only affect buyers’ behavior and not the responsiveness of the
supply chain.” Comment on this statement with reference to shipping logistics.
- Pricing determines how much should be charged for goods and services that
are made available in the supply chain, and, hence, it will change the behavior
of buyers of those goods and services. It will also finally determine demand
and the supply chain's performance. Differential pricing can lower costs for
customers who value efficiency (getting their goods as soon as possible) and
improve responsiveness to customers who value it. Changes in pricing does
affect revenues but it can also affect costs based on the impact of this change
on the other drivers.

5. Consider a retailer like Marks & Spencer (M&S), which is outsourcing parts of its
delivery services to a logistics provider. When should such a company choose to
operate its own account operation to provide delivery services?
- Whether to outsource or run its own operation is a typical question for any
company. Different operations will affect the level of efficiency as well as
responsiveness, Clearly, running its own operation would most likely increase
M&S's responsiveness as it would maintain absolute control. However,
efficiency may be lower than that of professional freight forwarders. Sourcing
decisions should be made with reference to the total supply chain surplus that
is, M&S should choose to run its own operation when in-house delivery
services can provide the whole supply chain with greater surplus.
- Outsourcing  hire people from outside to do it

6. What would be the effects of high-low pricing adopted by a supermarket chain on

supply chain performance?
- Many supermarkets adapt high-low pricing techniques and offer discounts on
select products to promote sales. This pricing will therefore boost the sales
volume during the promotion period and create a peak demand, but that will
then be followed by a steep drop in demand afterwards. Hence, they would
need to build extra inventory before the sales promotion to meet the peak
demand while preparing for the significant reduction in demand later.

7. Identify examples of industries in which product customization by the end

customer has proliferated while still maintaining short lead times and competitive
pricing. How have the supply chains in these industries adapted to deliver such
products?
- Production customization allows the and customer to select a variety of
product features or functions at the point of sale, thereby creating a unique
product to suit their specific preferences and requirements. Industries that
offer such services include vehicle manufacturers, electronics manufacturers,
modular kitchen manufactures, and manufacturers of personalized its ranging
from clothing to calendars.
- The supply chain must adapt in order to deliver customized products (look at
local preferences – ex. MCD have porridge in some country only) within a
reasonable timeframe and at an affordable price (remember that one-off
 products (customized product) are generally associated with long lead times
and high price tags). Modular design and common components minimize the
need to store large quantities of inventory with products assembled to order
after an order is received. This, in tum, results in relatively large and stable
orders which brings efficiency to supplier sourcing.
- Single, rather than multiple, suppliers can be sourced, which allows for
reduced costs through economics of scale. Investing in information
technology means that the supply chain can be more responsive to customer
needs. Distribution centers, retail outlets, and transportation decisions focus
on improving responsiveness to keep lead times down. With a partnership
approach, the supply chain uses the drivers to balance responsiveness and
effectiveness in order to deliver customized products at reasonable prices
quickly.

8. How can the full set of logistical and cross-functional drivers be used to create
strategic fit for a furniture manufacturer, specializing in kitchen cabinetry,
targeting both time-sensitive and price-conscious customers?
- A combination of the three logistical driver facilities, inventory, and
transportation— and the three cross-functional drivers information, sourcing,
and pricing must be optimized in order for the manufacturing supply chain to
achieve strategic fit. While making changes to one driver, the knock-on effect
that decision has on the remaining five drivers must be taken into account.
Balancing all six drivers is required to ensure optimum efficiency and
responsiveness along the overall supply chain.
- The kinds of trade-off decision that have to be made are summarized in the
table below:

- To remain competitive, a furniture manufacturer must deliver their products

within a reasonable time and at an affordable price. Depending on their
customer base and retail model, manufacturing plants should create a balance
between being responsive and remaining efficient at the same time. Stocking
too much inventory should be avoided due to its negative impact on costs.
However, care should be taken not to experience stockouts and, consequently,
low responsiveness. Again, transport should enable responsiveness without
being costly. Investing in the right information technology can greatly
improve responsiveness and efficiency without costing too much. A trade-off
 between cost-effective suppliers who may not be in a position to meet your
responsiveness requirements and responsive suppliers who may not be cost
effective has to be made. Pricing strategies are critical to maintain demand
and ensure profitability.
- These trade-offs across drivers afford more flexibility but require constant
vigilance as the trade-offs within each driver change. In addition, it might be
easier to alter some drivers, such as order quantity and transportation media,
than other drivers, like location and sourcing.
- Trade-off: you can’t have both, need to choose one

9. To improve its profit margins, which supply chain drivers should a firm focus on?
- The profit margin is one of the key financial metrics of firm performance. A
firm's profit margin is the difference between their incoming and outgoing
revenue. To improve their profit margin, a firm must work towards reducing
expenses incurred in the supply chain and increasing income. In terms of
supply chain drivers, all six are interlinked, so all of them have an impact on
the profit margin. Some, however, have a greater impact on profit margins
than others such as transport, inventory, and pricing.
- In the case of a multinational manufacturer, outbound transport may represent
a significant expense. Therefore, the firm should not only focus on reducing
this expense but also on maintaining the desired responsiveness. Inventory is
another area where firms can incur huge expenses. Balancing this cost against
responsiveness is a challenge. In simple terms income can be reduced by
receiving better prices from the customer. To do so the customer must
perceive the product/service to have great value. For example, an
improvement in responsiveness may enable an increase in price to take place.
At all times, the customer's demands must be met.

10. Discuss the role of supply chain drivers to improve a firm’s asset turnover. Refer
to the key components of asset turnover to support your answer.
- Measuring a firm's asset turnover enables a company to determine how well it
is using its assets to generate sales income. The asset turnover metric takes a
number of key components into account including the accounts receivable
turnover (ART); inventory turnover (INVT), and property, plant, and
equipment turnover (PPET). A good asset turnover implies that assets are
being used in the most efficient way possible to maximize sales income. Of
the six supply chain levers, inventory, facilities, and information can support a
firm in improving its asset turnover. The inventory lever can be used to assist
a firm turn over its inventory quicker. Sales income can be improved using the
facilities and information levers.
- For example, warehousing facilities should be used in such a way that sales
orders can be met in a timely fashion. Investing in information technology
increases the accuracy of sales forecasts, which enables demand to be met and
therefore causes an increase in sales income. Where there is a decrease in
sales figures, the warehousing and technology infrastructure can be scaled
back using the inventory, warehousing, and information levers. These levers
can support a firm and optimize its asset turnover.