To understand how a company can improve supply chain performance in terms of responsiveness and efficiency, we must examine the four drives of supply chain performance facilities, Inventory, Transportation and Information. These drivers not only determine the supply chain’s performance in terms of responsiveness and efficiency, they also determine whether the supply chain strategy is fit or not.
I. Facilities:
These are the places in the supply chain network where the product is stored, assembled or fabricated. The two major types of facilities are production sites and storage sites.
Whatever the function of facility, decisions regarding the location, capacity and flexibility of facility have a significant impact on the supply chain’s performance. A high efficiency distributor would have fewer warehouses to increase efficiency despite the fact that this practice will reduce responsiveness.
II. Inventory:
It includes all raw materials, work-in- progress (WIP) and finished goods within a supply chain. Inventory is an important supply chain driver because changing inventory policies can dramatically alter the supply chain’s efficiency and responsiveness. For example a clothing retailer can make itself more responsive by stocking large amount of inventory.
ADVERTISEMENTS:
With a large inventory, the like-hood is high that the retailer can immediately satisfy customer demand with cloths from its floor. A large inventory will increase the cost and reducing inventory make the retailer more efficient but will hurt its responsiveness.
III. Transportation:
It entails moving inventory from point to point in the supply chain, transportation can take the form of any combinations of modes and routes, each with its own performance characteristics. Transportation choices have a large impact on supply chain responsiveness and efficiency.
For example, a mail order catalogue company can use a faster mode of transportation to ship products, thus making their supply chain more responsive but less efficient given the high costs. Or the company can use slower but cheaper ground transportation to ship the product, making the supply chain efficient but limiting its responsiveness.
IV. Information:
It consists of data and analysis concerning facilities, inventory, transportation and customers throughout the supply chain. Information is potentially the biggest driver of performance in the supply chain as it directly affects each of the other drivers.
ADVERTISEMENTS:
Information presents management with the opportunity to make supply chain more responsive and efficient. For example, with information on customer demand patterns, a pharmaceutical company can produce and stock drugs in anticipation of customer demand, which make the supply chain very responsive because customer will find the drugs they need when they need them.
This demand information can also make the supply chain more efficient because the pharmaceutical firm is better able to forecast demand and produce only the required amount. Information can also make this supply chain more efficient by providing managers with shipping options, that allow them to choose then lowest cost alternative while still meeting the necessary service requirements.
In Fig. (3.9) Supply-chain decision making framework on the basis of above four drivers has been shown:
