Drivers of Supply Chain Performance

The performance of a supply chain is determined by decisions in the areas of inventory, transportation, facilities and information. Hence these four areas are identified as drivers of supply chain performance.

Definition/Explanation of Four Drivers

1. Inventory: It consists of all raw material, work in process, and finished goods within a supply chain.
2. Transportation: It involves moving inventory from one point in the supply chain to another point.
3. Facilities: A facility is a place where inventory is stored, manufactured or assembled. Hence facilities can be categorised into production facilities and storage facilities.
4. Information: It consists of data and results of analysis regarding inventory, transportation, facilities, customer orders, customers, and funds.

Inventory

Inventory is maintained in the supply chain because of mismatches between supply and demand.

Types of inventory based on reasons for keeping them:

• Cycle inventory: This results due to producing or buying larger lots to minimize acquisition costs related to processing each purchase order or production order.
• Safety Inventory:  It is held to counter against uncertainty or variability of demand.
• Seasonal Inventory: It is  inventory maintained to satisfy higher demands in a period compared to production capacity. It arises due to the decision to service predicted variability in demand through extra production during slack period or low demand periods.

Increasing inventory gives higher responsiveness but results in higher inventory carrying cost.

Transportation

Number of decisions have to taken in designing a supply chain regarding transportation.

Mode of Transportation: Six basic modes exist

•  Air

• Truck (Road)
• Rail
• Ship
• Pipeline
• Electronic transportation (the newest mode for music, documents etc)

Route and Network Selection

Network is a set of facilities or destinations which can be used for transportation of goods. Route is a specific selection of facilities or destinations through which goods move.

Own Transport or Outsourced Transport

Facilities

Within a facility, inventory is either transformed into another state or stored.

Facilities Related Decisions

•  Location

• Capacity
• Manufacturing Methodology or Technology
• Warehousing methodology

Information

Issues related to Information

• Push Process Information and Pull Process Information
• Coordination and information sharing across various facilities in the supply chain.
• Forecasting
• Aggregate Planning
• Enabling technologies

References

Sunil Chopra and Peter Meindl, Supply Chain Management: Strategy, Planning and Operations, Prentice Hall, 2001.

Marien, Edward J. "The Four Supply Chain Enablers," Supply Chain Management Review, March/April 2000, pp. 60-68

Originally posted in Knol (1351)