Many companies face a challenge that seems to burden them with contradiction: how to reduce transportation and operations costs while increasing customer service levels. Designing the right global supply chain network provides a solution to both issues. Although there are many factors to consider when designing a supply chain network, with the right partner the process is not overly complicated. The key is to analyze your network across the entire supply chain spectrum from source to consumption. Unlike other firms that consider DC-to-store or DC-to-customer. Implementing an optimal network is especially beneficial to those companies who must effectively and efficiently consolidate two different networks prior to or following a merger, as well as those who are considering expanding into new territories. Organizations that put off designing a new network, or making improvements to an existing one due to perceived complexities or complications, are actually putting their competitive advantage at risk.
The supply chain strategic fit concept requires that companies achieve the desired responsiveness and efficiency in its supply chain that best meets their needs for a competitive strategy. The performance of a supply chain (responsiveness and efficiency) 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. A Framework for Structuring Supply Chain Drivers
Supply chain managers have to take research and development efforts to improve both responsiveness and efficiency of their supply chains on a continuous basis. In the past there were technological and managerial breakthroughs which can improve one of them without any deterioration in the other and also help improve in both dimensions simultaneously. Actual economic theory tells, new technologies (capital investments) are adopted for capital productivity. Capital productivity in the context of supply chains comes through improvement in responsiveness and efficiency. But at a certain point in time, there can be tradeoffs between responsiveness and efficiency. Hence supply chain designers come with supply chains that give various combinations of responsiveness and efficiency (responsiveness – efficiency frontier) and the optimal combination is chosen based on the competitive strategy considerations. Definition/Explanation of Four Drivers
1. Inventory: It consists of all raw materials; work in process, and finished goods within a supply chain. 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 result happens 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. 2. Transportation: It involves moving inventory from one point in the supply chain to another point. Numerous of decisions have to take in designing a supply chain regarding transportation. Mode of Transportation: Six basic modes exist as followed;
Air, Truck (Road), Rail, Ship, Pipeline, and even Electronic transportation (the newest mode for music, documents etc.) 3. 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.
4. Facilities: A facility is a place where inventory is stored, manufactured or assembled. Hence facilities can be categorized into production facilities and storage facilities. Facilities: Within a facility, inventory is either transformed into another state or stored, Facilities Related Decisions. Location, Capacity, Manufacturing Methodology or Technology, and Warehousing methodology. 5. Information: It consists of data and results of analysis regarding inventory, transportation, facilities, customer orders, customers, and funds. 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, and Enabling technologies. The concept of Supply Chain Management is based on two core ideas. The first is that practically every product that reaches an end user represents the cumulative effort of multiple organizations. These organizations are referred to collectively as the supply chain. The second idea is that while supply chains have existed for a long time, most organizations have only paid attention to what was happening within their “four walls.” Few businesses understood, much less managed, the entire chain of activities that ultimately delivered products to the final customer.
The result was disjointed and often ineffective supply chains. Supply chain management, then, is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities. The organizations that make up the supply chain are “linked” together through physical flows and information flows. Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain. But just as important are information flows. Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and material up and down the supply chain.
This visual represents the way that system chain network and system chain drivers work. The five steps are broken down as followed: Plan: A scheme or method of acting, doing, proceeding, making, etc., developed in advance: battle plans.
* Define performance metrics for materials and suppliers
* Establish suppliers’ performance metrics
* Engineer/reengineer processes
* Select appropriate procurement initiatives
* Draft some type of “plan”
Source: The person or business making interest or dividend payments and materials or suppliers.
* Identify suppliers
* Suppliers’ score carding
* Negotiate contracts integrate systems
Procurement: The act of obtaining equipment, materials, or supplies: For instance, the secretary of defense argued in favor of increasing the budget for procurement. * Generate orders from requirements, demands, forecast, and even budgets * Place orders electronically, receive confirmation, and advanced ship notices * Manage orders, consolidation
* Delivery/receipt of materials
Settle: To appoint, fix, or resolve definitely and conclusively; agree upon (as time, price, or conditions). * Reconcile receipt of material with order received, acceptance invoices: Vouchers for payment and/or rejected invoices * Issue electronic payment
Analyze: To separate (a material or abstract entity) into constituent parts or elements; determine the elements or essential features of (opposed to synthesize): Such as analyzing an argument. * Analyze spend (actual to plan)
* Generate suppliers’ performance data
* Identify procurement initiative opportunities
Marien, E. J. (March/April 2000). “The Four Supply Chain Enablers”, Supply Chain Management Review. In (pp. 60-68). Sunsil, C., Peter, M., & Prentice Hall. (2001). Supply Chain Management: Strategy, Planning and Operations.