Supply Chain Performance
Supply Chain Performance
Supply Chain Performance
• Facilites are the actual physical locatons in the supply chain network
where product is stored, assembled or fabricated.
• The two major types of facilites are producton sites and storage sites.
• Decisions regarding the role, locaton, capacity and fexibility of facilites
have a signifcant impact on supply chain’s performance.
• For instance, an auto parts distributor striving for responsiveness could
have many warehousing facilites located close to customers even
though this practce reduces efciency.
• Alternatvely, a high efciency distributor would have fewer warehouses
located at key locatons to increase efciency despite the fact that this
practce will reduce the responsiveness.
• Facilites play important long term role in success of a company.
INVENTORY
• Pricing determines how much a company will charge for goods and
services that it makes available in the supply chain.
• Pricing afects the behavior of the buyer of the goods or service thus
afectng the supply chain.
• If a transportaton company varies its charges based on the lead tme
given by the customer for shipment, it is likely that customers who value
efciency will order early at a lower cost.
• Customers value responsiveness and are willing to wait and will order
just before they need the product, even at a higher shipping cost.
• Some markets are price sensitve to a high degree. The supply chain
strategy will have to be formulated accordingly by being more efcient
even at the cost of responsiveness.
SUPPLY CHAIN PERFORMANCE
• Variety is typically low and big retailers like Wal-Mart stock large
inventory of fnished goods. The low variety and stable replenishment
orders allow furniture manufacturers in Asia to focus on efciency .
• Given sufcient inventory levels available at retailers, low-cost modes of
transportaton from Asia are used for sending furniture to US. In this
way relatvely low cost inventory at the retailer allows the supply chain
to become efcient by lowering transportaton and producton costs.
• In contrast, some US furniture makers choose to focus on providing
variety . Given the large variety and range, keeping inventory of all
variants at a retailer would be very expensive.
• So the supply chain is designed such that the retailer carries very litle
inventory of fnished furniture.
SUPPLY CHAIN PERFORMANCE
• Customers visit and place orders with the retailer by seeing one variant
of the furniture available with the retailer and selectng their preferred
choice from the catalog where many optons are available
• The supply chain is made responsive by giving customer wide choice to
suit requirement/taste . Also informaton technology is used to convey
order informaton efectvely, structuring very fexible manufacturing
facilites to be able to produce in small lots. Simultaneously responsive
transportaton mode is used to deliver the furniture in least transit
tme.
• In the above example fexible manufacturing, responsive transportaton
and informaton are used to achieve lower inventory costs. The
customer segment is willing to bear high cost for getng specifc choice.
FRAMEWORK FOR STRUCTURING DRIVERS
• Going to the next stage, the supply chain strategy is chosen which fts
with and compliments the compettve strategy.
• The supply chain strategy determines how the supply chain should
perform with respect to efciency and responsiveness – and the
weightage to be given at diferent stages.
• Interplay of the logistcal and cross-functonal drivers are used to reach
the performance levels dictated by supply chain strategy in order to
maximise the profts.
• Although this framework is generally viewed from top down, in many
instances, a study of the 6 drivers may indicate a need to change the
supply chain and potentally even the compettve strategy.
FRAMEWORK FOR STRUCTURING DRIVERS
• Flexible capacity can be used for many types of products but is ofen less
efcient. A dedicated facility can be used for only a limited number of
products but is more efcient.
• Firms must also decide whether to design a facility with a product focus
or a functonal focus. A product focus facility performs many diferent
functons ( fabricaton, assemblyn in producing a single type of product.
A functonal focused facility performs few functons ( only fabricaton/
moulding or only assembly non many types of products .
• A product focus tends to result in more expertse about a partcular
type of product at the expense of the functonal expertse.
FACILITIES
• For warehouses and DCs, frms must decide whether they will be
primarily cross-docking facilites or storage facilites. At cross-docking
facilites , inbound trucks from suppliers are unloaded, the product is
broken into smaller lots and is quickly loaded into store bound trucks.
• Each store bound truck carries a variety of products, some from each
in-bound truck. For storage facilites, frms must decide on the products
to be stored at each facility, locaton etc.
CAPACITY
• FLOW RATE EFFICIENCY: is the rato of theoretcal fow tme to the actual
average fow tme.
• PRODUCT VARIETY: measures the number of products/ product families
processed in a facility. Processing costs and fow tmes are likely to
increase with product variety.
• PROCESSING/SETUP/DOWN/IDLE TIME: measures the fracton of tme
that the facility was processing units or being setup to process units or
was unavailable because it was down, idle because it had no units to
process .
• AVERAGE PRODUCTION BATCH SIZE: measures the average amount
produced in each batch. Large batches decrease producton costs.
OVERALL TRADE-OFF