In today’s dynamic business world, forward-thinking companies emphasize the applicability of supply chain management as a crucial element of overall business strategy. However, companies that desire an effective supply chain management must first have a crystal clear understanding of each driver and how it operates. Each driver has the ability to directly affect the supply chain and enable certain capabilities. Then the next step is to develop an appreciation for the results that can be obtained by mixing different combinations of these drivers. Let’s have a look here at these drivers individually.
Demand Planning- To influence and manage demand more efficiently, companies are now shifting their focus from plant-level production planning to demand-driven focus. In adopting a demand-driven model, it is very critical to decide what a firm is best at selling, making and delivering and align firm’s sales force according to that. Ultimately, this demand-driven approach can improve demand planning and management by creating a more customer-focused mindset. But to best achieve this, agreement among company’s internal stakeholders- sales, marketing, finance, product development etc. – upon a consensus demand plan is imperative.
Location-Decisions are related to which activities should be performed in each facility. Managers must decide whether to centralize activities in fewer locations to gain economies of scale and efficiency, or to decentralize activities in many locations close to customers and suppliers in order for operations to be more responsive. When making location decisions, managers need to consider a range of factors that relate to a given location including the cost of facilities, the cost of labor, skills available in the workforce, infrastructure conditions, taxes and tariffs, and proximity to suppliers and customers. Location decisions tend to be very strategic because they commit large amounts of money to long-term plans.
Inventory-Inventory is spread throughout the supply chain and includes everything from raw material to work in process to finished goods that are held by the manufacturers, distributors, and retailers in a supply chain. Holding large amounts of inventory allows a company or an entire supply chain to be very responsive to fluctuations in customer demand. However, the creation and storage of inventory is a cost and to achieve high levels of efficiency, the cost of inventory should be kept as low as possible. Toyota has worked hard to shorten new product and replenishment lead times. As a result, the company is very responsive and carries low levels of inventory.
Transportation– Movement of everything from raw material to finished goods between different facilities in a supply chain. In transportation the trade-off between responsiveness and efficiency is manifested in the choice of transport mode. Fast modes of transport such as airplanes are very responsive but also more costly. Slower modes such as ship and rail are very cost efficient but not as responsive. Since transportation costs can be as much as a third of the operating cost of a supply chain, decisions made here are very important. A mail-order catalog company can use a faster mode of transportation such as FedEx to ship products, thus making its supply chain more responsive, but also less efficient given the high costs associated.
Information- It is potentially the biggest driver of performance in the supply chain because it directly affects each of the other drivers. It is the connection between all of the activities and operations in a supply chain. To the extent that this connection is a strong one, (i.e., the data is accurate, timely, and complete), the companies in a supply chain will each be able to make good decisions for their own operations. This will also tend to maximize the profitability of the supply chain as a whole. Seven-Eleven Japan has used information to increase the responsiveness while also lowering cost.
Asprova is critical to identify, understand and measure how certain business drivers impact the supply chain and the company’s business growth. Our advanced planning and scheduling functions provide systematic, strategic coordination of planning, production, inventory, and information among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.
Photo credit: Flickr ©Scott Maxwell