Chapter 3 - Supply Chain Drivers

Chapter 3: Supply
Chain Drivers
SUPPLY CHAIN DRIVERS
THE FOUR PRIMARY DRIVERS OF SUPPLY CHAIN MANAGEMENT
1. Facilities
2. Inventory
3. Transportation
4. Information
ORGANIZATIONS USE THESE FOUR DRIVERS TO SUPPORT EITHER A SUPPLY CHAIN STRATEGY
FOCUSING ON EFFICIENCY OR A SUPPLY CHAIN STRATEGY FOCUSING ON EFFECTIVENESS
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
SUPPLY CHAIN DRIVERS
FACILITIES DRIVER
Facility – processes or transforms inventory into another product,

or it stores the inventory before shipping it to the next facility
Three primary facilities components
Location Capacity Operational design

FACILITIES 1: Location
Location efficiency – centralize the location to gain economies of scale, which increases efficiency
Location effectiveness – decentralize the locations to be closer to the customers, which increases effectiveness
FACILITIES 2: Capacity
Capacity efficiency – minimal excess capacity with

the ability to produce only what is required
Capacity effectiveness – large amounts of excess

capacity which can handle wide swings in demand
FACILITIES 3: Operational Design
Operational design efficiency – product focus design allows the

facility to become highly efficient at producing one single product,
increasing efficiency
Operational design effectiveness – functional focus design allows

the facility to perform a specific function on many different types of
products, increasing effectiveness
FACILITIES DRIVER
INVENTORY DRIVER
Inventory – offsets discrepancies between supply and demand
Inventory management and control – provides control and visibility to the

status of individual items maintained in inventory
Two primary inventory components
INVENTORY 1: CYCLE INVENTORY
Cycle inventory – the average amount of inventory held to satisfy customer
demands between inventory deliveries
Cycle inventory efficiency – holding small
amounts of inventory and receiving orders
weekly or even daily
INVENTORY 2: SAFETY INVENTORY
Safety inventory – extra inventory held in the event demand exceeds supply
Safety inventory efficiency – holding small

amounts of safety inventory
Safety inventory effectiveness – holding large

amounts of safety inventory
INVENTORY DRIVER
TRANSPORTATION DRIVER
TRANSPORTATION 1: METHOD OF TRANSPORTATION
The six primary transportation methods include: truck, rail, ship, air, pipeline, and
electronic
Method of transportation efficiency– choosing an Method of transportation effectiveness – choosing

inexpensive method of transportation increases an expensive method of transportation to ensure
efficiency, but also typically increases delivery time speedy delivery increases effectiveness
TRANSPORTATION 2: Transportation Route
Transportation planning – tracks and analyzes the movement of Distribution management – coordinates the process of
materials and products to ensure the delivery of materials and transporting materials from a manufacturer to distribution
finished goods at the right time, the right place, and the lowest cost centers to the final customer
Transportation route efficiency: Transportation route

a company can save money by effectiveness : a company
shipping its products to a
distributor that ships the can ship its products
products to its customers directly to its customers
TRANSPORTATION DRIVER
INFORMATION DRIVER
Information – an organization must decide how and what information it wants to share with its supply chain
partners
Two primary information components:
Push verses pull

Information sharing
strategy
INFORMATION 1: INFORMATION SHARING
Information sharing efficiency – freely share lots of information to increase the speed and decrease the
costs of supply chain processing
Information sharing effectiveness – share only selected information with certain individuals, which will
decrease the speed and increase the costs of supply chain processing
INFORMATION 2: PUSH VS. PULL INFORMATION STRATEGY
Pull information strategy (efficiency) – • Pull technology – pulls

supply chain partners are responsible
information
for pulling all relevant information
Push information strategy

effectiveness – organization takes on • Push technology – sends
the responsibility to push information information
out to its supply chain partners
INFORMATION DRIVER

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Chapter 3: Supply

Facility – processes or transforms inventory into another product,

Three primary facilities components

Location Capacity Operational design

Capacity efficiency – minimal excess capacity with

Capacity effectiveness – large amounts of excess

Operational design efficiency – product focus design allows the

Operational design effectiveness – functional focus design allows

Inventory – offsets discrepancies between supply and demand

Inventory management and control – provides control and visibility to the

Two primary inventory components

Safety inventory efficiency – holding small

Safety inventory effectiveness – holding large

Method of transportation efficiency– choosing an Method of transportation effectiveness – choosing

Transportation route efficiency: Transportation route

Two primary information components:

Push verses pull

Pull information strategy (efficiency) – • Pull technology – pulls

Push information strategy

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