Let us now learn more about drivers and obstacles in supply chain management
Facilities, inventory, transportation and information are the four major drivers of the supply chain. The performance of any supply chain can be measured on the basis of the drivers that run it.
Role played by major drivers in achieving a strategic fit
We know that in order to achieve a strategic fit, a company needs to balance its efficiency with responsiveness in its supply chain so as to suit its competitive strategy. Thus, in order to keep a check on this balance, a company needs to analyse the performance of the drivers of its supply chain i.e. the facilities, inventory, transportation and information, as this would also help the company to know how and when it has achieved the strategic fit.
Major drivers of any supply chain
- Facilities (for example, Production unit)
- Inventories (for example, Stock of goods)
- Transportation (for example. Modes and Routes)
- Information (for example, Customer demand
Decision making in a Supply Chain
In order to take a decision in a supply chain, we need to have a framework within which the supply chain needs to exercise itself in order to achieve a strategic fit. This framework can be called ‘the supply chain decision making framework’.
The above supply chain decision making framework depicts a framework for structuring the drivers. From the first unit onwards it has been our endeavour to ieam how a company needs to act in order to achieve a strategic fit along with its competitive strategy. Later, we learnt that this can be achieved by keeping a balance between two major essentials which are responsiveness and efficiency. To achieve this goal the company utilises the above four major drivers. After exercising these drivers with respect to responsiveness and efficiency, the combined effect of these drivers together help in determining the supply chain responsiveness and efficiency.
Moreover, we are going to study in detail the different decisions that a supply chain manager needs to take with respect to each driver. Thus we shall stress on,
- Role played by a driver in the supply chain: Facilities can be defined as the location to or from which inventory transported .It is within a facility that the inventory is either transformed into another state or manufactured. Also, it is the location where goods are stored (warehousing) before being shipped to the next stage.
- Role played by a driver in competitive strategy: The facilities should be flexible. It is this flexibility in terms of its capacity to perform functions that is the key driver of supply chain performance in terms of responsiveness and efficiency. For example, if a company increases its capacity of production, and produces a greater quantity in a single location, then it can achieve economies of scale and thereby increase its efficiency both in terms of quantity produces and costs. However, it is known that responsiveness comes at a cost.
- Components of decision making: The components of facilities decisions are nothing but factors that must be analysed by a company before coming up with a facility. The following factors should be kept in mind and analysed by a company before coming up with a facility,
- Location
- Capacity
- Operations methodology
- Warehousing methodology
Inventory Management
We are going to study the role that inventory plays in supply chain and how the managers use inventory to drive the supply chain. Existence of inventory is because of the mismatch between the supply and demand. Such a mismatch exists in industries where it is economical for them to produce in lots or where companies need to stock goods in anticipation of future demand. Inventory is important because it can readily satisfy the demand of the customers by having the product ready.
Role played by inventories in the competitive strategy
The inventory plays a significant role in a supply chain’s ability to perform well. It helps a company to be responsive or efficient. If a company possesses a competitive strategy to be more responsive then it can locate its inventories close to its customers.
Component of inventory decisions
- Cycle inventory
- Safety inventory
- Seasonal inventory
- Sourcing
Problems faced by a facilities manager
The basic problems that managers come across while making decisions is between the cost of the number, location and type of facilities and the level of responsiveness that these facilities provide the company’s customers.
Transportation
Role of transportation in the supply chain
Transportation moves a product between different stages in a supply chain, and has a great impact on the efficiency and responsiveness of a supply chain. Quick transportation of goods through various modes or different quantities increases the responsiveness however lowers the efficiency.
Role of transportation in competitive strategy
The role played by transportation in a company’s competitive strategy comes into effect prominently when the company considers the targeted customer’s demands. If a company’s competitive strategy is to be more responsive to its customer’s and if the customer’s are willing to pay for it, then the company needs to be highly responsive.
The role played by transportation in a company’s competitive strategy comes into effect prominently when the company considers the targeted customer’s demands. If a company’s competitive strategy is to be more responsive to its customer’s and if the customer’s are willing to pay for it, then the company needs to be highly responsive.
Components of transportation decisions
- Mode of Transportation
- Selection of routes and network
- In house or outsourcing
Information
Role played by information in a supply chain
Information has no physical presence, unlike facilities, transportation and inventory. It has no physical presence, and yet this driver plays an important role in the supply chain and thus its value to the supply chain must not be underestimated.
The information as a driver of the supply chain plays a very important role in the proper functioning of the supply chain and this can be explained with the help of the following reasons:
- Information is collected at each and every stage of the supply chain, this information is very vital as it helps the supply chain to rectify itself at any of the stages and helps the supply chain to reconfigure itself, thereby maximising the supply chain profitability.
- The day-to-day operation of any facility requires proper analysis of the information available so that production schedules can be made. The information that is available helps the company to produce on time, maintain a good inventory and also provide.
Role played by information in the competitive strategy
Information, as a driver has much importance in companies nowadays. This is because it is the information that a company has, that helps it to decide whether or not a company needs to be more responsive or efficient and thereby have a profitable supply chain. Information is an important driver as it helps to reduce costs and improve responsiveness within a supply chain.
Components information decisions
The key components of information as a driver of supply chain, which have to be analysed by managers thoroughly before taking any decision. These components are as follows,
- Push versus pull
- Forecasting & proper planning
- Information sharing & co-ordination
- Pricing & managing revenue
- Technology
Obstacles in Strategic Fit Achievement
In order to achieve a strategic fit, a company needs to strike a balance between efficiency and responsiveness. In its endeavour to achieve this strategic fit, the company needs to understand what the customer wants, on the basis of which the company should place itself on the responsiveness spectrum.
The obstacles are becoming dynamic creating more difficulties for companies to create a proper balance. On the other hand they have also helped the companies with increased opportunities to improve on the supply chain management. Thus, managers have to play a very important role in tackling these obstacles in order to turn it to an advantage and in turn increase the profitability of their supply chain. Obstacles can be of various types some of which are as under:
- Increase in product variety: The demand of customers has been continuously increasing. There has been a continuous increase in the demand for customised products.
- Increase in demanding customers: ‘Customer is King’ in today’s world. There has been an increase in the number of customers who constantly demand improved services like timely delivery, cost, product performance, discounts and shorter lead times.
- Smaller product lifecycles: With the increase in the number and types of products demanded, there has been a decrease in the life cycles of a large number of products. Today, there are products whose lifecycles can be measured in terms of months, like mobile phones and computers unlike products that would remain in the market for years and years.
- Effect of globalisation: The removal of trade restrictions by various governments has enabled increased Global Trade. The effects of globalisation on supply chains have been tremendous and have also provided supply chains a broader environment to work in. Firstly, globalisation
- Difficulty in execution of strategies: The creation of a successful supply chain strategy is not very easy. The formulation of the strategy may be easy; however the execution of this strategy is most difficult. The successful execution of a supply chain strategy involves the skillful ability of employees and managers at each and every level of the organisation.
It is observed that these obstacles make it more difficult for any company to achieve a strategic fit by creating a balance between responsiveness and efficiency in the supply chain.
