Supply Chain Management 4th edition

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Chapter 3 Supply Chain Drivers and Metri
Inventory exists in the supply chain because of a mismatch between supply and demand. An important role that inventory plays in the supply chain is to increase the amount of demand that can be satisfied by having product ready and available when the customer wants it. Another significant role inventory plays is to reduce cost by exploiting any economies of scale that may exist during both production and distribution. Inventory is spread throughout the supply chain from raw materials to work in process to finished goods that suppliers, manufacturers, distributors, and retailers hold. Inventory is a major source of cost in a supply chain and it has a huge impact on responsiveness. The location and quantity of inventory can move the supply chain from one end of the responsiveness spectrum to the other. Inventory also has a significant impact on the material flow time in a supply chain. Another important area where inventory has a significant impact is throughput. Inventory and flow time are synonymous in a supply chain. Managers should use actions that lower the amount of inventory needed without increasing cost or reducing responsiveness, because reduced flow time can be a significant advantage in a supply chain.
Transportation moves product between different stages in a supply chain. Like the other supply chain drivers, transportation has a large impact on both responsiveness and efficiency. Faster transportation, whether in the form of different modes of transportation or different amounts being transported, allows a supply chain to be more responsive but reduces its efficiency. The type of transportation a company uses also affects the inventory and facility locations in the supply chain.
Information could be overlooked as a major supply chain driver because it does not have a physical presence. Information, however, deeply affects every part of the supply chain. Its impact is easy to underestimate as information affects a supply chain in many different ways. Information serves as the connection between the supply chain’s various stages, allowing them to coordinate and bring about many of the benefits of maximizing total supply chain profitability. Information is also crucial to the daily operations of each stage in a supply chain. For instance, a production scheduling system uses information on demand to create a schedule that allows a factory to produce the right products in an efficient manner. A warehouse management system uses information to create visibility of the warehouse’s inventory. The company can then use this information to determine whether new orders can be filled.
Difficulty: Hard

  1. Explain the role of each of the major drivers of supply chain performance in the competitive strategy.

Answer: Facilities and their corresponding capacities to perform their functions are a key driver of supply chain performance in terms of responsiveness and efficiency. For example, companies can gain economies of scale when a product is manufactured or stored in only one location; this centralization increases efficiency. The cost reduction, however, comes at the expense of responsiveness, as many of a company’s customers may be located far from the production facility. The opposite is also true. Locating facilities close to customers increases the number of facilities needed and consequently reduces efficiency. If the customer demands and is willing to pay for the responsiveness that having numerous facilities adds, however, then this facilities decision helps meet the company’s competitive strategy goals.

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