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Supply Chain Drivers and Metrics
Spring, 2014
Supply Chain Management:
Strategy, Planning, and Operation
Chapter 3
Byung-Hyun Ha
Introduction
 Achieving strategic fit to competitive strategy
 Supply chain must balance between responsiveness and
efficiency
 Drivers (determinants) of supply chain performance
 Logistical drivers
• Facilities (where), inventory (what), transportation (how)
 Cross-functional drivers
• Information, sourcing, pricing
 Example: Wal-Mart
 Competitive strategy
• reliable and low-cost for a wide variety of mass-consumption goods
 Structuring drivers
• Centrally located DCs, low level inventory by cross-docking, own fleet
• High information utilization, economies of scale, EDLP
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Facilities
 Role in supply chain & competitive strategy
 Components of facilities decisions
 Role
• Product-focus vs. functional-focus
• Storage vs. cross-docking
 Location
 Capacity
 Facility-related metrics
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Capacity, utilization
Product variety, production cost per unit
Flow/cycle time of production, flow time efficiency
Volume contribution of top 20 percent SKUs and customers
Processing/setup/down/idle time, quality losses
Average production batch size, production service level
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Inventory
 Role in supply chain & competitive strategy
 Inventory types
• Raw material, work in process, finished goods
 Resolving mismatch between supply and demand
 Impact on material flow time, heavily
• I = DT (Little’s law)
• where I -- inventory, T -- flow time, D -- throughput
 Components of inventory decisions
 Cycle inventory
 Safety inventory, level of product availability
 Seasonal inventory
 Inventory-related metrics
 Average inventory, average inventory turns, fill rate, ...
 Cash-to-cash cycle time
3
Transportation
 Role in supply chain & competitive strategy
 Balance with inventory and transportation
 Components of transportation decisions
 Design of transportation network
 Choice of transportation mode
• Air, truck, rail, sea, pipeline, electronic transportation
 In-house or outsource
 Transportation-related metrics
 Average inbound transportation cost, shipment size
 Average outbound transportation cost, shipment size
 Fraction transported by mode
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Information
 Role in supply chain & competitive strategy
 Connection between the various stages in the supply chain
• Allowing coordination between stages
• e.g., airlines
 Crucial to daily operation of each stage in a supply chain
• e.g., production scheduling, inventory levels
 Components of information decisions
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Push vs. pull
Coordination and information sharing
Forecast and aggregate supply planning
Enabling technologies
• EDI, Internet, ERP, SCM software, RFID
 Information-related metrics
5
Sourcing
 Role in supply chain & competitive strategy
 Supplier selection: single vs. portfolio
 Contract negotiation
 Components of sourcing decisions
 In-house vs. outsource
 Supplier evaluation and selection
 Procurement
• Direct material vs. MRO
 Sourcing-related metrics
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Days payable outstanding
Average purchase price/quantity, range of purchase price
Fraction of on-time deliveries
Supply quality, lead time, reliability
6
Pricing
 Role in supply chain & competitive strategy
 Determining customer segments (level of responsiveness)
 Matching demand and supply
• e.g., short-term discount, EDLP
 Components of pricing decisions
 Pricing and economies of scale
 Everyday low pricing vs. high-low pricing
 Fixed price versus menu pricing
 Pricing-related metrics
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Profit margin
Days sales outstanding
Average sale price, order size
Range of sale price, periodic sales
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Homework #2
 Read and understand Case Study (until 3/27)
 Seven-Eleven Japan Co.
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