0. Supply Chain Drivers and Metrics
Spring, 2014
Supply Chain Management: Strategy, Planning, and Operation
Chapter 3
Byung-Hyun Ha

1. 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

2. 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
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

3. 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

4. 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

5. 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
Push vs. pull
Coordination and information sharing
Forecast and aggregate supply planning
Enabling technologies
EDI, Internet, ERP, SCM software, RFID
Information-related metrics

6. 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
Days payable outstanding
Average purchase price/quantity, range of purchase price
Fraction of on-time deliveries
Supply quality, lead time, reliability

7. 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
Profit margin
Days sales outstanding
Average sale price, order size
Range of sale price, periodic sales

8. Homework #2 Read and understand Case Study (until 3/27)
Seven-Eleven Japan Co.