Supply Chain Drivers and Metrics

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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

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