Supply Chain Performance Drivers - Supply Chain Management, Logistics Management Video Lecture | Logistics Management - B Com

Effective supply chain
management is the result of a
combination of choices involving
a number of underlying variables
or drivers.
Decisions affecting any of these
drivers have an impact on the
supply chain, its effectiveness,
and its alignment with the
company's overall goals.
There are five main drivers of
supply chain management:
production, inventory, location,
transportation,
and information.
Production is the creation and
storage of a product.
It's an important factor in
supply chain management because
it determines how long it'll
take for a product to be created
and helps businesses to
determine their timelines.
Inventory comprises finished
goods and in-progress materials
held by a company or supplier.
Having a good sense of inventory
helps companies plan their
production requirements and meet
customer demand quickly and
effectively.
Inventory is relevant to all
aspects of the supply chain.
Location refers to where the
supply chain facilities are.
The selection of a location is
influenced by several factors.
These include the availability
of raw materials,
a skilled workforce, and the
required infrastructure.
Other factors include location
of markets and customers,
local tax policies and
incentives,
and an organization's own
strategic preferences.
Choosing the right location
enables companies to create
efficient and cost-effective
strategies for creating and
delivering products to their
customers.
Transportation is the act of
moving a product from one
location to another.
The form of transportation a
company uses is an important
consideration.
It can determine costs of
shipping.
This can either help companies
to save money or cause them to
lose money, depending on their
decisions.
Information implies knowledge
gained in order to make
decisions.
Information is the vital link
between all of the drivers.
It allows companies to make
educated decisions concerning
all relevant areas of business.
Information assists in the
coordination of business
functions, as well as in the
early stages involved in
planning.
When considering the production
driver,
companies have to decide how
much capacity they want their
warehouses and factories to
have.
This then determines the type of
supply chain they implement.
A company with excess capacity
is able to respond quickly to
sudden increases in demand.
However, if there's no increase
in demand,
the company wastes money on
unused capacity.
A company that trims its
capacity so that it's aligned
closely with customer demand can
reduce its costs.
No money is wasted on unused
capacity.
However, this company may not be
able to respond efficiently to
increased demand.
Inventory is the second driver
that companies must consider.
They must have enough inventory
to meet orders.
However, if they have too much
inventory,
they end up paying to store
supplies and goods that they
don't need.
Cycle inventory is the inventory
needed to meet customer demand.
Safety inventory is buffer
stock,
to prepare for unexpected
increases in demand.
And seasonal inventory is extra
stock ordered for expected
increases in demand.
Balancing the needs to meet
customer demand and reduce
inventory costs is a major
challenge when implementing a
supply chain management
strategy.
Now, let's try an exercise.
Match each type of inventory
with an example of it in a
clothing factory.
On this side we have the
options: A - Cycle inventory.
B - Safety inventory.
C - Seasonal inventory.
And, on this side we have the
targets: 1 - Jackets produced to
meet customer orders.
2 - Skirts produced to protect
against delays in deliveries.
3 - Extra beach wear produced
for the summer market.
Take a moment, to find the right
connections.
And we are going to review
together.
Cycle inventory is used to meet
regular,
expected customer demand.
Jackets produced to meet regular
customer demand are an example
of this.
Safety inventory is extra stock
used to protect against sudden,
unexpected spikes in demand or
delays with suppliers.
Seasonal inventory is extra
stock produced to cope with
expected increases in customer
demand.
Extra beach wear in summer and
extra rain wear in winter are
examples of seasonal inventory.
Location is the third supply
chain driver.
Companies want to choose
cost-effective locations for
their facilities.
A well-placed facility enables a
company to put in place an
effective supply chain.
They also have to consider the
availability of a local
workforce.
And they need to take into
account where their customers
are located.
If the customers are far away,
companies are likely to face
high delivery expenses.
Transportation is the next
supply chain driver.
The faster the transport used,
the quicker companies can
respond to customer orders.
For example, airplanes are a
very fast mode of transport.
However, they're also very
expensive.
Slower transport methods include
rail,
sea, and road.
Although these methods are
cheaper than transporting goods
by air, they may not allow you
to meet customer demands on
time.
Information is the final supply
chain driver.
It links the other four drivers
together.
An effective supply chain
depends on an efficient flow of
information.
Companies need information in
order to coordinate the
different activities of the
supply chain.
They can then use this
information to plan future
activities.
When implementing their supply
chain management strategies,
companies must consider how much
information they need,
when they need it, how
efficiently they can get it,
and how much it will cost.
So, what then are the key
drivers of supply chain
management?
1 - Production.
2 - Ownership.
3 - Inventory.
4 - Location.
5 - Information.
6 - Transportation.
7 - Currency.
What do you think?
Let us see Option 1: This option
is correct.
Being aware of the demand for
its product will put a company
in a good position to know how
much capacity their facilities
should have in order to meet
customer demand.
Option 2: This option is
incorrect.
While ownership can affect
several business practices,
it's not integral to any links
in supply chain management.
Option 3: This option is
correct.
Companies must have a level of
inventory that enables them to
meet customer demand while also
minimizing inventory costs.
Option 4: This option is
correct.
Location is a major driver
because companies need to know
where their resources,
employees,
and customers are located.
Option 5: This option is
correct.
Information is a key driver that
links all other drivers.
Companies need information to
coordinate current activities
and plan future activities.
Option 6: This option is
correct.
Companies need to consider
various modes of transportation,
including trucks, trains, and
planes,
in order to figure out how fast
products need to be shipped and
at what price.
Option 7: This option is
incorrect.
While location can be important,
the effect of currency is not a
driving force behind supply
chain management.
Carefully managing the supply
chain enables companies to
efficiently meet their
customers' demands.
A supply chain comprises the
suppliers of raw materials,
the factory, the warehouse, the
store,
and the consumer.
A successful supply chain
management strategy helps a
company to reduce its
operational costs.
And it leads to greater
coordination with all the
elements of the supply chain.
This in turn leads to increased
customer satisfaction.
The five drivers of supply chain
management are production,
inventory, location,
transportation,
and information.
In the next section you are
going to learn about the supply
chain management in service
organizations.
Thank you for watching and see
you there.