Supply Chain Enablers

Organizational Infrastructure
Information Technology
Strategic Alliance
Human Resource Management

Supply Chain Enablers

Organizational Infrastructure
Coherent business strategy that aligns
business units towards same goals 32%
Formal process-flow methodologies to
enable the SCM improvements 15%
People committed to and responsible for
cross-functional processes 14%
Right process metrics identified to guide
operating units performance toward
strategic organizational SCM objective 13%

Information Technology
Operations, marketing , & logistics data
coordinated within the company 30%
Data readily available to managers, not
embedded in legacy system 27%
Operations, marketing, & logistics data
coordinated between companies 18%
Linking SCM to ERP systems 10%

Strategic Alliance
Expectations clearly stated, understood,
and agreed upon up front 48%
Collaborating on supply chain and
product service strategies 18%
Top management of partnering
companies interface on a regular basis
9%
Top management communicate why
strategic alliances are important and
should be pursued 8%

Human Resource Management

Enablers
Source, hire, and select skilled and quality
people at all management levels 27%
Find change agents to champion SCM
implementation 27%
Compensation and incentives in place for
SCM performance 14%
Finding the internal process facilitators
knowledgeable in SCM 13%
Appropriate job description and
responsibilities 12%

Drivers of Supply Chain

Performance
Efficiency

Responsiveness
Supply chain structure

Inventory

Transportation

Facilities

Drivers

Information

Considerations for Supply Chain

Drivers
Driver

Efficiency

Responsiveness

Inventory

Cost of holding

Availability

Transportation

Consolidation

Speed

Facilities

Consolidation /
Proximity /
Dedicated
Flexibility
What information is best suited for
each objective

Information

Functional vs. Innovative Products:

Differences in Demand

Product life cycle

Functional
(Predictable)

Innovative
(unpredictable)

More than 2 years

3 months to 1 years

Contribution margin 5% to 20%

20% to 60%

Product variety

Low (10 to 20
variants per
category)

High (often millions

of variants per
category

Forecast accuracy
(margin of error)

10%

40% to 100%

Average stockout
rate

1% to 2%

10% to 40%

Average forced
markdown

0%

10% to 25%

Physically Efficient vs. Market-Responsive

Supply Chain
Physically Efficient
Process

Market-Responsive
Process

Primary purpose

Supply predictable
demand efficiently at
the lowest possible
cost

Respond quickly to
unpredictable demand
to minimize stockouts,
forced markdowns, and
obsolete inventory

Manufacturing focus

Maintain high
average utilization
rate

Deploy excess buffer

capacity for flexibility

Inventory strategy

Generate high turns & Deploy significant

lower inventory cost
buffer stock of all stock
items

Lead-time focus

Shorten lead time at

low cost

Invest in ways to
reduce lead time

Approach to choosing
suppliers

Select primarily for

cost and quality

Select primarily for

speed, flexibility, and
quality

Product-design strategy

Maximize

Use modular design to

Efficiency-Responsiveness Framework
of Supply Chain
Functional Product

Innovative Products

Efficient
Supply Chain
Responsive
Supply Chain

Match

Mismatch

Mismatch

Match

Zone of strategic fit in supply chain

Responsive Supply
Chain

Responsiveness
Spectrum

Zone of
Strategic Fit

Efficient Supply
Chain
Certain
Demand

Implied
Uncertainty
Spectrum

Uncertain
Demand

Achieving Strategic Fit

Understanding the Customer

Lot size
Response time
Service level
Product variety
Price
Innovation

Implied
Demand
Uncertainty

The Value Chain: Linking Supply

Chain and Business Strategy
Business Strategy

New Product Marketing

Strategy
Strategy

New
Product
Development

Supply Chain Strategy

Marketing
and
Operations Distribution
Sales

Service

Finance, Accounting, Information Technology, Human Resources

Flows in a Supply Chain

Information
Product
Funds

Customer

Sequential Optimization vs.

Global Optimization
Sequential Optimization
Procurement
Planning

Manufacturing
Planning

Distribution
Planning

Demand
Planning

Global Optimization
Supply Contracts/Collaboration/Information Systems and DSS

Procurement
Planning

Manufacturing
Planning

Source: Duncan McFarlane

Distribution
Planning

Demand
Planning

Order Size

The Dynamics of the Supply Chain

Customer
Customer
Demand
Demand
Distributor
Distributor Orders
Orders

Retailer
RetailerOrders
Orders

Production
ProductionPlan
Plan

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

Order Size

The Dynamics of the Supply Chain

Customer
Customer
Demand
Demand

Production
ProductionPlan
Plan

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998