The write up was done focussing on how drivers of supply chain performance can affect responsiveness and efficiency of an organisation to give absolute and comparative advantage on its supply chain. Supply chain performance can be guided by the decisions one make regarding four supply chain drivers, that is Facility Network, Inventory, Transportation and Information Technology Infrastructure. This will be discussed below.
Each company can develop and manage each and every driver as way to bring emphasis on its responsiveness or efficiency. Decisions made on how each driver operates will be a determining factor on the blend of responsiveness and efficiency a supply chain is capable of achieving. Below is a diagram illustrating these drivers’ connectivity and relationship:
Source: A.E. Ellinger et al,2011
Facility Network (Production):-
Facility Network focuses on where the product and its raw materials are being stored, processed and fabricated. This requires improved management on facility role, plant or site, capacity and flexibility to contribute towards improving supply chain performance. At most, company can be either more responsive or more efficient but not both at same time. For example, an auto parts distributor a case in point, Toyota Zimbabwe may decide to have many warehouses near to its customers for them quickly access their products. Many warehousing facilities will show responsiveness to Toyota Zimbabwe but its efficiency will be compromised due to increased warehousing cost. In contrast, if the company chooses to have fewer warehouses, only at main points can result in more efficient through low warehouse cost with low responsiveness (Sunil Chopra et al, 2007). In trying to balance off the trade off on responsiveness and efficiency with many warehouses an organisation can close operations or downsizing other facilities with the consideration of the following factors (Creazza, A et al, 2010:-
Plant Size – Efficiency of a small plant tend to be lower than that of a large plant due to average cost of each unit produced will be higher. Managers should consider shutting down operations at small facilities and allowing large size facilities which have better efficiency and response to operate.
Site Constraints – Less responsiveness and efficiency can be experienced on facilities with less space and high constraints sites. These sites need to be closed as will not have extra space which might be needed for parking, future modification and storage facilities.
Capacity – Lower and small capacity plants have less responsiveness and efficiency cannot survive leaving big capacity plants which can offer high responsiveness and efficiency.
Labour Productivity – Managers have to check and balance labour characteristics and productivity on each plant. Closure can be given to those plants with lower labour productivity as they can offer less responsive and efficiency while promoting sites with high productivity.
Distance from Head Office – If the production plants are far from its head office, head office top management is limited and they will have less information about subordinates on site and can result in less responsive and efficiency. Having two plants one near and other far from head office, closure should be given to high distant plants.
Age of Plant – There can be less efficiency and responsiveness to old age plants as they require high cost of maintenance. Managers can close these plants with old building and machinery which requires high cost for operations.
Remoteness – This includes transportation cost associated with different production and storage sites and managerial time involved to maintain it. Closure should be given to sites where transport and production are considered to be unusual.
Grants Elsewhere – This factor includes plant expansion, building rehabilitation and training cost. Grants are given to those site where above three activities could be done. Those sites would subject for closure where the grants for above activities is not helpful for the productivity of company (Kirkham et al., 1998).
Facility Network will improve responsiveness and efficiency to an organisation through establishing plants with excess capacity and uses modern flexible processing techniques that enable to produce of wide range of goods. A company can do their production in many smaller plants close to its major customers to shorten lead times. If efficiency is desirable, the company can build plant with little excess capacity and optimising for production of limited range of items. Centralisation will bring economies of scale which can lead up to improved efficiency even though delivery times might be longer.
Inventories include raw materials, work in process, spares and parts and finished goods within the supply chain. Responsiveness will be achieved by holding high stock levels of wide range of products. It can also be gained by stocking products at many locations to have items close to customers and readily available. However, efficiency in inventory management would call for reduction in stock levels especially slow moving of items. One can have more efficiency in inventory by stocking items in few central locations such as regional distribution centres as they bring economies of scale and cost savings.
As case in point, clothing retailer proved to be more responsive by storing large inventory but efficiency becomes low because of high inventory cost and low work quality (Sunil Chopra and Meindl, 2007). This will be a disaster to Perishable inventory management. To balance off the trade off on its responsiveness and efficiency through inventory management, an organisation has ensure the hiring of experienced staff and give them training, define target stock levels and order patterns, organize and control transparency of inventories, simple inventory procedures, fresh stock and check and balance on shelf life and collaboration with other businesses, (Stanger et al., 2012).
Vendor-managed inventory (VMI) is efficient in construction sites and for other manufacturers. Authors apply their methodology on three selected pilot sites and find that the efficiency and responsiveness of vendor managed inventory is higher than that of organization’s self-managed inventory. Authors argued upon eight key steps that are; time for finding item, receiving and storing item, order versus recording, rushed orders, hardware store visits, time for invoice handling, total time spent at site and remaining inventory (Tanskanen et al., 2009).
To counter for responsiveness and efficiency through inventory management, Wallin et al. 2006 have identified four approaches to inventory management:-
Inventory speculation – This is holding inventory in accordance with quick delivery of raw material for manufacturing. The advantage is just in time delivery raw materials. However, the organisation faces high cost of holding stock and capital investment.
Inventory postponement – This includes delay in inventory purchasing with zero cost on speculation, stock holding cost and free from large speculative capital investment. However, they will be no quick delivery of raw material.
Inventory consignment – The inventory will be physically held by manufacturer but ownership under the supplier. Manufacturing firms can use inventory quickly without any investment increasing efficiency. However, this can reduce efficiency if inflation occurs.
Reverse inventory consignment – Inventory will be owned by the manufacturer and manufacturer pay price to supplier but physical possession held in the hand of the supplier. This will reduce inflation risk and having low inventory cost. However, this approach is the capital investment in inventory. Any organization can adopt any of the above four approaches by forecasting customer demand requirement, nature of supply line and bargaining power of firm relative to the supplier (Wallin et al., 2006).
Fast transportation service can increase responsiveness but efficiency becomes low due to high transportation cost and more chances of damage (Sunil Chopra and Meindl, 2007). Responsiveness can be achieved through fast and flexible transport model such as trucks and airplanes proven to be used most by companies that sell products through catalogues or on the Internet such as Amazon. They are able to provide high responsiveness by using transportation to delivering within 24 hours through FedEx, Sky Net, DHL and UPS as they provide high responsive. In addition, Amazon operating its own transportation services in high volume markets to be more responsive to customer desires. Efficiency can be emphasized through transporting products in larger quantities and less often preferably using ship, railroad, and pipelines. In addition, more efficient can be achieved if it is originated out of a central hub facility as compared to many separate branch locations.
In addition, joint routs planning can be a more responsive and effective transportation approach for manufacturing firms. The manufacturing firms will continue its transportation function in collaboration with the third party service provider outsourced transportation function or horizontal cooperation with other transportation service providers. This will lead to economies of scale by reducing distribution cost. Joint route planning concept save 30.7% costs in comparison with traditional transportation system (Cruijssen et al., 2007).
Performance of transportation activity can be increased by a model of smart transportation management system which includes smart freight, smart vehicle and smart infrastructure. Smart freight refers to, instead of using traditional identification of barcodes for individual products the firms must develop and use new technology that identify the whole freight unit. This will bring automatic identification software, integration of organizations and data exchange, decentralise information setup and enabler’s technology. Smart vehicles refers to, the organisation’s needs to develop special smart vehicles in which management information channel installed. Information system automatically provides information at database about goods in vehicle loads and unloads. This concept can be managed by developing goods identification system in vehicle and the vehicle system. The smart infrastructure, this concept of smart infrastructure can be achieved by the collaboration of physical infrastructure and digital infrastructure (Stefansson and Lumsden, 2009).
Information Technology (IT) Infrastructure
As IT grows stronger every year there is need for IT investment since they will be a need for better technology for collecting and sharing information becomes more wide spread, easy to use, and less expensive. Investment in IT infrastructure will help the company to aggregate push versus pull (demand information transmitted quickly throughout the supply chain), coordination and information sharing, forecasting and aggregate planning, avail enabling technologies such as EDI, Internet, ERP systems and Supply Chain Management software plus the overall trade-off on responsiveness versus efficiency.
New technologies such as robots, drones, artificial intelligence and 3D printing are making big impacts on how supply chains operate. And yet after all is said and done, these new technologies can be employed to do one of two things that is increase efficiency or increase responsiveness or some blend of the two. A case in point is on Zara Clothing Company offering big competitive advantage through IT that enables the company to sell unique clothing products in a constantly changing market compounded with popular fashion and new customer desires.
Information is very useful commodity since it can be applied directly to enhance the performance of the other three supply chain drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely data generated from operations of other three supply chain drivers. For example, a supply chain that serves the electronics market – they need the most responsive in the world. All players in this supply chains (manufacturers, distributors and retailers) all collect and share data about customer demand, production schedules and inventory levels. This improves responsiveness and efficiency to all players quickly to situations and new market demands in the high-change and unpredictable world of electronic devices such as smartphones, sensors and home entertainment.