CSS Solved Business Administration Past Paper 2018 | Identify the major drivers of supply chain performance. Discuss the role of each driver in creating a strategic fit between the supply chain strategy and competitive strategy. Define the key metrics that track the performance of the supply chain in terms of each driver.
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Topic Breakdown:
Business competition and innovation have made supply chain management an integral part of business management. For the past many years, CSS papers have been incomplete without this topic, hence, highlighting the importance to thoroughly studying this area.
Subject: Supply Chain Management.
Chapter: Supply Chain Performance.
Introduction:
For multinationals, especially big retailers and whole sellers,, supply chain management is an integral part of business operations. Like marketing, finance and operations, the supply chain is also a crucial element of production. There are five basic drivers of the supply chain that determine its success or failure. Furthermore, every driver is important in achieving a strategic fit between the supply chain strategy and competitive strategy. Thus the performance of the supply chain depends upon the output of each supply chain driver.
Key Supply Chain Drivers and Their Role in Creating Strategic Fit:
- Production:
In order to have an efficient supply chain company must ensure it has an excess capacity and flexible manufacturing technique, thus making it compatible with fluctuations in demand. A smaller production unit located near the distributer’s outlets is one of the competitive strategies as it enhances responsiveness by responding swiftly. On the other hand, a large production unit with little excess capacity and designed for only a limited product range is part of the supply chain strategy. It helps in achieving economies of scale by optimizing efficiency; however, increasing the customer delivery time.
- Inventory Management:
The second driver of supply chain management is inventory management which is crucial for efficient performance. To be more responsive and competitive, a company must maintain a high stock level and for different product ranges. In addition, the distribution of stocks at various warehouses is also part of the responsive strategy. However, its drawback is extremely high storage costs. On the contrary, the supply chain management approach desires low inventory levels,,s especially for those products having a long cycle. It also prompts storage of stock at only a few distribution centres. Thus a strategic balance can be achieved by linking inventory with production rates and delivery schedules, along with adopting the policy of just-in-time inventory. This concept originated in Japan and calls for enough inventory to meet the demand on one hand and reduce stockpiles on the other.
- Location:
The third driver in supply chain management is the location of warehouses and their distance from the distribution channels. Competitive strategy requires many outlets near the customer points; unfortunately, it results in high operating costs. The supply chain strategy side desires that there is a centralized or few locations to operate from. Currently, E-commerce has provided a perfect fit between responsiveness and efficiency. Apart from reducing operating costs, it aids in easy and swift access for customers.
- Transportation:
The fourth driver, transportation, aids in moving a product across different stages of supply chain management. Faster modes of transportation add to response flexibility by reducing delivery time; nonetheless, it adds significantly to the costs. Companies must adopt faster modes of transportation when the demands are targeted according to customer needs and they are willing to pay the price. While the company can become efficient by moving its goods in large batches by bulk carriers.
- Information:
While the first four drivers are physical, the fifth driver’s information is intangible; however, its importance is growing continuously with the rising use of information technology. The information collected at every stage of the supply chain is helpful in measuring performance and its loopholes. To be highly responsive company must ensure accurate and timely data associated or generated by the other four drivers. Collaboration and end-to-end visibility under supply chain solutions are an ideal mix of responsiveness and efficiency.
Key Metrics that track the performance of the supply chain in terms of each driver:
- Production Related Metrics
A number of production-related metrics affect the supply chain performance:
- Capacity:
It is a measure of the maximum production capacity a facility can process - Cycle Time Production:
It is the time required to process a unit if there is no delay. - Product Variety:
It measures the number of products processed in a warehouse. Processing costs are bound to increase with the increase in product variety.
- Inventory Related Metrics:
- Average Inventory:
The number of days a product forms part of the inventory. - Products with high inventory period:
Products having high average inventory must be spotted to identify oversupply or reason for delayed inventory. - Average Safety Inventory:
The average amount of inventory on hand when the new replenishment order arrives. It should be measured in both units and the number of days.
- Transportation Related metrics:
- Average Transportation Cost:
Be it inbound or outbound, transportation cost is a prime indicator of this indicator. It measures the cost of bringing or sending the products in or out of the facility. Although difficult it should be measured in per unit cost. - Average Shipment Size:
Average number of units in each shipment incoming or outgoing at a facility.
- Information Related Metrics:
- Forecast errors:
Measure the difference between forecast and actual demand. It is a measure of uncertainty. - Forecast horizon:
The time period before the actual period when the forecast is predicted. It must equal the lead-time of decision-making. - Variance from plan:
Identifies the difference between planned production and the actual values. They are useful in identifying shortages and surpluses. - Seasonal Factor:
Comparing the average demand in a season with previous years.
Conclusion:
Supply chain performance depends solely on the efficiency and responsiveness of the supply chain drivers. There are five main drivers, each playing a role in making the supply chain competitive. Each supply chain is further analyzed according to its performance of different parameters known as metrics. This analysis of metrics pinpoints strengths and loopholes to design future strategies.
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