Key Drivers of Supply Chain Performance

Posted on Mar 16, 2025 in Nanoscience and Nanotechnology

The major drivers of supply chain performance consist of three logistical drivers and three cross-functional drivers.

Logistical Drivers

  • Facilities
  • Inventory
  • Transportation

Cross-Functional Drivers

  • Information
  • Sourcing
  • Pricing

A company’s supply chain achieves the balance between responsiveness and efficiency that best meets the needs of the company’s competitive strategy.

Facilities

Facilities are the actual physical locations in the supply chain network where products are stored, assembled, or fabricated. The two major types of facilities are:

  • Production sites (factories)
  • Storage sites (warehouses)

Factories can be built to accommodate one of two approaches to manufacturing:

  1. Product Focus: A factory that takes a product focus performs the range of different operations required to make a given product line, from fabrication of different product parts to assembly of these parts.
  2. Functional Focus: A functional focus approach concentrates on performing just a few operations, such as only making a select group of parts or doing only assembly.

Inventory

Inventory encompasses all the raw materials, work in process, and finished goods within a supply chain. Changing inventory policies can dramatically alter the supply chain’s efficiency and responsiveness. There are three basic decisions to make regarding the creation and holding of inventory:

  1. Cycle Inventory: This is the amount of inventory needed to satisfy demand for the product in the period between purchases of the product.
  2. Safety Inventory: Inventory that is held as a buffer against uncertainty. If demand forecasting could be done with perfect accuracy, then the only inventory that would be needed would be cycle inventory.
  3. Seasonal Inventory: This is inventory that is built up in anticipation of predictable increases in demand that occur at certain times of the year.

Transportation

Transportation entails moving inventory from point to point in the supply chain. Transportation can take the form of many combinations of modes and routes, each with its own performance characteristics. There are six basic modes of transport that a company can choose from:

  • Ship: Very cost-efficient but also the slowest mode of transport. It is limited to use between locations that are situated next to navigable waterways and facilities such as harbors and canals.
  • Rail: Also very cost-efficient but can be slow. This mode is also restricted to use between locations that are served by rail lines.
  • Pipelines: Can be very efficient but are restricted to commodities that are liquid or gases, such as water, oil, and natural gas.
  • Trucks: A relatively quick and very flexible mode of transport. Trucks can go almost anywhere.

Information

Information serves as the connection between various stages of a supply chain, allowing them to coordinate and maximize total supply chain profitability. It is also crucial to the daily operations of each stage in a supply chain; for example, a production scheduling system. Information is used for the following purposes in a supply chain:

  1. Coordinating daily activities related to the functioning of other supply chain drivers: facility, inventory, and transportation.
  2. Forecasting and planning to anticipate and meet future demands. Available information is used to make tactical forecasts to guide the setting of monthly and quarterly production schedules and timetables.
  3. Enabling technologies: Many technologies exist to share and analyze information in the supply chain. Managers must decide which technologies to use and how to integrate these technologies into their companies, like the internet, ERP, and RFID.

Sourcing

Sourcing is the set of business processes required to purchase goods and services. Managers must first decide which tasks will be outsourced and those that will be performed within the firm.

Components of Sourcing Decisions
  • In-House or Outsource: The most significant sourcing decision for a firm is whether to perform a task in-house or outsource it to a third party. This decision should be driven in part by its impact on the total supply chain profitability.
  • Supplier Selection: It must be decided on the number of suppliers they will have for a particular activity. They must then identify the criteria along which suppliers will be evaluated and how they will be selected, like through direct negotiations or resort to an auction.

Pricing

Pricing determines how much a firm will charge for goods and services that it makes available in the supply chain. Pricing affects the behavior of the buyer of the good or service, thus affecting supply chain performance. For example, if a transportation company varies its charges based on the lead time provided by the customers, it’s very likely that customers who value efficiency will order early, and customers who value responsiveness will be willing to wait and order just before they need a product transported. This directly affects the supply chain in terms of the level of responsiveness required, as well as the demand profile that the supply chain attempts to serve. Pricing is also a lever that can be used to match supply and demand.