THE VARIOUS TOOLS (DRIVERS)

THAT CAN BE USED TO IMPROVE

THE PERFORMANCE OF
SUPPLY CHAIN
Prepared by,
SANKET G. SAWANT.
M.Tech, Production Engg.

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 Drivers of Supply Chain
Performance
How to achieve
Efficiency Responsiveness

Supply chain structure

Logistical
Inventory Transportation Facilities
Drivers

Cross-
Information Sourcing Pricing Functional
Drivers 2
 Drivers of Supply Chain
Performance
Facilities
 places where inventory is stored, assembled, or
fabricated
 production sites and storage sites
Inventory
 raw materials, WIP, finished goods within a supply
chain
 inventory policies
Transportation
 moving inventory from point to point in a supply chain

combinations of transportation modes and routes

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 Drivers of Supply Chain
Performance cont…….
Information
 data and analysis regarding inventory, transportation,
facilities throughout the supply chain
 potentially the biggest driver of supply chain
performance
Sourcing
 Functions a firm performs and functions that are
outsourced
pricing
 Price associated with goods and services provided by
a firm to the supply chain

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 Facilities
Location
 centralization (efficiency) vs. decentralization
(responsiveness)
 other factors to consider (e.g., proximity to customers)
Capacity (flexibility versus efficiency)
Manufacturing methodology (product focused
versus process focused)
Warehousing methodology (SKU storage, cross-
docking)
Overall trade-off: Responsiveness versus
efficiency

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 Inventory
Cycle inventory
 Average amount of inventory used to satisfy demand between
shipments

Depends on lot size
Safety inventory

inventory held in case demand exceeds expectations

costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
 inventory built up to counter predictable variability in demand
 cost of carrying additional inventory versus cost of flexible
production
Overall trade-off: Responsiveness versus efficiency
 more inventory: greater responsiveness but greater cost

less inventory: lower cost but lower responsiveness
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 Transportation
Air, Truck, Rail, Ship, Pipeline, Electronic
Moves the product between stages in the
supply chain
Impact on responsiveness and efficiency
Faster transportation allows greater
responsiveness but lower efficiency
Also affects inventory and facilities

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 Information
Role in the supply chain
 The connection between the various stages in the
supply chain

Crucial to daily operation of each stage in a supply
chain
E.g., production scheduling, inventory levels

Role in the competitive strategy

 Allows supply chain to become more efficient and
more responsive at the same time Information
technology
Andersen Windows
 Wood window manufacturer, whose customers can choose
from a library of 50,000 designs or create their own. Customer
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orders automatically sent to the factory.
 Characteristics of the Good
Information
Information
Accurate?
Accessible?
Up-to-date?
In the Correct form?

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 Sourcing
Role in the supply chain

Set of processes required to purchase goods and
services in a supply chain

Supplier selection, single vs. multiple suppliers,
contract negotiation
Role in the competitive strategy
 Sourcing is crucial because It affects efficiency and
responsiveness in a supply chain
 In-house vs. outsource decisions- improving efficiency
and responsiveness
Cisco sources: Low-end products (e.g. home routers) from
China.
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 Pricing
Role in the supply chain

Pricing determines the amount to charge
customers in a supply chain
 Pricing strategies can be used to match
demand and supply
Role in the competitive strategy
 Use pricing strategies to improve efficiency
and responsiveness
 Low price and low product availability; vary
prices by response times
Amazon: Faster delivery is more expensive
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 Considerations for Supply
Chain Drivers
Driver Efficiency Responsiveness

Inventory Cost of holding Availability

Transportation Consolidation Speed

Facilities Consolidation / Proximity /

Dedicated Flexibility
Information Low cost/slow/no High cost/
duplication streamlined/reliable
Sourcing Low cost sources Responsive sources

Pricing Constant price Low-high price

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Seven Eleven Japan (SEJ)

A Case Study

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Factual Information on Seven Eleven
Japan (SEJ)
Largest convenience store in Japan with market value of $95 B.
The third largest retail company in the world after Wal-Mart and
Home Depot.
Established in 1974.
In 2000, total sales $18,000 M, profit $620 M.
Average inventory turnover time 7-8.5 days.
Stock value increased by 3000 times from 1974 to 2000.
In 1985, there were 2000 stores in Japan, increasing by 400-
500 per year.
Return on equity 14% over 2000-2004.
A SEJ store is about the half the size of a US 7-eleven store,
that is about 110 m2.

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 Factual Information on Seven
Eleven Japan (SEJ)
Sales:

Products
32.9% Processed food: drinks, noodles, bread and snacks
31.6% Fast food: rice ball, box lunch and hamburgers
12.0% Fresh food: diary products
25.3% Non-food: magazines, ladies stockings and batteries.
 Services: Utility bill paying, installment payments for credit companies, ATMs, photocopying

Average sales about twice of an average

US store
SKU’s offered in store: Over 3,000 (change
by time of day, day of week, season)
No food cooking at the stores
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 Japanese Images of Seven
Eleven:
Convenient
Cheerful and lively stores
Many ready made dinner items
Famous for its great boxed lunch and
dinner
SC strategy:
Micro matching of supply and demand (by
location, time of day, day of week, season)
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 Seven Eleven - Number of Stores
6000 1999: 8,027
2004: 10,356
5000

4000

3000 Number of Stores

2000

1000

0
85 86 87 88 89 90 91 92 93 94
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 Seven Eleven - Net Sales (B Yen)
Sales 1,963 B Yen in 2000
1400
1200
1000
800
Net Sales
600
400
200
0
85 86 87 88 89 90 91 92 93 94
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 Seven Eleven - Inventory turnover
(days)
14
12
10
8
Inventory
6
4
2
0
85 86 87 88 89 90 91 92 93 94 19
 Information Strategy
Quick access to up to date information (as opposed to data):
In 1991, SEJ implemented Integrated Service Digital Network to
link stores, headquarter, DCs and suppliers

Customer checkout process


Clerk records the customer’s gender, (estimated) age and purchased
items. These Point of Sales (POS) data are transmitted to database at
the headquarters.
Store hardware: Store computer, POS registers linked to store
computer, Graphic Order Terminals, Scanner terminals for receiving

Daily use of the data

 Headquarters aggregate the data by region, products and time and pass
to suppliers and stores by next morning. Store managers deduce trend
information.

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 Information Analysis of POS Data
Analysis of
 Sales for product categories over time
 SKU (stock keeping unit)
 Waste or disposal
 10 day (or week) sales trend by SKU

Sales trends for new product


In the early 1990s, half-prepared fresh
noodle sales were going up,
new fresh noodle products were quickly
developed
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 Facilities Strategy
Limited storage space at stores which have only 125-150 m2 space
 Frequent and small deliveries to stores
Deliveries arrive from over 200 plants.
Products are grouped by the cooling needs
 Combined delivery system: frozen foods, chilled foods, room temperature and hot
foods.

Such product groups are cross-docked at distribution centers (DC). Food DCs store
no inventory.
 A single truck brings a group of products and visits several stores within a geographical
region

Aggregation: No supplier (not even coke!) delivers direct
The number of truck deliveries per day is reduced by a factor of 7 from 1974 to
2000. Still, at least 3 fresh food deliveries per day. Goods are received faster with
the use of scanners.
Have many outlets, at convenient locations, close to where customers can walk
Focus on some territories, not all: When they locate in a place they blanket (a.k.a.
clustering) the area with stores; stores open in clusters with corresponding DC’s.
 844 stores in the Tokyo region; Seven Eleven had stores in 32 out of 47 prefectures in
2004. No stores in Kobe.
 Success rate of franchise application <= 1/100

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Thank you

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