Key Drivers of SCM

Key drivers of SCM
Supply chain capabilities are guided by the decisions you make regarding the five supply chain
drivers. Each of these drivers can be developed and managed to
emphasize responsiveness or efficiency depending on changing business requirements. As you
investigate how a supply chain works, you learn about the demands it faces and the capabilities it
needs to be successful. Adjust the supply chain drivers as needed to get those capabilities.
The five drivers provide a useful framework for thinking about supply chain capabilities.
Decisions made about how each driver operates will determine the blend of responsiveness and
efficiency a supply chain is capable of achieving. The five drivers are illustrated in the diagram
below:
1. PRODUCTION – This driver can be made very responsive by building factories that
have a lot of excess capacity and use flexible manufacturing techniques to produce a wide
range of items. To be even more responsive, a company could do their production in
many smaller plants that are close to major groups of customers so delivery times would
be shorter. If efficiency is desirable, then a company can build factories with very little
excess capacity and have those factories optimized for producing a limited range of
items. Further efficiency can also be gained by centralizing production in large central
plants to get better economies of scale, even though delivery times might be longer.
2. INVENTORY – Responsiveness can be had by stocking high levels of inventory for a wide

range of products. Additional responsiveness can be gained by stocking products at many
locations so as to have the inventory close to customers and available to them immediately.
Efficiency in inventory management would call for reducing inventory levels of all items and
especially of items that do not sell as frequently. Also, economies of scale and cost savings can
be gotten by stocking inventory in only a few central locations such as regional distribution
centers (DCs).
3. LOCATION – A location decision that emphasizes responsiveness would be one where a

company establishes many locations that are close to its customer base. For example, fast-food
chains use location to be very responsive to their customers by opening up lots of stores in high
volume markets. Efficiency can be achieved by operating from only a few locations and
centralizing activities in common locations. An example of this is the way e-commerce retailers
serve large geographical markets from only a few central locations that perform a wide range of
activities.
4. TRANSPORTATION – Responsiveness can be achieved by a transportation mode that is fast

and flexible such as trucks and airplanes. Many companies that sell products through catalogs or
on the Internet are able to provide high levels of responsiveness by using transportation to
deliver their products often within 48 hours or less. FedEx and UPS are two companies that can
provide very responsive transportation services. And now Amazon is expanding and operating its
own transportation services in high volume markets to be more responsive to customer desires.
Efficiency can be emphasized by transporting products in larger batches and doing it less often.
The use of transportation modes such as ship, railroad, and pipelines can be very efficient.
Transportation can also be made more efficient if it is originated out of a central hub facility or
distribution center (DC) instead of from many separate branch locations.
5. INFORMATION – The power of this driver grows stronger every year as the technology for
collecting and sharing information becomes more wide spread, easier to use, and less expensive.
Information, much like money, is a very useful commodity because it can be applied directly to
enhance the performance of the other four supply chain drivers. High levels of responsiveness
can be achieved when companies collect and share accurate and timely data generated by the
operations of the other four drivers. An example of this is the supply chains that serve the
electronics market; they are some of the most responsive in the world. Companies in these
supply chains, the manufacturers, distributors, and the big retailers all collect and share data
about customer demand, production schedules, and inventory levels. This enables companies in
these supply chains to respond quickly to situations and new market demands in the high-change
and unpredictable world of electronic devices (smartphones, sensors, home entertainment and
video game equipment, etc.).

Key Drivers of SCM

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Key drivers of SCM

2. INVENTORY – Responsiveness can be had by stocking high levels of inventory for a wide

3. LOCATION – A location decision that emphasizes responsiveness would be one where a

4. TRANSPORTATION – Responsiveness can be achieved by a transportation mode that is fast

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