For achieving the objectives of an organization, there must be strategic fit between the supply chain and competitive strategy. It means that the goals and objectives of both the supply chain and the competitive strategy should be synchronized. To achieve strategic fit within the supply chain and the competitive strategy, there should be efficient interaction between key drivers of supply chain. There are mainly six key drivers of supply chain, which are described below:
The facilities are the physical locations like workshops, stores, outlets, showrooms, etc. in the supply chain network where the supply chain operations take place. In these facilities manufacturing, fabrication, storage and distribution of goods take place. The factors like location, capacity, numbers and flexibility of these facilities play a crucial role in supply chain operations of an organization. Facilities like modern manufacturing plants with high production capacity, sufficient storage, distribution channels near customers enhance the performance of the supply chain, therefore the organization should provide more emphasis on creating excellent facilities for efficient supply chain operations.
Inventory includes all raw materials and finished goods within a supply chain. The inventory of an organization is considered its assets. Inventory policy significantly affect the performance of a supply chain. Organizations keep on changing their inventory policy according to products. For products having long holding time it is appropriate of keep large inventories while for the products having short life span or the products susceptible to seasonal change, technology the inventory should be kept just sufficient according to demand. Consideration of cost of keeping inventory is also very important. A careful study must be done about how much optimum inventory is to be kept for the efficiency and cost effectiveness of the supply chain and on the basis of that analysis, inventory policy of the organization should be decided. In many cases, if the cost of keeping inventory is high then companies may choose ‘Just in time (JIT)’ approach for their supply chain operations.
Transportation is a key driver of supply chain. In any supply chain, inventory has to move through various means of transport. Choice of transportation combination effect the supply chain operation. Each mode of transportation has its own characteristic. For e.g. air transport makes supply chain more responsive but also costlier. Similarly rail or ship transport mode is cheap but it takes a lot of time. Therefore, the responsiveness and efficiency of a supply chain is strongly dependent of the selection of mode of transportation.
Sourcing is the decision of who will perform a particular supply chain function. The organizations have their own production capacity and expertise. Some functions of the supply chain are outsourced like manufacturing of certain components of final product, storage and transportation of inventory. Therefore, an analysis is to be carried out to decide the sourcing policy of the company. Sourcing a part from some other company may increase efficiency due to availability of expertise and production capacity of the outsourcing partner but on the other hand it may reduce responsiveness due to long lead times. Similarly, some outsourcing partners may supply goods quickly but it may not be cost effective. Therefore, there is a tradeoff between the cost and responsiveness. The sourcing decision, therefore depends on required responsiveness and available budget.
Date and analysis regarding facilities, inventory, cost, price, transportation, customers and sourcing partners play main role in the responsiveness and efficiency of the supply chain. Many decisions pertaining to supply chain functions are based on the analysis of the available data. Therefore, information is one of the most important key driver of the supply chain.
Pricing of a product is governed by the price of raw materials, transportation cost, etc. Pricing affect the behavior of buyer, thus effect demand and supply. Some customers want cost efficiency while some other customers demand responsiveness. The price of products and services therefore is fixed keeping in view of customer preferences. Differential pricing provides responsiveness to the customers that value it and low cost to the customers for whom responsiveness is not as much important. An example of differential pricing is Amazon Prime. This service charges little higher prices for quick delivery but the customers who do not value responsiveness as compared to price may order the same product at lower price by opting normal delivery services.
These drivers do not function in isolation. For making strategic fit between the supply chain and competitive strategy within an organization, the interaction of these drivers with each other is important. These key drivers should be operated carefully to keep in mind the trade-off between responsiveness and efficiency.
The table below shows how these drivers be operated to achieve either responsiveness or efficiency.