Five supply chain drivers, Production, Inventory, Location, Transportation, and Information, greatly influence the performance of your supply chain. Companies can develop and manage each of these drivers to emphasize the ideal balance between responsiveness and efficiency, depending on changing business and economic requirements.
Responsiveness to customer demands and expectations drives continuous innovation in products and the way customers are served. Prioritizing responsiveness enables companies to successfully accommodate unexpected fluctuations in demand and changes in customer preferences.
On the other hand, the push for efficiency increases productivity and lowers products’ prices, making them available to a wide segment of the population. Yet efficiency requires predictability and stability, especially during the global COVID-19 pandemic.
Optimizing more toward responsiveness or efficiency is a continuous choice, and Vanguard’s predictive planning platform helps you find the ideal balance based on your business goals.
For production to be responsive, companies should ensure factories have excess capacity and use flexible manufacturing techniques to produce a wide range of items. Additionally, having multiple smaller production facilities close to distribution centers and customer hubs increases consumer demand responsiveness by decreasing delivery time.
Alternatively, having production facilities with little excess capacity and optimized for producing a limited range of items increases efficiency. Further efficiency can also be gained by centralizing production in large central plants for better economies of scale, though delivery times may be longer for some customers.
When it comes to the Inventory driver, optimizing for responsiveness often dictates stocking higher product levels and at more warehouse locations so that unexpected fluctuations in demand may be immediately fulfilled. However, this approach incurs greater storage costs and must be weighed against the benefit of widespread availability.
Efficiency in inventory management calls for reducing inventory levels of all items, especially those that do not sell frequently. Also, economies of scale and cost savings can be achieved by stocking inventory in only a few central distribution centers.
Prioritizing responsiveness for the location driver often involves maximizing convenience by establishing many locations near customer groups. For example, fast-food chains use location to be very responsive to their customers by opening many stores in high volume markets. This allows them to respond quickly to consumer demand and increased operating costs by having many stores in operation.
Efficiency is achieved by operating from a select few locations and centralizing activities. An example of efficiency in location would be how e-commerce retailers serve global markets from only a few central locations, performing a wide range of activities. While this allows each location to be more efficient, it also makes them susceptible to disruptions, as seen with the coronavirus outbreak.
Faster modes of transportation, such as air freight, while often more expensive, allow for shorter delivery times and greater response flexibility. FedEx and UPS are two companies that provide high levels of responsiveness in last-mile delivery by using transportation to deliver products often within 48 hours.
Efficiency in transportation is emphasized by moving products in larger batches, less often, by bulk carriers such as ships or railroads. This type of transportation is made more efficient when products originate from a centralized distribution center instead of multiple separate locations.
Information’s power as a driver is increasingly growing, as the technology for collecting and sharing information becomes more widespread, easier to use, and more affordable. Inside and outside information can be applied directly to make decisions that enhance supply chain drivers’ performance. For ultimate effectiveness, your supply chain should collect and share accurate and timely data generated by the previous four drivers’ operations.
While the cost of the first four supply chain drivers continues to rise, market-leading supply chain solutions, such as Vanguard Predictive Planning™, enable companies to make the best use of information to increase their internal responsiveness and efficiency through collaboration and end-to-end visibility. This prepares supply chains to respond quickly and make strategic, well-informed decisions based on key supply chain drivers when situations and disruptions like the COVID-19 pandemic arise.
The Right Mix of Efficiency and Responsiveness
Even within a supply chain that emphasizes responsiveness, some segments focus on efficiency and vice versa. Using predictive planning software allows for many variables and uses advanced, AI-driven analytics, companies can realize the ideal balance between responsiveness and efficiency for any supply chain decision.
Vanguard Predictive Planning™ is the leading AI-driven solution for scenario modeling and determining how to best balance responsiveness versus efficiency for each of the five primary drivers of supply chain planning success.
To find out more about Vanguard Predictive Planning™, contact us today.