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FinanceAugust 24, 2021

Five Supply Chain drivers that make or break your forecasts

By: CCH® Tagetik

Read this blog to discover the five Supply Chain drivers that make or break your forecast

Five supply chain drivers, Production, Inventory, Location, Transportation, and Information, influence the performance of the supply chain.  Companies can develop and manage these drivers to emphasize the ideal balance between responsiveness and efficiency, depending on your business and financial requirements. 

Responsiveness to customer demands and expectations drives continuous innovation in products and how customers are served.  Prioritizing responsiveness enables companies to accommodate unexpected fluctuations in the market and changes in customer preferences successfully. 

On the other hand, the push for efficiency increases productivity and lowers products’ prices, making them available to a broad population segment.  Yet efficiency requires predictability and stability, which has been hard to come by since March of 2020. 

Optimizing responsiveness and efficiency is a continuous battle for most companies.  This article looks at each of the five drivers in closer detail to see how your organization can more effectively balance these drivers and the pros and cons you can expect to consider. 

Production

To achieve a responsive supply chain, ensure your factories have excess capacity and use flexible manufacturing techniques to produce a wide range of items.  Flexibility allows production to pivot to meet fluctuations in consumer demand quickly.  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.  Centralizing production in large central plants for better economies of scale furthers efficiency, though delivery times may be longer for some customers.

Inventory

When it comes to inventory as a driver, optimizing responsiveness often dictates stocking higher product levels and at more warehouse locations.  Efficient inventory allows for unexpected fluctuations in demand that can be met promptly.  However, this approach incurs higher 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, stocking inventory in only a few central distribution centers achieves economies of scale and cost savings. 

Location

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.  Many sites allow them to respond quickly to consumer demand but increase operating costs by operating many stores. 

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 site to be more efficient, it also makes them susceptible to disruptions, as seen with the coronavirus outbreak. 

Transportation

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 more efficient when products originate from a centralized distribution center instead of multiple separate locations. 

Information

Information’s power as a driver is growing as the technology for collecting and sharing information becomes more widespread, easier to use, and more affordable.  Software with analytics uses internal and external data to make decisions that enhance the performance of supply chain drivers.  Your supply chain should collect and share accurate and timely data generated by the previous four drivers in operation for ultimate effectiveness. 

While the cost of the first four supply chain drivers continues to rise, market-leading supply chain solutions enable companies to make the best use of information to increase their internal responsiveness and efficiency through collaboration and end-to-end visibility.  Scenarios prepare supply chain managers 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 Responsiveness and Efficiency

Even within a supply chain that emphasizes responsiveness, some segments focus on efficiency and vice versa.  Using predictive planning software allows for many variables to be considered.  With advanced, AI-driven analytics, companies can realize the ideal balance between responsiveness and efficiency for any supply chain decision. 

CCH® Tagetik Supply Chain Planning is the leading AI-driven solution for scenario modeling and determining how to best balance responsiveness and efficiency for each of the five primary drivers of success in supply chain planning.

CCH® Tagetik
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