Course: Supply Chain Digitization
Definition: Levers a supply chain uses to balance responsiveness vs. efficiency , and maximise overall SC profit.
There are 6 SC Drivers , grouped into two categories:
Logistical Drivers — physical entities: Facilities, Inventory, TransportationCross-sectional Drivers — enable and coordinate the physical drivers: Information, Sourcing, Pricing
Logistical Driver
Facilities include plants, warehouses, and retail stores — any physical place where inventory is stored or converted. Their role is to receive, store, or convert raw materials, WIP, or finished goods at each node of the supply chain.
There are four facility decision dimensions, each with a Responsive and an Efficient option:
Decision SC Impact Large capacity Handles higher volumes, fewer resources needed, lower unit cost → Efficient SC Small capacity Adaptable to demand and market changes, higher unit cost → Responsive SC
Decision SC Impact Centralised Economies of scale → Efficient SC Decentralised (closer to customers)Faster availability → Responsive SC
Decision SC Impact Flexible (multi-product, shared equipment and workers)Higher variety → Responsive SC Dedicated (fixed machines and manpower, limited variety)Large quantity, low variety → Efficient SC
Decision SC Impact Cross-docking Inventory moves without long storage; mix-and-match per customer need → Responsive SC Dedicated storage Large volumes, minimal cost → Efficient SC
Logistical Driver
Component Description Cycle Inventory The same quantity ordered repeatedly in a cyclic pattern Safety Inventory Minimum buffer stock maintained to prevent stockouts or process disruption Seasonal Inventory Extra stock carried during peak or seasonal demand periods
Inventory Level Outcome High inventory Fulfils demand fully → Responsive SC — but adds holding cost Low inventory Lowers holding cost → Efficient SC — but risks poor service levels and lost customers (severe business penalty)
SC Type Strategy Responsive Carry high finished goods inventory; place it closer to consumers for faster availability Efficient Carry finished goods at a centralised location → enables order consolidation and transportation optimisation → lower cost
Logistical Driver
Transportation moves raw materials from supplier to manufacturer, and finished goods from manufacturer to the final customer. Two key decisions govern transportation strategy:
Design Description Direct shipping Manufacturer ships straight to the demand point with no intermediary Through intermediaries Routed via distributors or hubs depending on whether the SC needs to be responsive or efficient
Mode Speed Cost SC Type Best For Air Fast High Responsive High-value, low-demand products Sea Slow Low Efficient Low-value, high-demand products Rail / Road Intermediate Intermediate Mixed Balance of cost and speed
SC Type Approach Responsive Rapid transport modes (Air); centralised facility stores wide variety; direct delivery to consumer Efficient Low-cost transport modes (Sea/Rail); bring inventory closer to customers to minimise last-mile cost
Cross-Sectional Driver
System How it works Role of Information Push Production based on forecast and historical demand; products made or services planned in advance of actual orders Used for advance planning and scheduling Pull Production triggered by actual customer demand or order Enables quick response and real-time partner collaboration
SC coordination: Every SC phase collaborates to maximise overall SC profitability through information sharing across partners.Cross-functional alignment: Sales, marketing, and production are all aligned to business requirements via shared information systems.
SC Type Information Applications Efficient SC Forecasting, inventory management, supplier collaboration, production planning, transport optimisation Responsive SC Real-time visibility (ML methods), demand sensing, demand shaping via promotions, scenario planning — all aimed at reducing response time
Cross-Sectional Driver
Component Description Procurement Decisions on the types of materials required (covered in detail via the Kraljic Matrix in future sessions) Sourcing strategy Single vs. multiple sourcing | In-house production vs. outsourcing Supplier selection Identify requirements → find and qualify suppliers who can fulfil them
SC Type Sourcing Approach Efficient SC Cost optimisation + economies of scale + supplier consolidation Responsive SC Supplier collaboration to handle disruptions quickly + maintain a base of alternative suppliers so no demand goes unfulfilled + customisation strategies
Application of Concepts: The Kraljic Matrix — referenced here for future sessions — classifies purchased items by supply risk and profit impact. It is a foundational tool for deciding whether to single-source, multi-source, or build strategic supplier partnerships, directly linking procurement decisions to SC responsiveness or efficiency.
Cross-Sectional Driver
Pricing Strategy How It Works SC Type Economies of Scale Pricing Suitable for large batch production; cost-effective, reduces changeover cost Efficient SC EDLP (Everyday Low Pricing) Price stays steady over time; predictable demand signal Efficient SC Fixed Pricing Set, unchanging prices Efficient SC High-Low Pricing Different prices at different times through discounts and promotions; creates dynamic demand Responsive SC Menu Pricing Price varies by response time, delivery location, or product attributes Responsive SC
Driver Responsive SC Efficient SC Facilities Decentralised, small capacity, flexible production, cross-docking warehouse Centralised, large capacity, dedicated production, storage-based warehouse Inventory High FG inventory placed closer to consumers Centralised FG inventory with order consolidation Transportation Rapid modes (Air), direct shipping; high-value, low-demand products Slow modes (Sea), economies of scale; low-value, high-demand products Information Real-time visibility, demand sensing, ML methods, scenario planning, pull system Forecasting, inventory management, production planning, push system Sourcing Supplier collaboration, alternate supplier base, customisation strategies Cost optimisation, economies of scale, supplier consolidation, outsourcing Pricing High-low pricing, menu pricing (varies by time / location) Everyday Low Pricing, fixed pricing, economies of scale pricing
