Facilities

It describes the strategic location of the manufacturing plants, the

warehouses/distribution centers and the retail stores to be constructed for the supply chain
to achieve the goals of competitive strategy. If efficiency is the priority, then we place
economies of scale i.e. we produce items in large numbers in bigger facilities to
minimize costs and in order to meet the goals of competitive strategy. If responsiveness is
the priority, then we end up having a larger number of smaller facilities closer to consumers,
more manufacturing plants in order to reduce the lead time Facilities and their corresponding
capacities to perform their functions are a key driverof supply chain performance in terms of
responsiveness and efficiency. For example, companies can gain economies of scale when a
product is manufactured or stored in only one location; this centralization increases efficiency.
The cost reduction, however, comes at the expense of responsiveness, as many of a company’s
customers may be located far from the production facility. The opposite is also true. Locating
facilities close to customers increases the number of facilities needed and consequently reduces
efficiency. If the customer demands and is willing to pay for the responsiveness that having
numerous facilities adds, however, then this facilities decision helps meet the company’s
competitive strategy goals. The decision regarding the location of the facilities (plant), their
capacity, and the flexibility of the facilities have a major impact on the performance of the
supply chain

For example, an automobile firm can locate its spare parts distributors and service centers close
to customers to increase responsiveness at the cost of efficiency

Inventory

Since the supply and demand do not converge at all times, inventory
comes into picture. Inventory is expensive, but a larger inventory reveals more
responsive supply chain. Inventory impacts the material flow time (time between material
entering and exiting the supply chain) and throughput rate .If a supply chain is responsive, this
allows a company to locate inventory closer to the customers. If it is an efficient supply chain,
the company has a reduced inventory by reducing the number facilities and centralization to meet
the competitive strategy. Inventory plays a significant role in a supply chain’s ability to support a
firm’s competitive strategy. If a firm’s competitive strategy requires a very high level of
responsiveness, a company can use inventory to achieve this responsiveness by locating large
amounts of inventory close to the customer. Conversely, a company can also use inventory to
make itself more efficient by reducing inventory through centralized stocking. The latter strategy
would support a competitive strategy of being a low-cost producer. The trade-off implicit in the
inventory driver is between the responsiveness that results from more inventory and the
efficiency that results from less inventory. For example, a retailer can quickly meet customer
demand by keeping a large inventory of an item, but it will increase the retailer’s cost, thereby
affecting its efficiency even though responsivenss has increased.

On the contrary, reducing inventory will increase the retailer’s efficiency but will affect its
responsiveness

Transportation

Transportation responsible for movement of products between the various stages in

supply chain. A faster mode of transportation results in more responsiveness and affects
inventory and facilities. If the responsiveness is a priority, then a faster mode of
transportation can meet the goals of a competitive strategy, meeting its customers’ demands
at a higher cost. For efficient supply chain, slow modes of transportation is preferred to reduce
the transportation costs for customers who are price sensitive. The role of transportation in a
company’s competitive strategy figures prominently when the company is considering the target
customer’s needs. If a firm’s competitive strategy targets a customer that demands a very high
level of responsiveness, and that customer is willing to pay for this responsiveness, then a firm
can use transportation as one driver for making the supply chain more responsive. The opposite
is true as well. If a company’s competitive strategy targets customers whose main decision
criterion is price, then the company can use transportation to lower the cost of the product at the
expense of responsiveness. As a company may use both inventory and transportation to increase
responsiveness or efficiency, the optimal decision for the company often means finding the right
balance between the two decisions regarding issues related to how to move a product from one
location to another and by what mode of transportation are usually trade-off decisions.

It is necessary to evaluate economies on one hand and the desired level of customer
satisfaction of the other.

 Information

Information plays a critical role in connecting and coordinating between the various
stages of a supply chain such as keeping a tab on daily operations within each stage. As a role
in competitive strategy, information systems allow a supply chain to become more
efficient and responsive simultaneously, thereby reducing the need for trade-off. Information is a
driver whose importance has grown as companies have used it to become both more efficient and
more responsive. The tremendous growth of the importance of information technology is a
testimony to the impact information can have on improving a company. Like all the other
drivers, however, even with information, companies reach a point when they must make the
trade-off between efficiency and responsiveness. Continuous conversation with customers plays
a vital role in strategy development that resulting in creation a planning team for company. A
company can identify its customers or distributor companies for strategic planning input by these
four ways.

 Use 80/20 rule, according to this rule the company must in conversation with those
specific top 20 percent customers that generate 80 percent of company income.

 Choose the companies in different conversation channels.

 Choose that company that considers your product or service for different applications.

 Continue with companies that want to continue with you.

The conversation in above four steps can be done through following five ways.
  Marketing department, best way for conversation to identify the customer for strategic
planning input.

 Customer service manager, this conversation channel is good only if their conversational
level match with customer level.

 Sales staff, they considered to be excellent in conversation but it is only for short term
purpose.

 CEO’s conversation, a good way but the conversation not at good time.

 Outside agencies, working as third parties and valuable for good information distribution
to customers

Business information system can be developed by these ways

 Warehouse management system, information sharing about warehouse that how much the
stock available for customer and how much required by the customer
 Transportation management system, this system provides information about the orders
and shipments
 Smart chip technology system, this is technology in which smart cards developed to
know the customer habits and for tracking the customers
  Information regarding customer demand patterns results in a more accurate forecast of
demand, which in turn will enable a firm to produce the required quantity of the product
at the right time to meet customer demand.

This makes the supply chain more responsive and yet efficient.

Sourcing

This basically deals with buying raw materials and services from different suppliers (single or
multiple, contracts) in a supply chain. The tasks can be either be outsourced or the firm can have
these tasks performed in-house. In the competitive strategy, sourcing plays an important role as they
affect the level of efficiency and responsiveness in a supply chain and can also help in improving
the same. The logistics and supply chain management is driven by sourcing/outsourcing decision
made by managers because the location of suppliers, the volume of goods delivered, frequency
of suppliers, prices quoted, terms and conditions of supply, return goods handling and
replacement, packaging supplier relationship, etc., have a great impact on the performance
of logistics and supply chain functions.

Also, one of the major challenges of business today having a major impact on logistics

management is the increase in international sourcing, particularly from low-cost countries such
as China and Malaysia. International sources increase the complexity of logistics and supply
chain function because of enhanced costs of transportation, inventory, warehousing, etc. which
may offset the cost advantages gained because of low prices for materials, components, etc.,
which are bought from global suppliers. Purchasing in large volumes allows the suppliers to
improve economies of scale and also to make investments in capacity or processes to improve
customer service.

But when a single source of supply is used by the buyer firm, it has a higher risk of going out
of stock when supply gets delayed. Managers are responsible to take “make or buy” decisions
and also take decision regarding which tasks to be outsourced and to whom whether a single
supplier or a number of suppliers.

Managers then select suppliers and negotiate contracts with each supplier and are structural
to improve supply chain performance flow of materials, information, and funds. Once the
sourcing process is completed, the procurement process that facilities order placement and
delivery of orders Sourcing decisions play a crucial role in logistics and supply chain
management as the effect of the level of efficiency and responsiveness of the supply
chain play a major role

Pricing

These strategies define the price of goods and services that would be charged to the
consumer and are used to match the supply and demand (lowering prices increases demands and
vice-versa. Pricing is the process by which a firm decides how much to charge customers for its
goods and services. Pricing affects the customer’s segment which is price sensitive. Also,
customers’ expectations are based on the prices they pay for goods purchased. Therefore pricing
affects the supply chains terms of the level of responsiveness required and the demand profile
that the supply chain attempts to serve.

Also, pricing is used as a lever to match supply and demand. Sellers may use incentives such
as short term price discounts to eliminate supply surpluses or decrease season demand surges by
postponing the demand to a later period Pricing plays a significant role in a firm’s competitive
strategy. For example, if customers in a customer segment expect low prices but are comfortable
with a lower level of product availability, then the steady prices can ensure that demand stays
relatively at a stable level. Firms serving such a customer segment can design their supply chain
structure. appropriately so that the supply chains can be very efficient (like, of low cost), at the
expense of some responsiveness.

In contrast, some other forms may use pricing that varies with the response time desired by
the customer. In such cases, the firm will vary its pricing according to the degree of
responsiveness or efficiency desired of the customers a structure its supply chain which can meet
the two divergent needs. All pricing decisions should be made with the objective of increasing
the profits of the firm. For this, it is essential to have an understanding of the cost structure of
performing the logistics and supply chain activities and the value these activities bring to the
supply chain.

Some pricing strategies such as “every other pricing low pricing” may promote stable demand
and allows for efficiency in the supply chain. Some other pricing strategies may lower logistics
and supply chain costs, retain market share or even increase market share. Customers with
varying needs may be attracted by using differential pricing strategy which helps to either
increase revenues or decrease costs