Supply Chain Management
UNIT - II
Supply Chain Drivers and Metrics
Introduction to Impellers in Supply Chain Development
In the modern business world, supply chains must constantly adapt to meet changing
market conditions, customer demands, and technological advancements. The forces that
drive these changes and improvements in the supply chain are called Impellers of
Supply Chain Development.
What are Impellers?
Impellers are the key driving factors or forces that influence the way supply chains
are designed, operated, and improved over time. They push companies to become more
efficient, responsive, competitive, and sustainable.
Just like a fan impeller moves air, these impellers move the supply chain forward—
leading to new strategies, innovations, and performance improvements.
Main Impellers of Supply Chain Developments:
Impeller Description Simple Example
1. Technology Advances in technology make A retail store using barcode
supply chains faster, smarter, scanners and inventory
and more efficient. management software to track
stock in real-time.
2. Globalization Companies now source A car manufacturer sourcing
materials and sell products engines from Japan, electronics
across the world. from Germany, and assembling in
India.
3. Customer Customers want faster Amazon offering same-day or next-
Expectations deliveries and more day delivery options.
personalized products.
4. Competition Companies develop their Flipkart improving its delivery
supply chains to stay ahead of network to compete with Amazon
rivals. in India.
5. Sustainability Pressure to reduce A company switching to electric
Concerns environmental impact. delivery vans to reduce carbon
emissions.
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6. Regulatory New laws and trade rules A company changing its suppliers
Changes affect supply chain strategies. due to new import-export tax
regulations.
7. Risk To handle disruptions like During COVID-19, companies
Management pandemics, wars, or natural started using multiple suppliers
disasters. instead of relying on just one.
Simple Example:
Example: Online Grocery Store
Old Way: Manually recorded orders, deliveries take 3–5 days.
New Way (Driven by Impellers):
o Uses mobile app and GPS tracking (Technology).
o Sources exotic fruits from Thailand (Globalization).
o Offers same-day delivery (Customer expectations).
o Competes with BigBasket and Amazon Fresh (Competition).
o Uses recyclable packaging (Sustainability).
o Complies with FSSAI food safety rules (Regulatory).
o Has backup suppliers for vegetables (Risk Management).
Example: Fan Manufacturing Company (e.g., Usha Fans or Crompton)
Impeller Manufacturing Sector Example
1. Technology Company installs CNC machines and automation to cut and
shape blades with precision and reduce labor time.
2. Globalization Imports ball bearings from Japan and motor components from
China for better quality and cost-efficiency.
3. Customer Customers want energy-efficient fans (5-star rating), stylish
Expectations designs, and faster delivery.
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4. Competition Competes with brands like Havells, Orient; hence, faster
production and better dealer network are needed.
5. Sustainability Uses recyclable plastics and eco-friendly paints in the fan
body to reduce environmental impact.
6. Regulatory Must follow Bureau of Energy Efficiency (BEE) guidelines and
Changes ISI certification for safety.
7. Risk Keeps backup suppliers for wires and electronic parts to
Management handle strikes or supply delays.
In supply chain management, drivers are factors that influence performance outcomes
such as cost, responsiveness, efficiency, and service level. These drivers are typically
classified into two broad categories:
1. Logistical Drivers
These are directly involved in the physical movement and storage of goods.
a. Facilities
Definition: Locations where inventory is stored, assembled, or fabricated.
Types: Production sites (factories), storage sites (warehouses, distribution
centers).
Impact: Affects responsiveness and efficiency. More facilities closer to customers
increase responsiveness but raise cost.
Example – Amazon Fulfillment Centers:
Amazon uses strategically located warehouses and sorting centers to ensure fast
delivery. This enhances responsiveness but requires high investment in
infrastructure and operational costs.
b. Inventory
Definition: All raw materials, work-in-progress, and finished goods within the
supply chain.
Types: Cycle inventory, safety stock, seasonal inventory, and pipeline inventory.
Impact: High inventory improves product availability (responsiveness) but
increases holding costs.
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Example – Automobile Industry (Toyota):
Toyota uses Just-in-Time (JIT) inventory to reduce costs while maintaining
production efficiency. However, during disruptions (e.g., chip shortages), low
inventory can impact responsiveness.
c. Transportation
Definition: The movement of products between stages in a supply chain.
Modes: Road, rail, air, sea, pipeline.
Impact: Faster modes increase responsiveness but are costlier.
Example – E-commerce (Flipkart):
Flipkart uses multiple courier partners and last-mile delivery options (including
1-day delivery) to ensure responsiveness during high-demand periods like the
Big Billion Days.
2. Cross-Functional Drivers
These affect multiple areas of the supply chain and are not limited to logistics alone.
a. Information
Definition: Data and analysis concerning inventory, transportation, customer
demand, and supply chain status.
Impact: Accurate and real-time information improves coordination, planning,
and decision-making.
Example – Walmart’s Retail Link:
Walmart shares sales and inventory data with suppliers through its Retail Link
system. This enhances supply chain visibility and helps suppliers plan
production accordingly.
b. Sourcing
Definition: Selection of suppliers who will provide goods and services.
Decisions: In-house vs. outsourcing, supplier selection, procurement contracts.
Impact: Affects cost structure, quality, lead times, and risk.
Example – Apple Inc.:
Apple outsources its manufacturing to suppliers like Foxconn but tightly controls
sourcing decisions for components like chips and screens to ensure high quality
and innovation.
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c. Pricing
Definition: The strategies used to determine how much to charge for a product or
service.
Impact: Influences customer demand, supply chain costs, and allocation of
resources.
Example – Airline Industry (Dynamic Pricing):
Airlines use dynamic pricing based on demand and supply (e.g., higher fares
during festivals), which helps in managing capacity and revenue more efficiently.
Summary Table:
Driver Function Example Key Trade-Off
Facilities Storage and production Amazon Responsiveness vs.
locations warehouses infrastructure cost
Inventory Stock of materials and Toyota JIT system Availability vs. holding
goods cost
Transportation Product movement Flipkart express Speed vs. cost
delivery
Information Data sharing and Walmart’s Retail Accuracy vs. system
visibility Link investment
Sourcing Supplier selection and Apple’s supplier Cost vs. control and
procurement ecosystem quality
Pricing Price setting and Airline dynamic Profitability vs. market
demand management pricing responsiveness
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Here are more industrial examples of logistical and cross-functional drivers of
supply chain performance:
Logistical Drivers
1. Facilities
Example – Coca-Cola Bottling Plants:
Coca-Cola has bottling facilities near demand centers to reduce shipping time
and cost, improving responsiveness to regional markets.
Example – IKEA Warehouses:
IKEA uses centralized warehouses with large volumes to maintain efficiency and
minimize logistics cost, even if delivery time is longer.
2. Inventory
Example – Zara (Fashion Retailer):
Zara keeps minimal finished goods inventory and restocks stores with fast
inventory turnover based on current trends to remain responsive.
Example – Dell Computers:
Dell uses a build-to-order model, maintaining low finished goods inventory
while keeping strategic stock of components to respond quickly to orders.
3. Transportation
Example – DHL Express (Courier/Logistics):
Offers time-definite international express delivery services using air transport,
increasing responsiveness at higher cost.
Example – Indian Railways for Bulk Goods:
Used for transporting coal, cement, and steel in bulk. It is cost-efficient but
slower, favoring efficiency over responsiveness.
Cross-Functional Drivers
1. Information
Example – FedEx Tracking System:
Real-time package tracking allows customers and internal systems to plan
ahead, improving transparency and customer service.
Example – Tata Steel ERP System:
Integrates information across procurement, production, and delivery to enhance
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planning accuracy and reduce downtime.
2. Sourcing
Example – Unilever Multi-sourcing Strategy:
Uses multiple suppliers for key ingredients (like palm oil) to reduce risk of
disruption and maintain continuity in production.
Example – Boeing (Dreamliner):
Boeing buys parts from different companies around the world. This helps
them get high-quality and advanced parts at a lower cost. But, since the parts
come from many places, it's harder to manage and coordinate everything
smoothly.
3. Pricing
Example – Uber Surge Pricing:
Prices rise based on demand-supply mismatch, encouraging more drivers to
enter the system during peak times, improving availability.
Example – Nestlé Regional Pricing:
Adjusts prices of products like Maggi noodles to meet affordability levels in rural
vs. urban markets, balancing revenue and access.
Roles, Components of their decisions, and Metrics.
1. Logistical Drivers
A. Facilities
Example: Amazon Fulfillment Centers
Role: Serve as storage and packaging facilities before delivery.
Decisions:
Locate warehouses close to major cities to reduce delivery time.
Automate facilities using robotics to increase efficiency.
Metrics:
Order fulfillment rate
Facility utilization rate
Average shipping time
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B. Inventory
Example: Apple Inc.
Role: Maintains optimal inventory of iPhones and MacBooks globally.
Decisions:
Uses just-in-time (JIT) principles to avoid overstock.
Keeps safety inventory during product launches.
Metrics:
Inventory turnover ratio
Average days of inventory
Stockout incidents during launches
C. Transportation
Example: Flipkart (India)
Role: Uses multiple transport modes to ensure product delivery across urban and rural
areas.
Decisions:
Partners with local couriers for last-mile delivery.
Uses centralized routing systems to reduce cost.
Metrics:
On-time delivery percentage
Average transportation cost per order
Reverse logistics time (returns)
2. Cross-functional Drivers
A. Information
Example: Branded cloth showroom (Fashion Retailer)
Role: Uses real-time sales data to quickly respond to customer demand.
Decisions:
Integrates POS data with design and production.
Weekly update of inventory across stores.
Metrics:
Forecast accuracy
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Time taken to replenish stock
Customer satisfaction with availability
B. Sourcing
Example: Toyota
Role: Sources parts from multiple global suppliers.
Decisions:
Follows just-in-time sourcing strategy.
Maintains dual sourcing to avoid disruptions.
Metrics:
Supplier on-time delivery rate
Quality defect rate in parts
Supplier lead time
C. Pricing
Example: Online passenger cab
Role: Uses dynamic pricing to match demand and supply of rides.
Decisions:
Surge pricing during peak demand.
Discount coupons for customer retention.
Metrics:
Revenue per ride
Price elasticity (change in demand)
Customer retention rate
Supply Chain Drivers and Metrics
