Page 83 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes good information, people can make effective decisions about what to produce and how much,
about where to locate inventory and how best to transport it.
The sum of these decisions will define the capabilities and effectiveness of a company’s supply
chain. The things a company can do and the ways that it can compete in its markets are all very
much dependent on the effectiveness of its supply chain. If a company’s strategy is to serve a
mass market and compete on the basis of price, it had better have a supply chain that is optimized
for low cost. If a company’s strategy is to serve a market segment and compete on the basis of
customer service and convenience, it had better have a supply chain optimized for responsiveness.
Who a company is and what it can do is shaped by its supply chain and by the markets it serves.

6.2.2 Develop Needed Supply Chain Capabilities

Once you know what kind of markets your company serves and the role your company does or
will play in the supply chains of these markets, then you can take this last step, which is to
develop the supply chain capabilities needed to support the roles your company plays. This
development is guided by the decisions made about the five supply chain drivers. Each of these
drivers can be developed and managed to emphasize responsiveness or efficiency depending on
the business requirements.

Production

This driver can be made very responsive by building factories that have a lot of excess capacity
and that use flexible manufacturing techniques to produce a wide range of items. To be even
more responsive, a company could do their production in many smaller plants that are close to
major groups of customers so that delivery times would be shorter. If efficiency is desirable,
then a company can build factories with very little excess capacity and have the factories optimized
for producing a limited range of items. Further efficiency could be gained by centralizing
production in large central plants to get better economies of scale.

Inventory

Responsiveness here can be had by stocking high levels of inventory for a wide range of products.
Additional responsiveness can be gained by stocking products at many locations so as to have
the inventory close to customers and available to them immediately. Efficiency in inventory
management would call for reducing inventory levels of all items and especially of items that
do not sell as frequently. Also, economies of scale and cost savings could be gotten by stocking
inventory in only a few central locations.

Location
A location approach that emphasizes responsiveness would be one where a company opens up
many locations to be physically close to its customer base.

Example: McDonald’s has used location to be very responsive to its customers by opening
up lots of stores in its high volume markets.

Efficiency can be achieved by operating from only a few locations and centralizing activities in
common locations. An example of this is the way Dell serves large geographical markets from
only a few central locations that perform a wide range of activities.

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