compe + Supply Chin Peramance: Achieving Seg Ftand Sone 37 Bibliography _ ‘iso Rope en esata. "The Conary of be ‘Cana Comvatin Supply Chis ino Demand Chin Step Chote Manage Revo (Fal 19595 72-32. Bove, Did Md, and David ©. Fen. The Value Nee ‘Comes ler rofate Growth” Spy Chl Manageme Ress al 1999 9-104 Ferien Clk Spen Ming try Ctra i he Age of Trmoay Average Resting. MA: Pes Boks 193 Fer Mansa "What she Rit Supply Cie for Your Prt” Harn Bie Ree Osc 197) 823 Josigh dues O'Conner ant Richard Rewinsce "Tle Loge: The New Advan” Harve Business Rew atu 19) 5-86 ‘Gator Jol “Supply Coste Aree Basie” Spl Chan Menger Rene (Senter 2004228 (ima ames F208 BJs Pine I. Markets of One: CheriagCuomer Ungne Vale Trough Mass Contin Beno: Hara! Bsies Sle Fes, 20. ‘ee Haut "Aligning Supply Chin Stages wih roc ‘neers Caimi Monegan Ree (Spring 23 ms ze, Has L. "The Tipe Supay Chin” Harvard Bashar Tse (coker 208) 102-12 ng Hoe "Dae Tek You Supt Chai Rathi de> Ti” Hoard Baas even (Ooh 2010} 62-0 ag, Jou, Fast. Global an Encore: Spy Chin “Marageeat. Hang Kong Sle” Moron Bsns Rei (Seperbr Otte 1958): 12-114 ‘Magna, fon, “The Pow of Viel ata: A tevin ‘ih Dall Compote’ Mitel Dell™ Hone Susass Rovian Mabe a 99 72-88, ‘Neon Rota tnd Sse Mona “Mow Unie Ala ‘Soiy ‘Chin and Busnes Stipe” Sippy, Chain Hangenct Reo (Moerber 207} 44-0. ‘tason, Thomas, Hey La, oed Givin DeNse “A Porto “Appench 1 Soply ‘Cnn Design” Sippy Chan Menapemet Rai Qly-Aips 2010) 20-27 ive, Sue, I. Hlzs Cesomiseton. Donon: Hrd Bess Sooo! Pr 1999. Ross, Dovid Foe Inte Soprly Chain” Supply Chain Manageme Resiew ily-Angs 200: 30-57 Sai, Toy D. "Get Leverage from Logie Harent ‘uses Reve (ayn 986 119-127 nd Caacepts Sk, Pal, MN: Went Publihing Company, ‘ots, Sil, Gers, and Thomas M. Host Conprin Assn Tine. Now Wor: Pe Pes, 980, ‘vam, Dani Suny Pal st Mit Lips. "gt Pera Spy ae Qe (Quer 8, 209) 2-3, = 3 Supply Chain Drivers and Metrics LEARNING OBJECTIVES After reading this chapter, you wi be ble 4 Descibe key acl measwes ffm perforce 2 ent the majo ever of supply cain perormance ‘3 Discus terol ofeach ivr in ceatiogsaepe it bawens the suply chain sealegy and th competitive ste. 4 etn the ey mers tha ck the performance ofthe supply cain i rms ofeach diver In this chapter, our galt ink key nana menses of firm pertormaace to supply en performance, We ‘nyouce the ee lois! drivers —facies, avery, and tansportaion—and the tre eos fon] Aen infomation, soering 2nd pricing—that termine the perforce of any supply cin, We disco ‘how theae diver are used in he design, planning nd operation ofthe supply chan. We define several mts ‘hat can bused a pang he perfomance fea dive nite on Heal pestormance, 3.1 FINANCIAL MEASURES OF PERFORMANCE In Chace disused how growing the supply chain supa is theta goal oa supply chin Os pest ‘shat growing te sul allows fora rove of spy chin profil, which flitates an impwemetin the finance pefornane ofeach member ofthe supply chain, I is ton, we define imporant franca meses ‘hata repaed by «Fi an impnted by supply cha erormanc. I ax secon, we thea Tink suply chain ttre aad acid metic othe varie financial ears The dino of anil esse in ston tue tan rom Dyan, Mage, Pier (2011). "roa shareholder perspective return eqity (ROE) she nin strana measure of fons ptermance, Net income Tage Sharcholder Fay ROECapers Suply Coin ive and Mis 38 \Whetess ROE measures he eum os investment made by firm's shareholders, rear | seas (ROA) measirs te atu eae on each lr invested bythe rm in mse Earnings before interest _ Net nome + Unters expense % (J ~ Tarte] ‘Average ial ase ‘Average eal asses Consider Amgzos.coms Manca perfermance sown in Tble 3-1. tn 2009, Amazon schised ROE = 9025257 ~ 17.2 pecan [1,152,864 ~ 164 pereet in 2010) and ROA = [902+ 84°(1~ 35)/13813 = 67 percent [{i152 + 39% ~ S5)/I8797 = 6.3 percent in 2010). Te aflerenee beween ROE and ROA is referred to as seu on financal erage (ROFL). In 2009, Amazon had ROFL = 172 ~ 6:7 = 105 perent [168-63 = 105 percent in 2010). ROFL coptues the amount of ROE that ean be ateibted to financial lverege (Gecount payable, debt, et) In Amazon's eas, signitieant portion ofthe financial leverage {i 2008 and 2010 came fom accounts payable father than debt. Ths, ab important rato that sins financial leverage is accounts payable trnovee (APT) ROA = Cost goods sold APT = “recounts payable TMD | Seeeeaa areal ma CoT q ‘Year ended December 31( ilons) 2010 2008 2008 ‘Net operating revenues 3204 m4s09 79,106 Cost goods ead zen te97e _14806 roe proft 765551 «4270 Satlg, gone and adminctative expanse 6237 ate. (perting come a incre exporse 8 3 7 (ther name fssl—net 130 me Income before income tae tas) enh Inoome eine ne re cbse ‘ash and aah aquaria a aaa a Shortsam ineeunen ass zee Nec recehables ies 1260 1.081 Inve 370210 Teal eurert acces ism? 97a? 687 Proper, plant and equipment zai 1200 Goaent ne) thar ssete ize 1402__705 Tenn assets jane? fess asia LUsbiites and Stockholder Eauity ‘Aecounis payable ‘aaah Shorter det, Tea curren iy “oars Lengterm abe 12 he taiiies aso 1060 3 Tea bios Tugss_ess9 ez Stoker ety ‘east _8257 2672 40 Consr3 + Suply Chin vrs and Mees 1 Amazon's case, i 2009 APT = 18978/7.364 = 2.58 (2656/0372 = 256 in 2010). ‘A small APT indices hat Armaon was blouse the money owed supple 0 faace & ‘onsidrabl faction of ts opration In 208, Amazon effectively franco’ i own operations for sbout 522.58 ~ 20.18 (522.56 = 2031 in 2010) weeks wih tx spp mone. Aw valde of APT helps Arwen improve its Guancialpesfornance. ROA ean bo writen as the product of wo aos prot maya and ast trnover—se sown al Barings before interwar) xe SHEL asc ror FO acca cmemae (Prat margn) x $TETSE (Aser umaver) ‘Ts fi can nese ROA by growing the pot margin andor increasing the ast turove. 2008, Amazon achieve a proit nya of (902 = 341 ~35))24.309 = 38 per- zo (1,152 + 39% ~ 35)/34.204 = 3.4 pores in 2010), Prot margin canbe improved by ating beter res or by ein he vos pens inured. regponsve poy chan can Siow a fim to provide high ve oa custome, thus peel geting fier pices. Good ‘supply cin manngatent can aleo alow afer to desea te expenet acura Wo are store demand. In Arazo's eat asignifiant expense i oubound shipping cot In is 2009 ‘anual report, te company reported autour shiplng costs of $1.77 billion. Ate ccouting for shiping rene, the et los on otboond shipping wae repaid tobe S449 milion, sbost the same ode of magnitude a et ipcome. Cea redveton in outbound shipping eats ean ve siguica inact on Amazon's rot mai “The key components of asi tumove ave asoant resale taover (ART): nvecton’ ‘amover (NV: and pops, plan equipment mover (PPET), Thos ae defn allows: Sole reve = Lestefgood sl yyy. Sees roverte Tecowereceabie® Tiventoriee +P = rae ‘Amn shred account recital mover of 24,508,260 = 19.45 (34,204,783 = 19.48 in 2010} in 2009, Amazon collected its money from sas relavely quickly (i aboot SUIDAS = 27 wooks on average in 2009) afer it ade sale. Amazon tad its eatery bout 189782171 = 8.4 (26,561/3,202~ 830 In20(0) ines an ad PET = 24,508,250 = 19.00 (3420872414 = 14.17 jn 2010) in 2008. Thu, hvenory sat with Amazon in 2009 for int $2274 = 5.95 (521.30 = 627 in 2010) weeks on average, and each dollar invested in propery lant and eqipnet suppor about 519 ($1417 in 2010) of sls in 2009. Observe that Arizona inventory tans and PET decreat in 2010 clave o 2009, Amazon an Inproe its ssc tumor by tring Is ventory more quickly or wag is existing ware Nousing and technology infastractar to suport higher level of sales (or Socrasing the ‘wechossing and ecology infasrctice ness to sport te exiting ee fale) “Ae seul met ste cas o-cas(C2C) eel, which roughly measures the everest amount of ine om when ath ents the proces a 0 when rtm cold rove, nr = (C2C = — weeks payable (APT) + wee ia avetoey(IINVT) + woos resale (ART) In Amazon cas. we siti CC = -2018 + $95 +270-=—11$3[-2031 4627-427 =11.33 in 2010) i 2009-10 2009 2010, Amazon was cllesting is money from the sale of prodets more than IT enks before eal oy is sopplier. As we Sacacod eal,this !Slwed Amsvn a sehieve spin fea everige tot hing ak do, "There azo important measares, however, hat ae no expt pat of firms Fania stents, Tey te adore aed Yt ele. erkdown pects dscns regal onines asomers to buy exces inven Financial staterents show ony th revesue receive ‘orm sues, not th evenue hat "oul hae ban recived, Foe Gael Mors (GN, nef the ‘ages probit carly pat of the 2 entry was the dicouns requ 9 move excest layer from deals los. These Scouts signifcanly fut founcl psec In 2010, on(haper + Spy Cia Dre and Menics81 ofthe biggest improvements in nancial performance for GM wast ability to slits crs with ‘much sale dincoots boca the supply chain hd aes acess invenoy. Las sles epe- ‘otcattome sale tht di ot materialize ease ofthe absence of prs the estore want ‘ft by. Every lot slecomespond to prod pn that sls. Both markdowns ad est Sales reduce ct income ad eetbly represent the bigest impact of miply chin perfomance (nthe nancial performance of fm. ‘Fiems ike Amazoa, Wal-Mart and Zar that achieve rong financial performance do to {in large port because their supply chains allow them to beter match supply and demand, ‘herby reducing markdowns and Ios sales. Prom or brief discussion of Amuzon’s Finacial ‘atements, supply chain management activities such as planing transportation, inventor, ‘nd warehousing clearly havea significant impact on financial performance. inthe nxt fection, we ideniy key drives of supply cain performance that influence the financial peformance of afm. 3.2 DRIVERS OF SUPPLY CHAIN PERFORMANCE “The strategic i acute in Chaser rogues tha company's supply csi chew the balance etncen esparsiveness and effiency tat ext soppors the company’s competive sey. To ‘deta Bow omy can inpove supply chan geformanc ines of responsiveness and ‘icine. we mist examine th leet! eea- Functional divers of apply eb petonn- nce: felts leno, trneporon formation sourcing, dad pcg, Tote deers rack {oceermine the supply chain's performance in xm of espasivents and fiir. These di ‘sv alo impact he focal menses dncssd in Seto 3.1. The gl so uct the vers ‘oahieve te dase Iolo esponsivenass atthe lowest possibe cox hs improving the spy chain sla andthe fs nave performance, Fit we dtne cach river and ducue impact on the performance ofthe spply chain. 1. Facies ae the cts physical aston inthe supply chain network where pro cts sored, asembled or atrcated The vo major types of fie ar production sts and orage ste. Decisions regarding the rol, ation, capacity, and lexi of fais havea ‘izniicntimpacton the soply chins performance. Fo example, it 2009, Amazon increased the namber of warehousing facilis (observe increase in Propet, plant apd equipment, ix “Table 3-1) located close to cstomers o improve is responsiveness. In cons, Blokbestr treo improve is efficiency in 2010 by shuting down many fciiies even hough it educod responsiveness. Faiity costs show up under propety, plant and equipment, if facies are ‘ned bythe fm or unde selling. general, and vinta if they are ese. 2 Imentory encompasses ll ra mater, work in proes, nd finshed gods within ‘saply cin. Th memory Belonging t rm ie ropoted under asa. Changing ventory poise can dramatically aller the supply chain's efficiency and esposivenss. For exaple ‘WoW. Ginger makes ise responsive by stocking large amounts of iventory and saying ‘isomer demand from sock evn hough the high inventory levels rece efficiency. Sch a rai makes sense for Grainger becuse is prods hl ths vale fra long ime. A stat 1) osing high ventory levels ean Be dangerous nthe feshon appre busines whee ivenory lowes vale selativelyqoieky wth changing seasons and tends athe than ld high eves of Sven, Spuish apparel reer Zara has worked ard o shorten new product and replenish ‘ment ad mes. As rel the company is ary semonsve But cats lw levels f ineniny. Zara thas ponies responsiveness alow eat. 2 Transportation etal moving inventey from point to pio in the supply chain. “Transporation can tae the form of ary combinations of modes and routes, each wih som performance characteristics, Transporation chooes have 8 large impact on supply chain ‘iporsivees nd efcency. Fc example, a malar catalog company can ws a faster ode ‘of tanspration sich as FedEx to shi prodets, thus making supply cal more responsive, but also les efficent given the igh costs ssocated with sing Pex. MeMaste-Carr ad 42 Chaps + Supiy Cie Dives and Metis “WOW, Ginger, however, hve structured thee spply chai to povie next-day sevice to ost of theircustomers wing gro tranepotation. Tic ae providing sigh velo responsiveness ‘tlower ast Outbound transportation costs shipping f the casomer apically inched in ‘elling, general, and admininatve expense, while abound wansporation costs ar ypically Incladedin he cost of goods sold 4. Information consists of data nd analysis concesing fies, inventory, anspor: tion, cans pices, and estomers thoughout the supply ehat. Information is potently the biggest ver of performance inthe supply cain becase ice affects each ofthe ober divers. Informacion presents management withthe oppor to make supply chine mare responsive and more efcent For etample, Sevet-Eleven Japan has wed information © better ‘mach supply and demand wile achieving production and ditbution economies. The rei is {igh velo esponeveens to costomer demand while podoction and replenishment cor re Tower. Information tcnology-relatad expense are ally cluded unde ber operating expense (yplclly unde selling, general and administrative expense) oases. For example in 12009, Amazon ieluded $1.24 bilion In twehnology expense under operating expense and snoter $551 milion under fie asst to be depreciate. 5. Soureing_ isthe choice of who wil perm a pricular supply chin activity sich as ducon, storage, ranqporation, or the management of information At he sarge lye, these decisions determine what functions a frm perfonns and wha funcdons the frm futures Sourcing deisios affect both he esposivenes and efieny of soppy ha ‘Aer Motorol outourced much fit production to contact manufac io Chin it sav its eclency improve but its esponsireness fe because ofthe long distanes, To make up othe Arop in responsiveness, Mocorola stared ying in sme fis cellphones from China even thvgh hi choice increased ranaporationcoet extras an elesoies comet manufac tis hoping to fer bath esponsive and ecient suring options wo ts amos Lis ying ‘o makes production facie in igh-oost locaton very esponsive whe Keeping its fctes {low-cost counties ecient Flextronics hopes to become an elective ours forall eastomers ‘tings combination of atin. Sourcing cats show up inthe cost of gods sland monies ‘ved to supplier ae record under soc pale 6 Pricing deermins how mich a frm wil charge fr the good and services that t ‘makes valent supply cain Pricing aff the behavior ofthe yer ofthe good or sry- ‘ee thus ffesingeuply ein peformanc, For example i uansporaton company vres ix ‘hares Sed on the led ne provide by te caomers, sey that casters ho value ‘iceny wil rer eat snd cutomers who vale rexponienest il be wiling o Wit nd ‘ter jut Before they needs prod rapt. Dllerntial pacing proves responsiveness ‘tstomers that valu cand low costo customer that Jo nt vel responsiveness ss mach. Any ‘hangin pricing impacts renin cl but could alo afetcons based on the impact of his ‘change onthe oe rer. (ur definitions of these divers tempo delicate ois an supply chin management. ‘Supply chain management inludes the we of logistical and cros-frctinal rivers to ineease the soppy chin ple Cross fonction divers have Become inressnay important raising ‘he supply ein surplus in recent yar. Whe loities rans amr par supply chin mane geen is oressinglytecoming focused onthe thes con intone, Tie importa to realize thet these divers do 8 At independ ut ntact to dte- ‘mie the overall suply chin perforance. Good supply chain desig ad operation recognize Uhisntrction nd make he eppropte de ft deliver th deed eel of responsiveness. (Coase, for example, the friar indus inthe United Sates Low-cost frit soared fiom Asia i vallable at any disooat rales. The primary goal of hs supply chain st aver alow pie and secepable quay. Variety yall low a etailes sch os Wal-Mart Hock inventory of fisbed goods. The low vate and sable replenishmen rer allow fri- ture manulatrers in Asi 1 focus on effin ive the ealable iver, ov-cox modes(Chger3 + Sup Csi Driven Mes 48 ‘of wrameporation om Asa ae abd ln this iestance lative low-cost inventory athe retailer tllows the supply cin to become efficient by lowering tanspotton snd production cost In corr, some US, frre mers have chasen to focus on proving vr. Given the high ‘are and gn pres, Keeping imtenory of al vars at ales would be very expesie Tn thease, he supply chins been designed so that he taller caries itive Customers place tr dere with he retailer by sing one rian ofthe frie and sling ong the “arousopons. The supply caine mado responsive by wig informatio acnology to convey “werinfomation effin, sroctring Nexble manufacturing fies o be able prec in “ll lo, and using responsive wansportation to deliver he farniture othe ester In his Inrtance, sponse faites, ranapration, ad information ae wed o lowe inventory co. [Ashe rest otis chapter wil strate, the hey 1 aceving atgic Bt ad stong Gaal ‘pevormance aro the supply chai sw stracure the supply chain divers appropriately to [proride the desired Ive! of esponsvenes a the lowest posible cast. ‘Deny et 2010) pl out that supply cain perfomance fects nary 35 percent of the financial performance of spparel esl. As 2 percenage of sles, they sate that mark- ‘downs, reesei 10-30 percent of sles, and los sles, epreseting 5-10 percent of ses, ‘ete dominant ever fea nancial perfermanee. They futher tae ha transportation represents 25 percent, watchousing I3 perent, store prot handing 3S percent and ive {ary conte 2-5 pecan fsx. While the recie fenton wl ay freee soppy chains it Iwevident that spply cin performance along the sx drivers has a igniican intusace on & F's inancilprfomance fore we dscns each ofthe sx drier in detail, wept hese drivers into a famework tha help clay the role of exch in improving spl ein performance 3.3 FRAMEWORK FOR STRUCTURING DRIVERS Recall from Chapter 2 thatthe gol of soply chin strategy isto strike the balance beween ‘responsiveness and efcieacy dis withthe competitive statey, To reach this oa, a com- ‘any mis stot the right combination ofthe thre logisial and thee cross-functional ‘rivers. The combined impact ofthese crvers then determines the responsiveness andthe ofits ofthe etre supply cin. "We provide «vs ramawark fr supply chain decision making fn Figure 3-1. Mostcom- ‘snes begin witha competitive sratey and then daide wha! heir supply chain staegy ought tobe. Ta supply chin sete dtenes how the supply chai shoul perform with esac 19 ‘ciency and responsiveness. The seply cain mus then use the thee logistical and tree ‘oss fonctions divest each the performance level te supply cain satay dictates and Imarimize the supply chin profits. Although this rmewerk: is generally viewed from the top ‘down in many ineancs, atdy ofthe ax vee may inde the ned to chnge the supply ‘hn strategy and potential even the compete at) ‘Considers ramewer sing Wal-Mart aan cxaple. Wal Mar’ competitive seaegy i to bea lal, low-cost reir for wide varity of mase-consumpton gods. This ite dic tes thet he des! soppy esi wl empsieeency bat lo sini aguas level ef reaponsnenesh in ts of pocutavality. Wa Mar uses thet logistil and the cos funciona divers effecively to scieve this typeof spply chin perfonnance. Wit the inventory driver, Wal-Mart moans an ficient saply chai by keeping low levels of lavenory. For instance, Walt pioneered er-doklg, 2) in which ener is ot stocked in a wae hows bt rte shipped 0 sors rom the manufrer wet top t adsubua center {BC where roduc ante fom ind ac from the spiro out Wik 0 ‘heel store This piianylowers inventory Dose roduc ae socked ona ste, bt ‘both stores snd warehouse. Wis eet to fveroy, Wal-Mart far licen over espn tiveness. On the tansporation rt, Wal Mart rus is own Met 0 keep esponsieness high This Increases uansporaton cs, ut the beneis in trms of redoeed inventory ad improved product (44 Char + Sopty Chai Devers Mesos [compete Sate ‘Sippy Chain mn swvoonee Smee Pectcs feo] ventory TZ A ‘ermaion J+ Sourving J] Cots Funtonl Drivers, ‘GURE 4. Supply Chin DeconMaking Framer soabily jy this cost in WaLMar’s case. I th ese ffs, Wal-Mart wes centrally Toned DCs witha network of srs fo decree te name iis ad incase ecen- 1) aeach DC. Wa Ma ui real toes only where the dra issaficet o ustiyhaing tverl of them support by DC, thereby increasing efcency of is tansportaton sets ‘Wal Mart esis lgicany ore han is competes in infomation ehnology allowing ‘he company to feed demand infrmation sons he suply chain supers who manatee ‘only whats being demanded. As aves, Wala is leaker iat se fh information vee {0 improve responsiveness and decrease inestryiavestibent. With regard the sour (kv Wal: Mar identifi efit sources for eck roc sel, Wal Mat feeds he arg ‘xd, allowing thet ecient by exlong economies ofl ily fer th ping ives, ‘WalMart pats “over day low prising” EDLP) fer is products. Ths ears tat aster erand ways tay and doesnot Suctute with rice varatons. The enti sopply chain then ocutes on meting hs demand in on ein mane, Wal: Mac ss al he spay ela divers to ctiev herp balance between espousiveress and eficeney sot compeitiv siaeey nd supply hin sete ain barony "We devote te nxt sx seton to dtiled discussion af each of the shee logstcal ands erssfuneuonl driver, thir roles in the supply cha, and their mpact on nancial performance. 3.4 FACILITIES In this sexton we discus he oe tht faites pla inthe spply chin andr iy ted ‘expensive fora fim fo devlep nextday delivery capability on Is own. In oter instances, firms have kept the responsive process a-hovse to malian cotrl, An example Ie Zar,(Chaper3 + Suply Chain Drivers Mei 55 which Kes responsive capacity inoue so itcan respond quickly to order as they ave. Fis also outsource for ficiency ifthe thi party can achieve significant economics of sale for has 2 lower undering cost sructre for other reasons. The following example lasts how Cinco has soured spropitly tobe efficent fr low-end products and responsive for high-end prodoes. EXAMPLE 3-6 Cisco ‘Cisco as outscured amos al fis manufacturing. Ides, however, have a sourcing sategy ‘that varies by predct ype. For low-end prodocts sch as ues fr home network, Cisco aims for fceney Thee rors ar reduced and paced in China ad shipped i tik for el inthe ‘United Sse. Cisco sims forte loves ost manufacturing location and economies of sale in rampetaton Because the rgeed rake sepent values low cost Fo highend pros in ‘cone, Caco outsource ocoirct maftre in the United Stats. Thee manufactures ‘rot ow ont but they ae responsive and can serve the rapily evolving ned of the hih-end make ‘Components of Sourcing Decisions We now conser ky soureing decisions that a made within frm. ‘mHOUSE on OUTSOURCE The mest significant sourcing decision fora fim is whether to ‘peforma task inhouse or outsource ito thin party. Within a ask sch a8 ansporatin, man- gers must decide wheter to eutsoure al of etsource ony the responsive component, ‘augue oa the ecient compenen. This decision should be ven i part by is impact on {he total sippy chain serps ts bet to outaoucef the groath a tot sappy ch Sg s ‘pict with Bi dona ak SUPPLIER SELECTION. Magers must decide on the umber of uppity wl ave fra Daricolar activity They mt then ety th eter slong which uplieswil be evaluated nd how they willbe selected. For he selection proces, manages mast decide whee they wll ‘ie dtet negotiations or esr oa auction If an auton is wed, it mast be strctued to ‘ensure the dese oncom PROCUREMENT Procurement the proces of ebaing goods and services within 8 supply ‘han, Managers must sroctreprocerement with a goal of increasing suppl chun surplus Fr example, a frm shoal set wp procurement fr dret materials ensure god cordination totween the spplier and boyer In contrast, the procurement of MRO product should be strctred to ens tht transaction costae low, SOURCING RELATED METRICS Sourcing decisions det Input the os of goo sold and scot pyable. The performace ofthe sore also impacts quali venti, and inbound {runporation cose, A manger shold rack te felowing soaring led mets hat abuonee supply shin perfomance: + Days payable oustanding measures the numberof days between when a supplier performed a supply chain tsk nd when it was pid + Average purchase price measies the average price at which good or sve was pa ‘hare ring the yea. The average price shoud be weighed by the quant porch at exch pice + Range of purchase pri weasures the Ductaion in purchase price during a specified peri. The gon fo Meni fh quantity prehitd related with the pe (Chop + Supply Chane Mei + Average purchase quantity weasores he serage amount puchsed pe ode. The goal Isto entity whether a sufiient level of aggregation is occuring cross locations when pacing anode: ‘Sepply quay measure the quali of prot spl. * Supply lad sine measures the average time between When an ders placed and when the prodet aves. Long la times reduce responsiveness and ad the iment the ply ebin mot ca + Proton of oni deliveries messes the fraction of dives from the sapierthat + Supplier reliabiy messes te varity of the supple’ lead tinea well the ‘elvered quantity elative to plan. Poo supplier reliability hurts responsiveness and de othe amount ffvenory the suply chain st ear OVERALL TRADE-OFF: INCREASE THE SUPPLY CHAIN SURPLUS. Sourcing decisions should boimade to increase he size of te ttl sul to be shared aos te sappy chan. The ek ‘pies feted bythe inpes of sourcing on sles, serve. production est inventory eos, ‘rnspetation oss, and information costs, Oatcarcing 16 a thd pati meaning ithe hi ty ie he uply china mre than he i canon tow, I cotta Gr shoal [sep srpply shin fonction nto if the hid party ean nrese the supply chain uphis orf ik associated with oaeourcng sigs. 3.9 PRICING ath secon, we discus the ole tht peicing ply inthe supply cn Role in the Supply Chain. Pricing i the process by which a firm decides how much to charge customer ort gods and services. Pricing flctsthe customer segments that choose 10 buy the product, a8 well {the customer’ expectations. This dee affects the supply cain in terme of the level of ‘espoasiveessfequlred as well as the demand profile that the supply chin attempts to ‘Serve Pricing is also a lover that canbe sed to match apply and demand especialy when the supply chan isnot very flexible. Shor-eem dicount canbe used to eliminate supply "ples or decrate seasonal demand spikes by moving sme of the demand forward. In ‘hort, pricing one ofthe most significant factors that affect he level and typeof demand that the soply chain wil face. Role in the Competitive Strategy Pricing is significant auibue through which afr executes its competitive strategy. For ample, Coto, 8 membership buen wholesaler i the Untod Stes, asa plc ta prices tis lap steady to low Customers expct low prices bat ar sortable with ower lela product avalbiiy. The steady pce also esure that demand says relatively sable, Cost rv a well-defined sepment and tein ths devgn an apposite saply chin. The Coto ‘ppl cai if be efile athe expense of some rerposiers In cons, ste ma ‘curing and easpration fms us pricing ta varies wit the response ine diel by (he custome: Tous tee pricing, these firms are argeting a baer st of customer, smn of vom esd reponsiveess weeds food ficiency In this case it Becomes important for These ms to srr + soppy chain tha an eet he to verge need Aaron wes © ‘mena of shila opians and pies wo iden customers who vale responsiveness and those ‘wh vale ow as This denen allows the company a serve bot eetvel,as own i the folowing example