Meeting the requirements of end-customers requires the supply chain to achieve appropriate levels of the five operations performance objectives: •Quality. The quality of a product or service when it reaches the customer is a function of the quality performance of every operation in the chain that supplied it. Errors in each stage of the chain can multiply in their effect on end-customer service, so if each of 7 stages in a supply chain has a 1 per cent error rate, only 93. 2 per cent of products or services will be of good quality on reaching the end-customer (i. e. 0. 991).
This is why, only by every stage taking some responsibility for its own and its suppliers’ performance, can a supply chain achieve high end-customer quality. •Speed has two meanings in a supply chain. The first is how fast customers can be served, an important element in any business’s ability to compete. However, fast customer response can be achieved simply by over-resourcing or over-stocking within the supply chain. For example, very large stocks in a retail operation can reduce the chances of stock-out to almost zero, so reducing customer waiting time virtually to zero.
Similarly, an accounting firm may be able to respond quickly to customer demand by having a very large number of accountants on standby waiting for demand that may (or may not) occur. An alternative perspective on speed is the time taken for goods and services to move through the chain. So, for example, products that move quickly down a supply chain will spend little time as inventory because to achieve fast throughput time, material cannot dwell for significant periods as inventory.
This in turn reduces inventory-related costs in the supply chain. Dependability – like speed, one can almost guarantee ‘on-time’ delivery by keeping excessive resources, such as inventory, within the chain. However, dependability of throughput time is a much more desirable aim because it reduces uncertainty within the chain. If the individual operations in a chain do not deliver as promised on time, there will be a tendency for customers to over-order, or order early, in order to provide some kind of insurance against late delivery. This is why delivery dependability is often measured as ‘on time, in full’ in supply chains. Flexibility – in a supply chain context is usually taken to mean the chain’s ability to cope with changes and disturbances.
Very often this is referred to as supply chain agility. The concept of agility includes issues such as focusing on the end-customer and ensuring fast throughput and responsiveness to customer needs. But, in addition, agile supply chains are sufficiently flexible to cope with changes, either in the nature of customer demand or in the supply capabilities of operations within the chain. Cost – in addition to the costs incurred within each operation, the supply chain as a whole incurs additional costs that derive from each operation in a chain doing business with each other. These may include such things as the costs of finding appropriate suppliers, setting up contractual agreements, monitoring supply performance, transporting products between operations, holding inventories, and so on. Many developments in supply chain management, such as partnership agreements or reducing the number of suppliers, are attempts to minimize transaction costs.