Operations Management 101: Supply Chain Management Supply Chain Strategies Efficient vs Responsive Push vs Pull Postponement

What This Is

Supply Chain Strategies refer to the approaches organizations use to manage their supply chains, which involve the flow of goods, services, and information from raw materials to end customers. Efficient vs Responsive supply chain strategies are two fundamental approaches that differ in their focus, structure, and performance metrics. An efficient supply chain aims to minimize costs and maximize efficiency, while a responsive supply chain prioritizes speed, flexibility, and customer satisfaction. For example, Toyota's efficient supply chain strategy involves just-in-time (JIT) production and a strong focus on quality control, while Amazon's responsive supply chain strategy emphasizes fast and flexible delivery options.

Key Formulas & Frameworks

• Efficiency Ratio = (Total Output - Total Input) / Total Input: Measures the efficiency of a process by comparing the output to the input.
• Productivity = Output / Input: Measures the productivity of a process by comparing the output to the input.
• Little's Law: WIP = Throughput × Cycle Time: Describes the relationship between work-in-progress (WIP), throughput, and cycle time in a production system.
• EOQ = √(2DS/H) where D = annual demand, S = ordering cost, H = holding cost per unit per year: Calculates the Economic Order Quantity (EOQ) that minimizes the total cost of ordering and holding inventory.
• Push vs Pull Strategy: A push strategy involves producing and stocking inventory based on forecasts, while a pull strategy involves producing and stocking inventory based on customer demand.
• Postponement = (Value Added / Total Cost) × (Total Cost / Value Added): Measures the potential benefits of postponement by comparing the value added to the total cost.
• Supply Chain Velocity = (Supply Chain Lead Time / Supply Chain Cycle Time): Measures the speed of a supply chain by comparing the lead time to the cycle time.

Step-by-Step Application

1. Calculate the Economic Order Quantity (EOQ): Use the formula EOQ = √(2DS/H) to calculate the optimal order quantity that minimizes the total cost of ordering and holding inventory.
2. Determine the Push vs Pull Strategy: Evaluate the production and inventory management processes to determine whether a push or pull strategy is more suitable.
3. Analyze the Benefits of Postponement: Use the postponement formula to measure the potential benefits of postponement and determine whether it is a viable option.
4. Measure Supply Chain Velocity: Use the supply chain velocity formula to measure the speed of the supply chain and identify areas for improvement.
5. Evaluate the Efficiency Ratio: Use the efficiency ratio formula to measure the efficiency of a process and identify areas for improvement.

Common Mistakes

• Mistake: Confusing efficiency with productivity.
• Correction: Efficiency measures the output-input ratio, while productivity measures the output-input ratio per unit of time.
• Mistake: Assuming that a push strategy is always more efficient than a pull strategy.
• Correction: A push strategy may be more efficient in the short term, but a pull strategy can provide more flexibility and responsiveness in the long term.
• Mistake: Failing to consider the benefits of postponement.
• Correction: Postponement can provide benefits such as reduced inventory costs, improved product customization, and increased flexibility.

Exam / Certification Tips

• Tricky Distinction: Push vs Pull strategy - a push strategy involves producing and stocking inventory based on forecasts, while a pull strategy involves producing and stocking inventory based on customer demand.
• APICS Terminology: Supply Chain Velocity - measures the speed of a supply chain by comparing the lead time to the cycle time.
• Six Sigma Terminology: Efficiency Ratio - measures the efficiency of a process by comparing the output to the input.

Quick Practice Problem

A company produces 100 units per day and has a production rate of 120 units per hour. What is the takt time?

Answer: 0.83 hours (or approximately 50 minutes) Explanation: Takt time is calculated by dividing the production rate by the demand rate.

Last-Minute Cram Sheet

• ⚠️ Efficiency is actual output / effective capacity; Utilization is actual output / design capacity.
• EOQ = √(2DS/H)
• Push strategy: produce and stock inventory based on forecasts.
• Pull strategy: produce and stock inventory based on customer demand.
• Postponement: (Value Added / Total Cost) × (Total Cost / Value Added)
• Supply Chain Velocity = (Supply Chain Lead Time / Supply Chain Cycle Time)
• Efficiency Ratio = (Total Output - Total Input) / Total Input
• Productivity = Output / Input
• Little's Law: WIP = Throughput × Cycle Time