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308 Chapter 11 • Supply Chain Management

from distribution centers, because so many cases and pallets still arrive stamped with bar
codes, to stores. There, it can work with goods from the suppliers that place RFID tags to
find ways to reduce out-of-stock situations and, more recently, to drive sales promotions.
On the store front, Wal-Mart has expanded its RFID use from 100 to 1,000 stores.
Readers are typically located at loading dock entrances, at entrances leading from
backrooms to sales floors, and at trash compactors where boxes are destroyed. Data are
collected when product moves, including at the cash register, allowing Wal-Mart to
generate printouts for employees to prioritize restocking duties. Suppliers can link into
Wal-Mart’s e-SCM system over the Web to check exactly where their products are. In
addition, Wal-Mart is also starting to give employees handheld RFID readers that beep
based on proximity to specified products, making them easier to find. 5
One Wal-Mart supplier, consumer goods company Kimberly-Clark, is focusing on sales
promotion through a pilot program that uses RFID to monitor promotions of its Depend adult
diapers. The company created fully stocked promotional displays of Depend and put RFID
tags on the displays before shipping them to Wal-Mart and Target, another RFID pioneer.
Using software from OAT Systems, Kimberly-Clark could see on a color-coded dashboard
how many stores received the product in the stockroom and how many put it on the store floor.

SCM Drivers
For companies, achieving strategic fit simply means achieving the balance between supply chain
responsiveness and efficiency in its supply chain that best meets the needs of the company’s
competitive strategy. To understand how a company can improve supply chain performance in
terms of responsiveness and efficiency, we must examine the four key drivers of supply chain:
facilities, inventory, transportation, and information. These drivers determine the supply chain’s
performance in terms of responsiveness and efficiency, as well as whether strategic fit has been
achieved across the supply chain.

FACILITIES Facilities are the places in the supply chain network where product is manufac-
tured, stored, or transshipped. The two major types of facilities are production sites (plants) and
storage sites (warehouses). Whatever the function of the facility, decisions regarding location,
capacity, and flexibility of facilities have a significant impact on the supply chain’s performance.
For a certain company, it needs to decide how many suppliers, manufacturing facilities, distribu-
tion centers, and warehouses to have, and where these facilities should be located, along with
where the market is for its products (i.e., where are its customers). The decision on facility
directly affects the company’s inbound and outbound transportation costs, responsiveness to the
market, and inventory level. For example, increasing the number of warehouse locations decreases
the average outbound distance to a customer and makes outbound transportation distance a
smaller fraction of total distance traveled by the product. Thus, as long as inbound transportation
economies of scale are maintained, increasing the number of facilities will decrease the overall
transportation cost. The inbound lot sizes can become very small if the number of facilities is
increased, which results in a significant loss of economies of scale for inbound transportation. In
general, increasing the number of facilities increases total transportation cost.

5 Wal-Mart. (July 12, 2010). CIO Still “Bullish” on RFID, http://www.rfidjournal.com/blog/entry/7315/