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Chapter 11 • Supply Chain Management 309

INVENTORY Inventory is the raw materials, work in process, and finished goods that belong to
the company. Inventory is an important supply chain driver because changing inventory policies
can dramatically alter the supply chain’s efficiency and responsiveness. For example, to deal
with the high demand of the product during the holiday season, manufacturers can make it more
responsive by stocking large amount of inventory. With large inventory, the likelihood of stock
out for that product is low. It can better service its customer during the holiday season. A large
inventory, however, will increase the manufacturer’s inventory holding cost, thereby making it
less efficient. Reducing inventory will make the company more efficient, but will hurt its respon-
siveness. To reduce the stockout probability, companies usually keep a certain amount of safety
stock that provides the buffer for stock out. A successful inventory management policy is
to achieve that right balance of responsiveness and efficiency. It is worth noting that there is no
finished goods inventory for the service industry. For example, for an accounting firm their
finished product is the accounting service, which is not stockable.

TRANSPORTATION Transportation moves the product between different stages in a supply
chain. Like the other supply chain drivers, transportation has a large impact on both respon-
siveness and efficiency. The type of transportation a company uses also affects the inventory
and facility locations in the supply chain. Transportation can take the form of many combina-
tions of modes and routes, each with its own performance characteristics. For example, a
company can outsource the production to China and ship its entire finished product across the
Pacific Ocean via an international container shipment. Such a practice clearly increases
efficiency, but it decreases the responsiveness to the customer because shipment via sea takes
long periods of time. On the other hand, Dell flies in several PC components from Asia
because doing so allows the company to lower the levels of inventory it holds. This practice
increases the responsiveness, but it decreases transportation efficiency because it is more costly
than transporting parts by ship.

INFORMATION Information consists of data and analysis concerning facilities, inventory, trans-
portation, and customers throughout the supply chain. Information could be overlooked as a major
supply chain driver because it does not have a physical presence; however, information is poten-
tially the biggest driver of performance, or efficiency, in the supply chain because it directly
affects each of the other drivers. Information presents management with the opportunity to make
supply chains more responsive and efficient. Information serves as the connection between the
supply chain’s various stages, allowing them to coordinate and bring about many of the benefits of
maximizing total supply chain profitability. Information is also crucial to the daily operation of
each stage in a supply chain. For instance, a production scheduling system uses information on
demand to create a schedule that allows a factory to produce the right products in an efficient
manner. A warehouse management system uses information to create visibility of the warehouse’s
inventory. The company can then use this information to determine whether new orders can be
filled. There are a lot of SCM solution vendors (e.g., i2, Inc.) currently on the market that provide
sophisticated ways to store, analyze, and report the relevant information to the managers.

SCM Flows
Supply chains exist in both service and manufacturing organizations, although the complexity
of the chain may vary greatly from industry to industry and firm to firm. One view of the supply
chain is to see it as a network carrying different flows to satisfy the customer demand. Supply