Explain the difference between an efficient and a responsive supply chain, and the business context for which each works best

Efficient supply chains are designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow. A focus on efficiency works best for goods and services with highly predictable demand, stable product lines with long life cycles that do not change frequently, and low contribution margins. In designing an efficient supply chain, for example, an organization would seek to balance capacity and demand, resulting in low levels of inventory; might use only a few large distribution centers (as opposed to small ones) to generate economies of scale; and use optimization models that minimize costs of routing products from factory through distribution centers to retail stores and customers.

Responsive supply chains focus on flexibility and responsive service and are able to react quickly to changing market demand and requirements. A focus on flexibility and response is best when demand is unpredictable; product life cycles are short and change often because of product innovations; fast response is the main competitive priority; customers require customization; and contribution margins are high. Responsive supply chains have the ability to quickly respond to market changes and conditions faster than traditional supply chains; are supported by information technology that provides real-time, accurate information to managers across the supply chain; and use information to identify market changes and redirect resources to address these changes.