WHAT IS SUPPLY CHAIN
Understanding the Supply Chain
Learning Objectives
After reading this chapter, you will be able to:
Discuss the goal of a supply chain and explain the impact of supply chain decisions on the success of a firm.
Identify the three key supply chain decision phases and explain the significance of each one.
Describe the cycle and push/pull views of a supply chain.
Classify the supply chain macro processes in a firm.
What is a Supply Chain?
A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. It includes:
Manufacturers
Suppliers
Transporters
Warehouses
Retailers
Customers
Supply chains embody all functions necessary to satisfy a customer's request such as new product development, marketing, operations, distribution, finance, and customer service.
Example: A customer purchasing detergent at Wal-Mart initiates a supply chain that involves multiple stages: from the retailer (Wal-Mart) stocking shelves using inventory supplied by a distributor, like P&G, who in turn relies on raw material suppliers.
Dynamic Information and Flow in Supply Chains
The supply chain is dynamic, incorporating constant flows of information, product, and funds. In the detergent example:
Wal-Mart supplies products and information.
The customer pays, and funds flow back to Wal-Mart and further along the supply chain.
Additional Example: An online purchase from Dell illustrates the network of flows involving the website serving customer info, assembly plants, and multiple suppliers.
The aim of the supply chain is to fulfill customer needs efficiently while generating profit. The cycle reflects both directions of flows between entities.
Supply Chain Structure
Instead of a linear structure, supply chains often resemble networks or webs, where multiple entities interact.
Stages may include:
Customers
Retailers
Wholesalers/Distributors
Manufacturers
Component/Raw Material Suppliers
The design of the supply chain should align with customer needs and the roles associated with each stage.
The Objective of a Supply Chain
The core objective is to maximize the overall value generated. The supply chain surplus is defined as:
Supply Chain Surplus = Customer Value - Supply Chain Cost.
Customer value is subjective and can be gauged by what a customer is willing to pay. The difference retained becomes the profit for the supply chain.
Example: A customer buys a router for $60 at Best Buy. The supply chain surplus is derived from the customer’s perceived value minus costs incurred in fulfilling the order.
Profitability Focus in Supply Chains
Supply chain profitability reflects the total profit across all supply chain members and should be prioritized above mere profits at individual stages. A united approach fosters overall gains in supply chain profitability.
Value addition varies significantly across different regions and structures, illustrated through the case studies of U.S. and Indian retailing.
The Importance of Supply Chain Decisions
Successful supply chain management closely ties to the design and flow of products, information, and funds within the chain.
Companies such as Wal-Mart, Amazon, and Seven-Eleven Japan exemplify success through effective supply chain design, planning, and management. These firms leverage superior management strategies to drive their operational success through interconnected supply chains.
What is Point of Sale in Supply Chain Management?
The Point of Sale (POS) in Supply Chain Management refers to the location where a sales transaction occurs between a business and a customer. It serves as a critical interface between the customer and the retailer, facilitating a range of functions including:
Transaction Processing: The actual exchange of goods for payment takes place here, with the system capturing customer data and transaction details.
Inventory Management: POS systems often integrate with inventory databases to update stock levels in real-time, ensuring that the supply chain can respond effectively to customer demand.
Sales Analytics: By collecting data from sales transactions, businesses can analyze purchase trends, customer behavior, and product performance, which can inform supply chain decisions.
Customer Relationship Management: POS systems often include customer loyalty programs, allowing businesses to build relationships with their customers through personalized marketing.
In summary, the Point of Sale is not just a transactional tool; it plays a vital role in the efficiency and effectiveness of the supply chain by connecting sales data, inventory management, and customer relationship management.
What is Point of Origin in Supply Chain Management?
The Point of Origin in Supply Chain Management refers to the initial location where goods are produced or sourced before being transferred through the supply chain. It serves as the starting point for product movement and influences various logistics and transportation decisions. Key aspects include:
Manufacturing Location: The place where raw materials are processed into finished goods.
Supplier Facilities: Locations where suppliers provide goods that will be integrated into a final product.
Impact on Logistics: The point of origin affects shipping routes, costs, and timing, influencing supply chain efficiency.
Quality Control: Products originating from different points may vary in quality, necessitating stringent quality checks to ensure that standards are met.
In summary, the Point of Origin plays a crucial role in determining how products are sourced, produced, and distributed within a supply chain.
Supply Chains as Supply NetworksMost supply chains operate as supply networks, where multiple interconnected entities collaborate to produce and deliver goods to end customers. This interconnectedness allows for more flexibility, responsiveness, and efficiency than a traditional linear supply chain model.
Stages of a Supply Network - Example: Smartphone Production
Point of Origin (Manufacturing Location): The components of a smartphone are sourced from various manufacturers around the world. For example, semiconductors may be produced in Taiwan, while screens might come from South Korea.
Component Suppliers: Suppliers provide essential parts such as processors, batteries, and cameras. They play a pivotal role in ensuring quality and timely delivery of components to manufacturers.
Assemblers (Manufacturers): Companies like Apple or Samsung assemble the components into finished smartphones. This stage often involves intricate logistics to coordinate parts arriving from numerous suppliers.
Transporters: Logistics services, including freight carriers, are responsible for moving components and finished products across various geographical locations, often involving customs clearance and inventory management.
Distributors: Distributors store the final products and manage the flow to retail locations or directly to customers, ensuring that products are accessible promptly.
Retailers: Stores and online platforms (like Amazon or Best Buy) facilitate the sale of smartphones to customers. They also accumulate valuable customer data that feeds back into the supply network for future decision-making.
Customers: The final stage, where consumers purchase and use the smartphones. Their feedback and purchasing behavior can drive changes in production strategies and supply network design.
Overall, viewing supply chains as networks enables businesses to optimize collaboration, adaptability, and innovation, responding effectively to market demands and changing consumer preferences.
Manufacturing and Service Supply Chain
The supply chain can be categorized into two main types: manufacturing supply chains and service supply chains.
Manufacturing Supply Chain
A manufacturing supply chain involves the production of goods. It typically includes the following stages:
Raw Material Suppliers: Provide necessary materials like aluminum for soda cans.
Manufacturers: Convert raw materials into finished products, such as producing the soda can from aluminum sheets.
Distributors: Transport finished goods to wholesalers or retailers.
Retailers: Sell the final product to consumers, like grocery stores or convenience stores.
Customers: Purchase and consume the product.
Example: The supply chain for manufacturing a soda can starts with aluminum extraction, followed by aluminum sheet production, can manufacturing, distribution to retailers, and finally, customer purchase at a store.
Service Supply Chain
A service supply chain focuses on the delivery of services instead of products. The stages often include:
Input Providers: Various providers supply resources, like servers for a tech company.
Service Provider: The business that delivers the service, like a customer support call center.
Customer Interaction: This occurs when customers use the service.
Feedback Loop: Customers provide feedback which can help improve the service.
Example: In a food delivery service, the supply chain consists of food suppliers, the restaurant that prepares the meal, delivery personnel, and the customer who receives the food.
Stages and Flow for Purchase of a Soda Can
Point of Origin (Manufacturing Location): Aluminum is sourced from suppliers.
Component Suppliers: These suppliers provide packaging materials and ingredients like carbonated water, flavoring, and sweeteners.
Manufacturers: The soda can is produced and filled at bottling plants.
Transporters: Freight carriers move the finished soda cans to regional distributors.
Distributors: Store the cans and ship them to various retail locations.
Retailers: Grocery stores or convenience stores offer the soda for sale to customers.
Customers: Finally, customers purchase the soda from the store, completing the supply chain process.
This flow illustrates how interconnected these stages are and highlights the complexities involved in the supply chain for a simple product like a soda can.