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Supply Chain Management Introduction: Supply Chain Systems for Logistics Operations Management

Updated on September 18, 2012

What Is The Definition Of A Supply Chain, And Why Are Supply Chains Important?

A supply chain is a system purposed to move products or services from suppliers to customers. It links value chains, employees, technology, activities, and information across multiple organizations, companies, and businesses. Supply chains are very important, because they’re responsible for moving goods across states and countries.

Supply chains can be analyzed via the various flows that they involve. For example, there’s the materials flow – the flow of raw materials through various activities and processes that form them into the end consumer product. In a furniture business, raw materials like wood go through various steps (cutting, construction, varnishing, etc) until they’re fully transformed into furniture. Each step of the process may occur in a different company, and each step is associated with an information flow (documents like materials requisition forms and other related information).

Reverse flows exist as well, in various different areas. Recyclable materials and transportation equipment make their way back from consumer to supplier, along with unsold or broken goods.

Payments are an example of a reverse flow. When Company X provides Company Y with a thousand planks of wood (materials flow FROM X TO Y), Company X will most likely want to be paid! So funds must flow in reverse FROM Company Y TO Company X.

Forces that Influence Supply Chains: Product Supply and Customer Demand

Like many things in business, supply chains are tied strongly to the law of supply and demand. Depending on the business, however, the supply chain is initiated by one or the other. Compare the following two scenarios.

In a retail department store, clothes mass produced by manufacturers are sold to consumers. Consumers do not have unlimited options – they may only purchase what the manufacturers have chosen to sell. Thus, the retail department store’s supply chain is product supply driven.

On the other hand, in a high end custom clothier’s shop, the customer is the one driving the supply chain. The customer walks in and decides what fabric they want, what buttons, what stitching, etc. The clothier is then responsible for obtaining those materials. Thus, the supply chain is customer driven.

Functional Analysis of Supply Chain Management: Planning, Sourcing, Production, Delivery, and Reverse Logistics

To effectively manage a supply chain, five components must be taken into account: planning, sourcing, production, and delivery.

Planning refers to analyzing supply and demand and developing a business plan. In this stage, supply chain concerns (like logistics) must be balanced with financial concerns (does the business have the funds to engage in this activity).

Once a plan is established, the supply chain manager can move on to sourcing. The meaning of “sourcing” is “finding suppliers of raw materials.” If your company wants to sell furniture, you’d better know where to get some wood. Sourcing, in this instance, is the process of finding suppliers of wood. (Terms such as procurement and purchasing can also be used to refer to the actual purchase and receipt of goods.)

Once raw materials have been acquired, the business can now begin the production stage. The definition of production is straightforward: the conversion of raw materials into end products.

The final forward flow step is delivery. Obviously, once products are made, they need to be transported to their end destination (typically retailers or consumers).

One more important step is reverse logistics. This is a process that incorporates all the different forms of reverse flow, such as product returns.

Supply Chain Participants: Managing Logistics Without Silos

Managing operations is a complicated process, because in the modern globalized economy, business processes are often interlinked. Rarely is one single business responsible for every aspect of a product, cradle-to-grave. For example, Procter and Gamble does not actually grow aloe vera for their shampoos – nor do they go door to door, selling their shampoos. So P&G is dependent on other companies – like Walmart – for specific functions in their supply chain.

Because of this interlinkage, it is important to avoid modalities known in the business world as “silos.” A silo occurs when thought occurs inside a narrow range, and attention is only paid to the business at hand. This doesn’t work. Supply chains cannot be managed in isolation because they are by nature interorganizational. Consequently, cooperation in logistics and operations management is necessary to maximize the efficiency of the supply chain for all companies involved.

In a very basic supply chain, only the direct participants – the supplier and the customer – are considered. But for many multinational corporations, another level of analysis and management is necessary. For example, Apple is reliant on companies such as FoxConn to produce parts for their iPhones. However, a disruption in the operations of upstream mining companies that provide FoxConn with raw materials will result in potentially catastrophic delays for Apple. Thus, although Apple may not be directly involved with all of their suppliers’ suppliers, they must consider them when managing their supply chain. Similarly, they must be ready to manage downstream relationships with customers’ customers. This is called an extended supply chain.

Working together and sharing information with other members of a supply chain can help alleviate problems like the bullwhip effect, which refers to the amplification of demand signals as they travel upstream. If retailers let manufacturers know to expect higher demand (via a demand forecast) during a certain month, the manufacturer can begin preparing earlier – in turn, helping their raw materials suppliers avoid a need-it-now squeeze.

Supply Chain Management: Deals on Further Reading

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