what is a supply chain a supply chain is
a global network used to deliver
products and services from raw materials
to end customers through an engineered
flow of information physical
distribution and cash
basic supply chain for a product the
below figure illustrates a very basic
supply chain with three entities a
producer with one supplier and one
customer for basic flows that connect
the supply chain entities together are
as follows flow of physical materials
and services from suppliers to the end
customer flow of cash from the customer
to the raw materials supplier flow of
information back and forth along the
chain and reverse flow of product
returned
a basic supply chain in this figure is
made up of these entities seller is a
supplier who provides goods and services
or a person or organization with whom
the buyer does business their generic
term in marketplace is sailor supplier
provides materials energy services or
components for a product or service such
as plastic fabric electric wiring or
aircraft a producer is the one who
receives components from the seller to
produce a finished good or service such
as shirts from fabric crockery from
plastic power from electric wiring or
provides transportation through aircraft
the customer is the one who receives the
finished product that is the one who
wears those shirts uses the crockery
turns on the lights or flies in an
aeroplane
strategies there are three types of
supply chain strategies stable reactive
and efficient reactive stable supply
chain strategy is appropriate for chains
that are focused on execution
efficiencies and cost performance they
use simple connectivity technologies and
have little need for real-time
information for example table salt
manufacturer uses scaled production and
dedicated capital assets reactive supply
chain strategy works well when the chain
acts to fulfill demand from trade
partners for example manufacturer a
sports team apparel for fans when it
seemed makes it to the next round more
products are needed however for the
losing team demand virtually disappears
efficient reactive supply chain strategy
focuses on the efficiency and cost
management on the total delivered cost
of finished goods for example in
supermarket chains distribution centers
logistics providers and manufacturers
cooperate to replace the goods sold in
the shops within less than 24 hours
flows in supply chains there are four
flows in supply chains information flow
includes invoices sales literature
specifications receipts orders and rules
and regulations primary cash flow
includes payments of products and
supplies primary product flow includes
materials components supplies services
and finished products reverse product
flow includes returns for repair
replacements recycling and disposals
supply-chain example consider a supply
chain model of a bakery who sells a
variety of cakes and this Baker is one
end of a supply chain in this case a
supplier is a wholesale food distributor
that provides ingredients such as flour
cream and sugar the bakery is the
producer who turns those ingredients
into a variety of cakes the bakery is
operated by an owner who is the retailer
and who sells these cakes to the
customer
supply chain in manufacturing consider a
complex manufacturing supply chain model
that appears in corporate supply chains
in this model you will notice the second
tier of suppliers and more distribution
centers and customers these suppliers
supply materials as well as services you
put the manufacturing at the center and
suppliers of components to the immediate
left the Tier one suppliers have their
own suppliers in tier two for example
Co one supplier might be a wholesale
food distributor that purchases flour
from its own supplier this supply chain
for flour starts from farmers wheat
field which is supplied to the food
distributor processed in a plant shipped
to wholesalers and distribute it to the
stores no matter how far you travel
toward the left you will never run out
of new tiers of suppliers primary
product flows from left to right and
primary cash flows from right to left
supply chain in services initially the
supply chain model was developed for
manufacturing but service industry has
supply chains to a few examples of
services industries our electricity
provider legal advisor real estate
construction software house and even
federal government in its broadest sense
service industries include all
organizations except farming mining and
manufacturing below exhibit illustrates
the supply chain of an electric utility
it receives products services and
supplies and dispenses its services to
home customers commercial customers and
to other utilities
firms generally pursue one of the two
types of supply chain management
vertical integration and lateral or
horizontal integration vertical supply
chain management it is an arrangement in
which the supply chain of a company is
owned by that company usually each
member of the supply chain produces a
different product or market specific
service and the products combine to
satisfy a common need this structure
still persists in some companies
vertical integration enterprise may grow
from an entrepreneurial base by adding
departments and layers of management or
through mergers and acquisitions for
example in an attempt to create a
self-sufficient enterprise Ford owned
iron ore mines steel mills a fleet of
ships manufacturing plants and showrooms
that built and distributed the Ford cars
horizontal integration it is an
expanding of a business by acquiring a
similar company in the same industry it
is contrasted with vertical integration
where company produces different items
which are related to one product the
company may do this via internal
expansion acquisition or merger the
process can lead to monopolies if a
company captures the vast majority of
the market for that good or service for
example a company that manufactures
shampoo may add other brands to appeal
to a wider customer base
benefits of vertical integration its
primary benefit is control no dependency
for components or services operations
can be synchronized with other company
functions
benefits of lateral integration they
achieve economies of scale and scope
they focus entirely on particular
business so develop more expertise and
they know their market well
differences between vertical and lateral
integration when a company wishes to
grow through a vertical integration it
is seeking to strengthen its supply
chain reduce its production costs
capture upstream or downstream profits
or access downstream distribution
channels however when a company wishes
to grow through a horizontal integration
it is seeking to increase its size
diversify its product or service achieve
economies of scale reduce competition or
gain access to new customers of the same
market
stages of supply chain management
evolution the advances in supply chain
management are reflected in each supply
chains development there are typically
four or five sequential stages globally
and within organizations starting from
state zero to four they are stable
multiple dysfunction semi-functional
Enterprise integrated enterprise and
extended enterprise every organization
falls somewhere within these five stages
some companies shelter from changes so
they are less advanced some took
advantages of changes and some
organizations believe that they are in
the most advanced stage step one
multiple dysfunction the nucleus
organization lacks internal definition
in goals there are no external
connections other than a few
transactional links below exhibit
illustrates the lack of coordinated
flows of information or solid
relationships among potential partners
such organizations have unplanned
activities more threats less forecasting
demand and supply issues and poor
payment flows
Stage two semi functional Enterprise at
this stage nucleus organization begins
to improve effectiveness efficiency and
quality within functional areas as
explained in a below exhibit information
flow has been improved and functional
areas have been defined however
departments perform their functions one
after the other there is no
collaboration between various
departments and no partnership formed
with customers and suppliers
Stage three integrated enterprise these
organizations are fully integrated
between departments using enterprise
resource planning or ERP this is a
preload to end-to-end supply chain
management as explained in below exhibit
individual firm begins to focus on
business processes rather than
compartmentalized functions corporate
wall links supply chain partners
together
stage-four extended enterprise the firm
integrates its internal network with the
internal networks of supply chain
partners in order to improve
efficiencies product or service quality
or both exhibit shows the advancement
this structure allows complete sharing
of information across integrated
networks and team building and planning
across corporate boundaries
what is supply chain management it is
the management of the flow of goods and
services it includes the movement and
storage of raw materials work-in-process
inventory and finished goods from point
of origin to point of consumption every
product that reaches an end user
represents the cumulative effort of
multiple organizations some
organizations have only paid attention
to what was happening within their four
walls while some did not but the entire
chain of activities ultimately delivered
products to the final customer the
result was disjointed and often
ineffective supply chain
you