Supply chain

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An illustration of a company's supply chain; the arrows stand for supplier-relationship management, internal SCM and customer-relationship management (cf. Chen/Paulraj, 2004)

A 'supply chain is the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains^[1].

A typical supply chain begins with ecological and biological regulation of natural resources, followed by the human extraction of raw material, and includes several production links (e.g., component construction, assembly, and merging) before moving on to several layers of storage facilities of ever-decreasing size and ever more remote geographical locations, and finally reaching the consumer.

Many of the exchanges encountered in the supply chain will therefore be between different companies that will seek to maximize their revenue within their sphere of interest, but may have little or no knowledge or interest in the remaining players in the supply chain. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the Extended Enterprise.^[2]

[edit] Supply chain modeling

A diagram of a supply chain. The black arrow represents the flow of materials and information and the gray arrow represents the flow of information and backhauls. The elements are (a) the initial supplier, (b) a supplier, (c) a manufacturer, (d) a customer, (e) the final customer.

There are a variety of supply chain models, which address both the upstream and downstream sides.

The SCOR (Supply Chain Operations Reference) model, developed by the Supply Chain Council, measures total supply chain performance. It is a process reference model for supply-chain management, spanning from the supplier's supplier to the customer's customer.^[3]. It includes delivery and order fulfillment performance, production flexibility, warranty and returns processing costs, inventory and asset turns, and other factors in evaluating the overall effective performance of a supply chain.

The Global Supply Chain Forum (GSCF) introduced another Supply Chain Model. This framework ^[4] is built on eight key business processes that are both cross-functional and cross-firm in nature. Each process is managed by a cross-functional team, including representatives from logistics, production, purchasing, finance, marketing and research and development. While each process will interface with key customers and suppliers, the customer relationship management and supplier relationship management processes form the critical linkages in the supply chain.

[edit] Supply chain management

A German paper factory receives its daily supply of 75 tons of recyclable paper as its raw material

In the 1980s the term Supply Chain Management (SCM) was developed ^[5], to express the need to integrate the key business processes, from end user through original suppliers. Original suppliers being those that provide products, services and information that add value for customers and other stakeholders. The basic idea behind the SCM is that companies and corporations involve themselves in a supply chain by exchanging information regarding market fluctuations and production capabilities.

If all relevant information is accessible to any relevant company, every company in the supply chain has the possibility to and can seek to help optimizing the entire supply chain rather than sub optimize based on a local interest. This will lead to better planned overall production and distribution which can cut costs and give a more attractive final product leading to better sales and better overall results for the companies involved.

Incorporating SCM successfully leads to a new kind of competition on the global market where competition is no longer of the company versus company form but rather takes on a supply chain versus supply chain form.

Many electronics manufacturers of Guangdong rely on supply of parts from numerous component shops in Guangzhou

The primary objective of supply chain management is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory and labor. In theory, a supply chain seeks to match demand with supply and do so with the minimal inventory. Various aspects of optimizing the supply chain include liaising with suppliers to eliminate bottlenecks; sourcing strategically to strike a balance between lowest material cost and transportation, implementing JIT (Just In Time) techniques to optimize manufacturing flow; maintaining the right mix and location of factories and warehouses to serve customer markets, and using location/allocation, vehicle routing analysis, dynamic programming and, of course, traditional logistics optimization to maximize the efficiency of the distribution side.

There is often confusion over the terms supply chain and logistics. It is now generally accepted that the term Logistics applies to activities within one company/organization involving distribution of product whereas the term Supply chain also encompasses manufacturing and procurement and therefore has a much broader focus as it involves multiple enterprises, including suppliers, manufacturers and retailers, working together to meet a customer need for a product or service.^{[citation needed]}

Starting in the 1990s several companies choose to outsource the logistics aspect of supply chain management by partnering with a 3PL, Third-party logistics provider. Companies also outsource production to contract manufacturers.^{[citation needed]}

There are actually four common Supply Chain Models. Besides the two mentioned above, there are the American Productivity & Quality Center's (APQC) Process Classification Framework and the Supply Chain Best Practices Framework.

[edit] See also

• American Production and Inventory Control Society
• Cold chain
• C-VARWIP
• Demand chain
• Demand chain management
• Demand optimization
• Distribution
• Distribution resource planning
• Factory Physics
• Extended Enterprise
• Industrial engineering
• Inventory control
• Liquid logistics
• Logistics
• Military supply chain management
• Reverse logistics
• Supply network
• Supply chain management
• Supply chain network
• Supply chain optimization
• Supply chain security
• Value chain

[edit] External links

• Glossary of supply chain standards

[edit] References