Supply chain
A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management focuses on the optimization of the flow of goods within the supply chain's distribution channels to ensure efficiency.
In sophisticated supply chain systems, the reintroduction of used products into the supply chain may occur at any point where the residual value of the product is recyclable. Supply chains are linked to value chains, and suppliers within a supply chain are often organized into tiers. First-tier suppliers, also referred to as "direct suppliers", directly supply goods or services to the client. Second-tier suppliers supply to the first tier, and so on, creating a hierarchical structure within the supply network.
The phrase "supply chain" may have been first published in a 1905 article in The Independent, which briefly mentioned the difficulty of "keeping a supply chain with India unbroken" during the British expedition to Tibet.
Overview
A typical supply chain can be divided into two stages namely, production and distribution stages. In the production stage, components and semi-finished parts are produced in manufacturing centres. The components are then put together in an assembly plant. The distribution stage consists of central and regional distribution centres that transport products to end-consumers. Mentzer et al. suggest that at least three entities are required for there to be a "supply chain".At the end of the supply chain, materials and finished products only flow there because of the customer behaviour at the end of the chain; academics Alan Harrison and Janet Godsell argue that "supply chain processes should be coordinated in order to focus on end customer buying behaviour", and look for "customer responsiveness" as an indicator confirming that materials are able to flow "through a sequence of supply chain processes in order to meet end customer buying behaviour".
Many of the exchanges encountered in the supply chain take place between varied companies that 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 who cooperate in providing product and service offerings has been called the extended enterprise, and the use of the term "chain" and the linear structure it appears to represent have been criticized as "harder to relate to the way supply networks really operate. A chain is actually a complex and dynamic supply and demand network.
As part of their efforts to demonstrate ethical practices, many large companies and global brands are integrating codes of conduct and guidelines into their corporate cultures and management systems. Through these, corporations are making demands on their suppliers and verifying, through social audits, that they are complying with the required standard. A lack of transparency in the supply chain can bar consumers from knowledge of where their purchases originated and facilitate socially irresponsible practices. In 2018, the Loyola University Chicago's Supply and Value Chain Center found in a survey that 53% of supply chain professionals considered ethics to be "extremely" important to their organization.
In some cases, the operation of multiple tiers within a supply chain may give rise to additional costs, due the "profit layering", where each tier's operators add a profit margin to their costs. For example, in 2015 the UK's Ministry of Justice recognised that its lift maintenance and refurbishment contracts were let to a main contractor who then sub-contracted the work to a specialist lift contractor. The ministry avoided the cost impact of this arrangement by contracting for lift work directly with the specialist contractors.
Typologies
Marshall L. Fisher asks the question in a key article, "Which is the right supply chain for your product?" Fisher, and also Naylor, Naim and Berry, identify two matching characteristics of supply chain strategy: a combination of "functional" and "efficient", or a combination of "responsive" and "innovative".Mentzer et al. distinguish between "direct supply chains", "extended supply chains", and "ultimate supply chains"; in their usage:
- a "direct" supply chain involves a company, a supplier and a customer
- an "extended" supply chain includes suppliers of the immediate supplier and customers of the immediate customer
- an "ultimate" supply chain includes all of the organizations involved in the supply of the product or service.
Brown et al. refer to supply chains as either "loosely coupled" or "tightly coupled": These ideas refer to two polar models of collaboration: tightly coupled, or "hard-wired", also known as "linked", collaboration represents a close relationship between a buyer and supplier within the chain, whereas a loosely-coupled link relates to low interdependency between buyer and seller and therefore greater flexibility. The Chartered Institute of Procurement & Supply's professional guidance suggests that the aim of a tightly coupled relationship is to reduce inventory and avoid stock-outs.
Modeling and mapping
There are a variety of supply-chain models, which address both the upstream and downstream elements of supply-chain management. The SCOR model, developed by a consortium of industry and the non-profit Supply Chain Council became the cross-industry de facto standard defining the scope of supply-chain management. SCOR measures total supply-chain performance. It is a process reference model for supply-chain management, extending "from the supplier's supplier to the customer's customer". 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.A supply chain can often be split into different segments: the earlier stages of a supply chain, such as raw material processing and manufacturing, determine their break-even point by considering production costs relative to market price. The later stages of a supply chain, such as wholesale and retail determine their break-even point by considering transaction costs, relative to market price. Additionally, there are financial costs associated with all the stages of a supply chain model.
The Global Forum has introduced an alternative supply chain model. This framework 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 interfaces with key customers and suppliers, the processes of customer relationship management and supplier relationship management form the critical linkages in the supply chain.
The American Productivity and Quality Center Process Classification Framework SM is a high-level, industry-neutral enterprise process model that allows organizations to see their business processes from a cross-industry viewpoint. The PCF was developed by APQC and its member organizations as an open standard to facilitate improvement through process management and benchmarking, regardless of industry, size, or geography. The PCF organizes operating and management processes into 12 enterprise-level categories, including process groups, and over 1,000 processes and associated activities.
In the developing country public health setting, John Snow, Inc. has developed the JSI Framework for Integrated Supply Chain Management in Public Health, which draws from commercial sector best practices to solve problems in public health supply chains.
Similarly, supply chain mapping involves documenting information regarding all participants in an organization's supply chain and assembling the information as a global map of the organization's supply network.
Management
In the 1980s, the term supply-chain management was developed to express the need to integrate the key business processes, from end user through original suppliers. Original suppliers are those that provide products, services, and information that add value for customers and other stakeholders. The basic idea behind SCM is that companies and corporations involve themselves in a supply chain by exchanging information about market demand, distribution capacity and production capabilities. Keith Oliver, a consultant at Booz Allen Hamilton, is credited with the term's invention after using it in an interview for the Financial Times in 1982. The term was used earlier by Alizamir et al. in 1981, and Burns and Sivazlian in 1978.If all relevant information is accessible to any relevant company, every company in the supply chain has the ability to help optimize the entire supply chain rather than to sub-optimize based on local optimization. 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. This is one form of vertical integration. Yet, it has been shown that the motives for and performance efficacy of vertical integration differ by global region.
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.
File:华强电子世界 2.jpg|thumb|Many electronics manufacturers of Guangdong and beyond rely on the supply of parts from numerous component shops in Shenzhen.
The primary objective of SCM 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 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 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 traditional logistics optimization to maximize the efficiency of distribution.
The term "logistics" applies to activities within one company or organization involving product distribution, whereas "supply chain" additionally encompasses manufacturing and procurement, and therefore has a much broader focus as it involves multiple enterprises working together to meet a customer need for a product or service. However, John Mills et al. note that "early research" on supply chains focused on internal supply relationships within a company.
Starting in the 1990s, several companies chose to outsource the logistics aspect of supply-chain management by partnering with a third-party logistics provider. Companies also outsource production to contract manufacturers. Technology companies have risen to meet the demand to help manage these complex systems. Cloud-based SCM technologies are at the forefront of next-generation supply chains due to their impact on optimization of time, resources, and inventory visibility. Cloud technologies facilitate work being processed offline from a mobile app which solves the common issue of inventory residing in areas with no online coverage or connectivity.