Supply Chain Management is the backbone of global trade and economic growth. It is the key to companies like Amazon and Walmart; and a strong enabler of future growth.
In this post, I’ll provide a basic introduction to Supply Chain concepts.
What is a Supply Chain?
A simple definition is the following:
“A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.” – Wikipedia
The purpose of any supply chain is to satisfy a customer’s need in the most cost-efficient and effective way. In a way, supply chain try to maximize the total value generated, which equates to the difference between what the customer pays for a product/service and the total effort (cost and time) incurred by the supply chain to fulfill the order.
What is Supply Chain Management?
According to the Council of Supply Chain Management Professionals:
“Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.” – Supply Chain Council
Supply Chain Management is really about the end-to-end coordination of processes, activities and players along a network of interconnected value chains.
Supply Chain Players
A traditional view of supply chains describes the flow of orders and goods between the following players:
- Wholesaler / Distributor
- Manufacturer / Producer
- Component / Raw-Material Supplier
In the past years, supply chains have become more complex. This has been caused by increasing demand of customers’ expectations; paired with interconnected global distribution networks.
Supply Chain Perspectives
There are multiple ways to view a supply chain. Each perspective provides additional context and depth. Only through a combination of multiple perspective we can obtain a holistic understanding of a supply chain.
Perspective #1: Supply Chain Operations Reference Model (SCOR)
The SCOR Model, developed by the Supply Chain Council, describes the supply chain as composed of five core management processes:
Perspective #2: Process Cycle View
The Process Cycle view describes supply chains as a series of interconnected cycles:
- Customer Order Cycle
- Replenishment Cycle
- Manufacturing Cycle
- Procurement Cycle
In this model, we can observe how the supply chain begins with the arrival of a customer order, which then sequences a series of activities up the stream between retailers, distributors, manufacturers and suppliers.
Perspective #3: Macro-Process
The Macro-Process perspective divides a firm’s supply chain activities into three core areas:
- Supplier Relationship Management (SRM)
- Internal Supply Chain Management (ISCM)
- Customer Relationship Management (CRM)
This perspective groups upstream interactions with suppliers, and downstream interactions with customers.
Perspective #4: Traditional Functional
The traditional functional perspective divides and organizes supply chains into distinct functions; each with well-defined processes, roles, and responsibilities.
- Customer Service
- Order Processing
- Material Handling
- Inventory Management
Perspective #5: Integrated Business Processes
The business process perspective describes the supply chain as a net and organizes supply chains into distinct functions; each with well-defined processes, roles, and responsibilities.The core business processes include:
- Customer Relationship Management
- Customer Service Management
- Demand Management
- Order Fulfillment
- Manufacturing Flow Management
- Supplier Relationship Management
- Product Development and Commercialization
- Returns Management
Putting it all together
The goal of this post was to provide a birds-eye view of Supply Chain Management, and how it connects the flow of information, activities, goods and services between a network of interconnected firms, all the way to the end customer. As stated before, the goal of supply chain management is to maximize the value delivered to the end customer while maximizing the profits achieved by the firms delivering the good or service.
That’s it for now! Cheers till next time!