The 10 key elements for a Best Practice Supply chain
What is a supply chain?
A supply chain is a network of links in the distribution of goods or services. These include producers, manufacturers, wholesalers, retailers, and customers. In business-to-business relationships these parties are diverse: one company can be the manufacturer that sells its products to another company which distributes them to retailers who then sell them to end consumers.
Supply chains are typically managed by one or more coordinating organizations such as an overseeing firm's strategic sourcing department or by a government agency regulating commerce within its jurisdiction. Supply chains tend to follow the economic principles of a country, and thus are mainly regulated by government entities instead of business entities, who may be too large for any one government to regulate.
There are three main types of supply chain: value chain, manufacturing supply chain, and product supply chain. A value chain represents the series of tasks that must be accomplished to bring a product or service from its conception to the customer. An end-to-end supply chain is one where all activities occur in sequence and at defined stages. There are two types of end-to-end supply chains: integrated and sequential; Integrated considers information throughout the entire supply network while sequential follows along each step in the process separately.
Sometimes supply chains can be over-complicated and fragmented, with multiple supply lines that cross between several companies before getting to the customer. In this case, it becomes difficult to identify who is responsible for what within their organization, as well as where the problem originated and how it can be addressed.
A supply network is a connected system of extended production-distribution-distribution channels that link buyers and sellers through a number of intermediaries (suppliers, distributors, logistics service providers). It is also known as a distribution channel or value chain. It consists of both physical components and information flows; the channels of interaction (communication links) are operated by members of the network.
In organizational terms, the supply chain is a network of suppliers, consumers (referred to as "buyers"), and other parties (the firm or businessess) that is organized for the purpose of getting a product to customers. In its simplest form, it may be defined by a single company operating its own distribution channels, with narrow product lines at best; it can also be rather complex: many companies in many countries handling multiple product lines and/or selling services.
Supply chains are not new, but they have become relevant because of the speed at which information technology has transformed production. Now, supply chains are competing globally to provide goods faster and cheaper. They have also become more complex. Companies depend on the cooperation of a large number of suppliers and partners in foreign countries, and managing them has become quite difficult.
A central concern for companies involved in a supply chain is to balance responsiveness to customers with reliability for their partners. The aim is to avoid being too customer-driven or partner-driven by striking the right balance between responsiveness and reliability, while achieving high customer satisfaction levels.
The primary goal of strategic sourcing is to supply the right customer with the right product at the right price in a timely manner. Strategic sourcing is about approaching this challenge in a systematic way to optimize supply chain performance and linkages.
As organizations become more vulnerable to cost-cutting pressures, and as consumers demand more from companies that provide their goods and services, there has been a growing focus on how companies get customer orders through the supply chain. The aim of business-to-business (B2B) integration strategies is to reduce time spent on duplication of effort while at the same time meeting each partner's unique needs. A typical supply chain is composed of six interdependent components: suppliers, production facilities, customers, transportation networks, service providers and information systems.
A firm's sales channel may be structured in a number of ways. The simplest is to have one channel that sells to all its customers. Another channel type is based on the products being sold and then having separate sales channels for each product line. This can help to focus marketing efforts and product development on specific customer types or different parts of the world while maintaining a single firm. Products may also have their own sales channel with all products marketed directly via the firm's marketing department to end users or customers through a distribution network that either the firm owns or it contracts out.
It may seem that a firm would be best served by having all customers go through one channel. This would give the firm better control over the customers and make it easier to meet their needs. However, if there are many types of customers, each with different needs, then marketing and product development efforts must be tailored to meet these needs. Firms often find that having multiple channels is more effective than one. The challenge for firms is to establish channels that serve the interest of both the firm and the customer.
Many firms have used market segmentation as a way to help them determine how best to serve their various customer segments or types of markets based on both geography and type of product or service needed by individual markets. Some firms have found that having one general channel that serves all customer segments is not sufficient to meet the needs of both the firm and its customers.
They have found it useful to create separate sales channels to different groups of customers. Each channel, while independent in its own servicing of a specific customer group, can still take advantage of synergies from the firm's other business entities. For example, it may be possible for one sales channel to serve three geographic region and then have these regions support each other in terms of logistics, manufacturing or service delivery.
When a separate sales channel is created for each group of customers which are similar in some way but dissimilar from other groups then this type of structure is called market segmentation. Channels can also be segmented by the type of service which is provided. For example, a firm may have one channel for customers who want custom designed solutions and another for customers who are willing to buy off-the-shelf products.
Different types of supply chain include:
1. Manufacturers selling to distributors that then sell to retailers or end users.
2. Distributors selling directly to retailers or end users (sometimes referred to as direct wholesale or as direct distribution).
3. Wholesale distributors and retailers buying from manufacturers who sell to distribution companies that then sell to retailers and end users.
4. In-house, vertically integrated companies like Walmart or Costco where the company is the manufacturer, distributor and retailer.
5. Wholesale companies that purchase products from manufacturers who in turn sell to one or two large retailers or supercenters (usually multiples or department stores).
6. Internet sellers that operate a real store front but do not have their own inventory, thus buying their products from manufacturers, wholesalers, distributors, or direct retailers (some have an online store).
The best supply chain can be extended to meet customer requirements for quality of service and delivery lead time.
Conclusion
The basic premise of supply chain management is that a company does not necessarily have to be the manufacturer in order to make a product. If it can establish partnerships with other manufacturers or companies that supply parts, the company can avoid investing in expensive plants, technology and materials. Instead, it can focus on what it does best: marketing, designing products and managing its supply chain. In some cases the new business model allows companies to increase their profits by increasing production and sales volume.