The definitions of supply chain management allude to a wide variety of entities that participate in the two-way flow of materials, information, and money. The participant network varies in size and scope, depending on the products involved, geographic dispersion of supply and demand, and customer service requirements. It is safe to say that no two supply chains are exactly alike, and a participant’s role may vary in each network.
Compare, for example, the supply chains for apples versus Apple iPads. If you purchase a home with a small apple orchard on the property, you could open up a storefront to sell the apples. This simple supply chain has two primary participants: a retailer (you) and consumers. In contrast, Apple relies upon a global network of component suppliers to make key parts for the iPad, a contract manufacturer to assemble the product, transportation and logistics companies to distribute the product to global markets, retailers to sell the products, and end consumers to buy the iPads. Other organizations supplement the network with needed information, packaging, credit, and services. This complex network can be difficult to manage and costly to execute.
A logical segmentation basis for supply chain participants is their ownership stake in the product. Entities that own the goods at various stages of the supply chain are direct stakeholders. This group includes the final consumers or end users of the goods, retailers, distributors, manufacturers, and suppliers. Entities that support the flow of materials, information, and money are supply chain facilitators. They do not typically take title to the goods but play a critical role in the safe, efficient execution of supply chain activities. This facilitator group includes logistics services providers, information technology companies, consultancies, financial institutions, government agencies, equipment providers, and indirect materials suppliers.
Although every participant can affect supply chain performance, no other direct stakeholder is as important as the end user of the goods. End user demand is the catalyst of all activity in the supply chain, but if no demand exists, there is no need for the supply chain network. That is why so many supply chains focus on end user demand to drive planning and activity. In a consumer product supply chain, the end user is the retail consumer. In an industrial setting, the end user is a company that buys materials, goods, and services to support its operations. Examples include Lufthansa buying 747 jets and repair parts from Boeing and UPS buying diesel fuel for its fleet.
Retailers play a critical role in the supply chain, acting as intermediary between end consumers and product manufacturers. Retailers accumulate inventory from multiple sources to assemble a wide assortment of products for sale. For example, a Wal-Mart Supercenter has more than 100,000 different items in the store. In addition, retailers provide consumers with convenient one-stop shopping, competitive pricing, and financial transaction services. Retailers provide manufacturers with shelf space for their product and visibility of demand from point-of-sale data.
Wholesalers and distributors are intermediaries that provide value added services to manufacturers and retailers. Wholesalers buy products in bulk from manufacturers and sell the products in smaller quantities to retailers, provide storage facilities to reduce the need for manufacturers and retailers to hold large inventories, and offer delivery services to retailers. Similarly, distributors provide fulfillment efficiency as middlemen between manufacturers and industrial buyers. The distributor buys large quantities of materials or parts from a manufacturer and then creates smaller selling units and fulfills orders to end users in a timely fashion. This allows the manufacturer to focus on production and larger deliveries to distributors rather than managing small quantity orders from a global customer base.
Manufacturers provide the form utility of goods by transforming raw materials, parts, and components into products that are beneficial to end users. The transformation process can be completed in-house or outsourced to a contract manufacturer. The latter group builds products under the brand or label of another firm. For example, Nike product designs and specifications are produced by contract manufacturers in 777 factories in 43 countries around the world (Nike, Inc., 2013). The production processes used by a manufacturer—build to stock, configure to order, and engineer to order—has a significant influence on the design and operation of the supply chain.
Suppliers include a wide array of supply chain participants that provide essential inputs to the production process of a manufacturer. This broad category of organizations includes raw material extractors and processors, parts producers, component assemblers, and similar entities that support the creation of finished goods. Tier 1 suppliers feed critical items directly to the manufacturer; Tier 2 and Tier 3 suppliers support their downstream counterparts with a steady supply of needed materials. Suppliers bring a level of expertise and efficiency to the supply chain that few manufacturers could generate on their own.
The vast majority of supply chains depend upon logistics services providers to plan and execute the flow of goods from origin points to destinations. Their capabilities include inventory management, transportation, storage, order fulfillment, and related functions. Some logistics service providers focus on a single activity such as truckload transportation; others offer an integrated set of logistical capabilities for customers. These organizations invest in the equipment, talent, technology, and facilities needed to provide exceptional service. Customers can leverage these capabilities on an as-needed, variable cost basis.
Technology firms facilitate rapid flows of critical information across the supply chain. Rather than developing software in-house and trying to integrate it with other systems, direct stakeholders rely upon technology companies to provide supply chain planning, execution, and event management tools that generate cross-chain visibility, increase control, and support decision making. Some technology firms focus on specific solutions; others provide integrated suites of supply chain software.
Indirect material suppliers provide goods that support the operation of the supply chain, but are not directly associated with a specific product. These include consumables, tools, and supplies that facilitate the efficient production of goods. Similarly, packaging and material handling supplies are needed to ensure the safe and accurate delivery of goods.
Financial institutions and government agencies also have important roles in the supply chain. Banks and related institutions facilitate trade through working capital management, payment and cash management, and contract execution support. They help to reduce risk in global supply chain transactions and to reduce inventory costs. Government regulatory agencies mandate product standards, labor laws, equipment requirements, and transportation regulations to promote supply chain safety. Other agencies provide import/export support to encourage trade, control borders to ensure supply chain security, and collect fees to support the supply chain infrastructure.
Unique supply chains involved in the management of reverse flows, services, projects, events, and other unique scenarios will require the use of additional facilitators and specialists. Consultants, project managers, recycling companies, equipment manufacturers, construction companies, and laboratories are just some of the ancillary participants that support specialized supply chains.
A key to success in supply chain management is to actively engage essential participants in the planning and development of your key requirements. Information sharing about expected demand, timing issues, location, and special needs is essential for all participants. This dialogue with direct stakeholders and facilities will help them marshal the necessary capacity, inventories, and labor needed to pursue perfect fulfillment of demand.