Supply Chain Concepts
Before an organization tries to focus on supply chain management, its leaders must determine what the supply chain encompasses. Just as you can’t manage what you don’t measure, you can’t plan and execute what you haven’t clearly defined. Hence, it is important to articulate the overall purpose, scope, and components of a supply chain. Following are useful supply chain definitions that highlight critical aspects of a supply chain.
- From the Council of Supply Chain Management Professionals (2010)—The material and informational interchanges in the logistical process, stretching from acquisition of raw materials to delivery of finished products to the end user. All vendors, service providers, and customers are links in the supply chain.
- From Christopher Martin L. (1992)—The network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services delivered to the ultimate consumer.
- From Coyle, Langley, Novak, and Gibson (2013)—A series of integrated enterprises that must share information and coordinate physical execution to ensure a smooth, integrated flow of goods, services, information, and cash through the pipeline.
One important feature of these definitions is the concept of an integrated network or system. A simplistic depiction of a supply chain, as featured in Figure 1-1, suggests that a supply chain is linear with organizations linked only to their immediate upstream suppliers and downstream customers. It also focuses on only one-way material flow, which fails to consider vital information and financial flows, as well as reverse material flows. Such misconceptions oversimplify reality and fail to reveal the dynamic nature of a supply chain network.
Figure 1-1 Linear representation of a supply line
In truth, supply chains require a multiplicity of relationships and numerous paths through which products and information travel. This is better reflected by the conceptual diagram of a supply chain in Figure 1-2, in which the supply chain is a web or network of participants and resources. To gain maximum benefit from the supply chain, a company must dynamically draw upon its available internal capabilities and the external resources of its supply chain network to fulfill customer requirements. This network of organizations, their facilities, and transportation linkages facilitate the procurement of materials, transformation of materials into desired products, and distribution of the products to customers.
Figure 1-2 Network representation of a supply chain
Simple representations aside, it is critical to understand that no two supply chains are exactly alike. An organization’s supply chain structure and relationships will be influenced by its industry, geographic scope of activity, supply base, product variety, fulfillment methods, and demand patterns. Consider, for example, a multinational manufacturer and a local farm-to-table restaurant. Both organizations would benefit from strong and stable supply chains. However, the manufacturer’s network is at greater risk of disruption and must integrate geographically diverse suppliers with multiple selling channels.
Supply Chain Management Perspectives
Introduced in the early 1980s, the term supply chain management began to take hold in the mid-1990s and is now part of the everyday business lexicon. Whereas a supply chain is an entity that exists for the fulfillment of customer demand, supply chain management involves overt managerial efforts by the organizations within the supply chain to achieve results (Mentzer et al., 2001). These efforts can be strategic or operational in nature, though the vast majority of respondents to a Council of Supply Chain Management Professionals survey indicate that the primary role of supply chain management within an organization is a combination of strategy and activity (Gibson, Mentzer, & Cook, 2005).
Defining supply chain management would seem to be a straightforward task, yet it has been a vexing challenge with the introduction of many alternatives. A Google search for “supply chain management definition” quickly yields about 12,000 results. Among this plethora of descriptions, you will find professional associations, consultants, and academicians addressing similar issues but providing their own interpretations and areas of emphasis. Following is a sampling of relevant definitions:
- From the Council of Supply Chain Management Professionals (2011)—The planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. More important, 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.
- From Gartner (2013b)—The processes of creating and fulfilling demands for goods and services. It encompasses a trading partner community engaged in the common goal of satisfying end customers.
- From LaLonde (1997)—The delivery of enhanced customer and economic value through synchronized management of the flow of physical goods and associated information from sourcing to consumption.
- From Stock and Boyer (2009)—The management of a network of relationships within a firm and between interdependent organizations and business units consisting of material suppliers, purchasing, production facilities, logistics, marketing, and related systems that facilitate the forward and reverse flow of materials, services, finances, and information from the original producer to the final customer with the benefits of adding value, maximizing profitability through efficiencies, and achieving customer satisfaction.
Although the definitions vary in length and complexity, they collectively focus on three themes: activities, participants, and benefits (Stock & Boyer, 2009). That is, organizations must plan and coordinate supply chain activities among their network of suppliers and customers to ensure that the end product is available to fulfill demand in a timely, safe, and cost-efficient manner. When this is accomplished, the benefits of enhanced customer satisfaction and retention will be achieved.
Related Terms and Concepts
Supply chain management encompasses a number of business processes, activities, and goals that are discussed throughout this book. Before moving forward, it is valuable to clarify their meanings and relevance to supply chain management.
Logistics is a fundamental set of supply chain processes that facilitates fulfillment of demand. The goal is to supply the right product or service, at the right place, at the right time. The Council of Supply Chain Management defines logistics management as “that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements.” Whether provided internally, by a supplier, by the customer, or by an external logistics services provider, these capabilities are essential for achieving supply chain success.
Supply management focuses on the identification, acquisition, access, positioning, management of resources, and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives (Institute for Supply Management, 2010). For most organizations, logistics controls the distribution of products; whereas supply management controls the strategic sourcing of direct materials, finished goods, services, capital equipment, and indirect materials. Both are needed to ensure optimal performance of the supply chain.
The concept of a value chain was developed as a tool for competitive analysis and strategy. It is composed of primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) and support activities (infrastructure, human resource management, technology development, and procurement) that work together to provide value to customers and generate profits for the organization (Porter, 1985). A value chain and a supply chain are complementary views of an extended enterprise, with integrated supply chain processes enabling the flows of products and services in one direction, and the value chain generating demand and cash flows from customers (Ramsey, 2005).
Distribution channels support the flow of goods and services from the manufacturer to the final user or consumer (Council of Supply Chain Management Professionals, 2010). An organization can establish direct channels to consumers or rely upon traditional intermediaries such as wholesalers and retailers to facilitate transactions with final users. The rapid expansion of the Internet as a key selling platform is forcing manufacturers and retailers to develop innovative and flexible “omnichannel” capabilities in their supply chains to fulfill customer demand from stores, distribution centers, and production locations.