A supply chain is a system of organizations, people, technology, activities, information
and resources involved in moving a product or service from supplier to customer.
Supply chain activities transform natural resources, raw materials and components
into a finished product that is delivered to the end customer. In sophisticated
supply chain systems, used products may re-enter the supply chain at any point where
residual value is recyclable. Supply chains link value chains.
Overview
The Council of Supply Chain Management Professionals (CSCMP) defines Supply Chain
Management as follows: “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 Management is an
integrating function with primary responsibility for linking major business functions
and business processes within and across companies into a cohesive and high-performing
business model. It includes all of the logistics management activities noted above,
as well as manufacturing operations, and it drives coordination of processes and
activities with and across marketing, sales, product design, finance and information
technology.
A typical supply chain begins with ecological and biological regulation of natural
resources, followed by the human extraction of raw material, and includes several
production links (e.g., component construction, assembly, and merging) before moving
on to several layers of storage facilities of ever-decreasing size and ever more
remote geographical locations, and finally reaching the consumer.
Many of the exchanges encountered in the supply chain will therefore be between
different companies that will 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 that cooperates to provide product and service offerings has been
called the Extended Enterprise.
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A supply chain is actually a complex and dynamic supply and demand network
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Supply chain modeling
There are a variety of supply chain models, which address both the upstream and
downstream sides. However the SCOR model is most common.
The SCOR Supply-Chain Operations Reference model, developed by the Supply Chain
Council, measures total supply chain performance. It is a process reference model
for supply-chain management, spanning from the supplier's supplier to the customer's
customer.[3] 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.
The Global Supply Chain Forum (GSCF) introduced another 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 will interface with key customers and suppliers,
the customer relationship management and supplier relationship management processes
form the critical linkages in the supply chain.
The American Productivity & Quality Center (APQC) Process Classification Framework
(PCF) 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 companies 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.
Supply chain management
In the 1980s, the term Supply Chain Management (SCM) was developed to express the
need to integrate the key business processes, from end user through original suppliers.
Original suppliers being those that provide products, services and information that
add value for customers and other stakeholders. The basic idea behind the SCM is
that companies and corporations involve themselves in a supply chain by exchanging
information regarding market fluctuations and production capabilities.
If all relevant information is accessible to any relevant company, every company
in the supply chain has the possibility to and can seek to help optimizing the entire
supply chain rather than sub optimize based on a local interest. 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.
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. The primary objective of supply
chain management 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 the 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 JIT (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, of course, traditional logistics optimization to maximize
the efficiency of the distribution side.
There is often confusion over the terms supply chain and logistics. It is now generally
accepted that the term Logistics applies to activities within one company/organization
involving distribution of product whereas the term supply chain also encompasses
manufacturing and procurement and therefore has a much broader focus as it involves
multiple enterprises, including suppliers, manufacturers and retailers, working
together to meet a customer need for a product or service.
Starting in the 1990s several companies chose to outsource the logistics aspect
of supply chain management by partnering with a 3PL, Third-party logistics provider.
Companies also outsource production to contract manufacturers.[6] Technology companies
have risen to meet the demand to help manage these complex systems.
There are actually four common Supply Chain Models. Besides the two mentioned above,
there are the American Productivity & Quality Center's (APQC) Process Classification
Framework and the Supply Chain Best Practices Framework
An unusual food supply chain operated by Dabbawalas in Mumbai is noted for being
extremely reliable without using any computers or modern technology. It has been
verified to be a six sigma supply chain.
Regulations
Supply chain security has become particularly important in recent years. As a result,
supply chains are often subject to global and local regulations. Several major regulations
emerged in 2010 alone that have had a lasting impact on how global supply chains
operate. These new regulations include: The Importer Security Filing (ISF) additional
provisions of the Certified Cargo Screening Program (CCSP) .
Development and design
With increasing globalization and easier access to alternative products in today’s
markets, the importance of product design in demand generation is more significant
than ever. In addition, as supply, and therefore competition, among companies for
the limited market demand increases and pricing and other marketing elements become
less distinguishing factors, product design also plays a different role by providing
attractive features to generate demand. In this context, demand generation is used
to define how attractive a product design is in terms of creating demand.
In other words, it is the ability of a product design to generate demand by satisfying
customer expectations. However, product design impacts not only demand generation,
but also manufacturing processes, cost, quality, and lead time. The product design
affects the associated supply chain and its requirements directly including, but
not limited to: manufacturing, transportation, quality, quantity, production schedule,
material selection, production technologies, production policies, regulations, and
laws. From a broad perspective, the success of the supply chain depends on the product
design and the capabilities of the supply chain, but the reverse is also true—the
success of the product depends on the supply chain that produces it.
Since the product design dictates multiple requirements on the supply chain, as
mentioned previously, it is clear that once a product design is completed, it drives
the structure of the supply chain, limiting the flexibility of the engineers to
generate and evaluate different (potentially more cost effective) supply chain alternatives.
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