Supply Chains are Interconnected Networks
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Colorado Technical University *
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210
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Industrial Engineering
Date
Jan 9, 2024
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docx
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Uploaded by tashathomas27
Supply Chains are Interconnected
Networks
Introduction
The previous lesson discussed systems. Supply chains are massive systems that are
really interconnected networks of companies. Have you ever seen a map of the
Internet? Now that’s a complex, interconnected network! A supply chain may not be
quite that complex, but consider, for example, a new car—think of all the raw materials
needed to make the parts. Someone needs to manufacture each one. Then, someone
needs to transport the parts to the assembly plant. Finally, someone needs to get the
finished car to the dealership so that you can buy it. These networks are called
supply
chains
.
Learning Materials
Definition of Supply Chain
A supply chain involves everybody necessary to get the final product or service to the
end consumer. This means it is a joint effort of many companies—from the retailer all
the way to the raw material suppliers. Some say the supply chain is the set of
companies that take a product from “cradle to grave.” Maybe a more exact analogy
would be “from dirt to dirt”—considering most of the raw materials come from the
ground (for example, minerals, crude oil, trees), and when a product is no longer of any
use, it usually finds its way to a landfill (more about recycling and sustainability later).
Key flows along the supply chain are the flow of goods, information, and cash. Follow a customer order
backward in time and you will identify each company that touches the finished good, the intermediary
components, and the raw materials, such as trucking companies, warehouses, IT service providers, and
accounting. These are all members of the supply chain, and the effective management of all of these
components is vital to the success of a firm.
Definition of Supply Chain Management
According to the
leading professional organization in the field
, supply chain management.
From the strategic level of management all the way down to operational execution, supply
chain management requires intense coordination and collaboration with channel partners.
Supply chain management integrates supply and demand management within and across
companies.
As an example, using the chart in the last section as a reference, supply chain management
would entail coordinating with all of the organizations in the supply chain, from the suppliers
throughout the chain to the customer, as well as the movement and storage of all the material in
its various forms, between each of the organizations.
What Supply Chain Management Is Not
It is not another name for logistics.
It is not another name for purchasing.
It is not another name for operations.
It is not a combination of logistics, purchasing, and operations.
The SCOR Model
Another leading proponent of supply chain management is the
Supply Chain Council
(SCC)
. Their world-renowned Supply Chain Operations Reference (SCOR) model puts it
pretty simply: each company in the supply chain sources, makes, and delivers goods
and services. Add on the supporting processes of planning and returns, and you have
the view below if you connect the management actions of all the supply chain
companies.
(Adapted from SCC, 2010)
According to the SCC, companies seek to design business models that meet customer needs better than
their competitors. Success depends on innovative, high quality, low cost products and services that
customers demand (SCC, 2010). Remember that even this small list of companies (only three are shown
above) is really a network of hundreds or thousands of companies—from dirt to dirt.
The following is a linear representation of the SCOR model:
As an example, consider a small appliance manufacturer; they follow the same plan, source, make and
deliver process. They would plan for the number of toaster ovens to produce. In this stage, they would
determine which model and the quantity to produce based off forecasts to determine the demand for the
model. The next stage would be sourcing. They would determine what materials they will need and from
whom they will acquire them. Materials can either be raw (steel, aluminum, copper, and so on), semi-
finished goods, such as circuit card assemblies, and finished materials, such as wires and solder. During
the make phase, the company manufactures the product. A supply chain manager would need to ensure
all of the materials are in place for production. The finished product is then delivered. Delivery can be
simple, where the product is delivered directly to the final customer, or in a more complex supply chain,
the product would be distributed to a distribution center and then require another delivery to the retail
store or to the final customer. For the most part, a return is seen as something to be avoided due to the
cost of shipping and the potential return of the purchase price to the customer. Returns are typically
generated through faulty manufacturing, meaning there is something wrong with the item. The customer
would return it for a replacement, repair, or refund. Either way, the additional movement costs additional
money.
Supply Chain Management in Action
The implementation of supply chain management is the execution of processes by
skilled functional experts. Business functions include the skills needed to keep a
business running, such as the following:
Research and development
Procurement
Manufacturing and service operations
Logistics
Marketing and sales
Finance and accounting
Human resource management
Information technology
Therefore, supply chain management requires cross-functional integration to get the job done.
As an example of how cross functional integration was not fully realized, in the mid-1990s,
a
Swedish car manufacturer
had an excessive number of unsold green cars in its inventory. To
increase sales and get rid of the cars, the sales and marketing teams developed customer
incentives, and the cars began to sell. Unfortunately, the teams worked in a bubble and did not
include the manufacturing department. Seeing the rise in sales, the manufacturing department
erroneously attributed the rise in sales to increased customer demand and increased
production. It was obvious the company was not working in unison, and it cost them in time,
manpower, and revenue (Cecere, 2011).
In addition, as there are more than a few companies involved, then it must also require inter-firm
cooperation. These are two management keys that many individuals are not used to doing:
cross-functional and inter-firm cooperation. As mentioned before, this requires involvement of
workers from the operational level of the business to the CEO. Everyone must know their role
and also, how to integrate with other functions and with other firms—that is the only way to make
supply chain management work. Interfirm cooperation and collaboration can be a challenge for
many manufacturing companies to implement. Traditionally, manufacturers possess the greatest
leverage when negotiating costs with suppliers. In an interfirm supply chain construct, there is a
leveler playing field because there is a shift from the traditional power-based relationship to a
cooperative partnership. By sharing information, standardizing processes, and working toward
one another’s mutual benefit, the supply chain can reduce costs, increase flexibility, and improve
efficiency.
Supply Chain
Involves everybody necessary to get the final product or service to the end consumer.
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supply chain management
“encompasses the planning and management of all activities involved in sourcing and
procurement, conversion, and all logistics management activities” (2014)
Questions
In the Supply Chain Operations Reference (SCOR)
model, returns are to be avoided, and the other four
major processes include which of the following?
SOURCE
Supply chain management is not just another name
for
__________. A COMBINATION OF LOGISTICS,
PURCHASING, AND OPERATIONS
Which of the following is a supporting process in the
Supply Chain Operations Reference (SCOR) model?
PLAN
Supply chain management requires CROSS-
FUNCTINAL integration within a firm to be successful.
One of the best ways to identify every member of the
supply chain is to follow an order that is
__________.IN REVERSE
Critical functions within each company in the supply
chain include which of the following? PROCUREMENT