Value networks recognise that few companies stand alone and that what is ultimately supplied to and paid for by customers depends on activities carried on by many suppliers, distributors and, indeed, logistical companies. Ultimately, customer satisfaction and value added depend on all parties working well together.
The supply chain and supply chain management
There is no generally accepted definition of the term ‘supply chain management’ and many different definitions can be found in relevant literature. For example:
‘A concept whose primary objective is to integrate and manage the sourcing, flow and control of materials using a total systems perspective across multiple functions and multiple tiers of suppliers.’ La Londe and Masters (1994)
‘The objective of managing the supply chain is to synchronise the requirements of the customer with the flow of materials from suppliers in order to effect a balance between what are often seen as conflicting goals of high customer service, low inventory management, and low unit cost.’ Stevens (1989)
‘…an integrative philosophy to manage the flow of a distribution channel from supplier to the ultimate user.’ Cooper et al (1997)
From these definitions, it can be seen that supply chain management has the following features:
- Integrating and managing the sourcing, flow and control of materials.
- Supply chain management covers the flow of materials suppliers through to customers
- Potentially many suppliers and customers.
- Synchronising of materials received, processed and despatched to customers.
- Simultaneously achieving good levels of customer service and low costs for the company.
Supply chains are often divided into upstream and downstream operations in an analogy with material floating down a river, into and then out of operations:
- Upstream – the flow of materials into the organisation.
- Downstream – the flow of materials from the organisation to the customers.
However, these terms might sometimes have to be interpreted liberally as materials can go directly from supplier to customer with the organisation itself acting as a co-ordinator of the flow.
For businesses that manufacture their own products, the upstream supply chain will be taken to consist of the following value chain activities:
- Procurement – purchasing inputs such as supplies, material and equipment.
- Inbound logistics – receiving raw materials, holding inventory and issuing to manufacturing operations as required.
Downstream supply chain will be assumed to consist of:
- outbound logistics – the storing and distribution of finished goods.
- marketing and sales – identifying customer needs and generating sales.
You will note that procurement and marketing and sales do not
themselves involve any movement of goods, but these activities initiate the flows of raw materials, components and finished products, so need to be included as part of supply chain management. Service can also be included here as certainly the supply of elements such as consumables, maintenance and training can be valuable sources of value added and need to be managed.
A useful view of supply chain management is suggested by Meyr, Wagner and Rohde (2004):