Supply Chain Basics

 A supply chain is a network of people, processes, resources, and technologies in an organization that work collectively to produce products and services for an end user, or customer. Supply chains have existed since people began trading goods and services. They have evolved from exchange trading on the Silk Trade road in the 1400s through supplying the troops in World War I and World War II to the complex networks of today’s global supply chains. Supply chains now consist of multi-national, global networks of companies working together to build products and provide services.

 What is a Supply Chain? 

A supply chain is a network of individual functions within an organization that begins with the development of a strategic plan and ends with the delivery of a product or service. 

Those functions are  below; 

: • Demand Planning • Supply Management and Procurement • Inventory Management • Warehousing Operations • Manufacturing and Service Operations • Transportation Operations • Customer Service Operations 

It is immensely dangerous to business health to manufacture a product without first planning what inventory will be required and when it will be needed. It is equally risky to attempt to obtain goods and materials from suppliers without a demand plan that feeds procurement purchase requisitions in order of priority based on need dates and supplier lead times. Without linkages in the entire supply chain, chaos would occur and the company would soon have to close its doors. Now it is easier to see that the demand plan drives and signals procurement for the orderly acquisition of goods and materials, which in turn enables an organization to receive and stock inventory in a warehouse, etc. 

For example, before tomato sauce can be made available to consumers, it goes through many steps from farmers to retailers. Farmers buy seeds and fertilizers to grow tomatoes, which are sold as raw material to food processors that employ their factories to convert the tomatoes into tomato sauce, juice, canned tomatoes, and ketchup. To convert the fresh tomatoes, processors need to purchase other raw materials, such as vinegar, salt, spices, cans, and labels; therefore, food processors must work with many different suppliers. The finished products are then combined into larger packages, transported to warehouses, and subsequently distributed to grocery stores. There are often levels of suppliers within a supply chain called tiers. Suppliers that sell directly to factories or main operators are referred to as tier one suppliers; suppliers that sell to tier one suppliers are referred to as tier two suppliers.

 This cycle continues into tier three suppliers, tier four suppliers, etc. The final customers who purchases and consumes products and services are called consumers or end customers. End customers’ needs and wants are the driving force behind the entire supply chain. They are the ones who create demand and ultimately pay for all the product and service functions in supply chains. Without end customers, supply chains would collapse due to a lack of demand for products and services.

Therefore, at any point in the supply chain, focus on the needs and wants of end customers must be maintained. For that to occur, careful attention must be placed on the values and expectations of each element of the supply chain leading to end customers; this approach, which keeps the end customer in mind even several steps away from the point of sale, is referred to as the voice of customers. Examples of Supply Chains in Use All companies are part of at least one supply chain, whether they sell directly to the end customers, provide services, manufacture products, or extract raw materials from the earth 

 For example, a customer may go to a Walmart store to buy laundry detergent. In this case, the supply chain begins by planning to satisfy customer needs through a sales forecast for laundry detergent. 

Proctor & Gamble, as a manufacturer of detergents, develops a forecast for sales; 

from that forecast, 

a demand plan is developed that enables its procurement department to procure the raw materials used to make the detergent along with plastic containers, labels, and other necessities

. These procured items are received, stored, and then used in the manufacturing process.

 The individual completed containers of detergent are then packaged in boxes for shipment, transported to distribution centers, and ultimately delivered to retailers like Walmart. 

Another supply chain example is based on a customer who needs to purchase laptop computers online. 

The supply chain includes: 

• Defining how many laptops might be sold in a given period (like an annual sales forecast) • Creating the demand plan to procure the necessary components (inventory) from suppliers to assemble the laptops 

• Designing the value-added facility where final laptop assembly will occur

 • Ensuring a system exists to control and issue the inventory

 • Implementing a team of customer service representatives to take orders and interface with end customers, including Internet live chat to answer questions and provide recommendations 

• Ensuring assembled laptops are adequately packaged for transportation and reliable carriers are used to deliver the final laptop and associated peripherals