What is Supply Chain?
A supply chain is a network between a company and its suppliers to produce and distribute a specific product, and the supply chain represents the steps it takes to get the product or service to the customer. Supply chain management is a crucial process because an optimized supply chain results in lower costs and a faster production cycle.
Elements of the Supply Chain
A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply chain starts and ends with the customer.
- Customer: The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility.
- Planning: The requirement triggered by the customer’s sales order will be combined with other orders. The planning department will create a production plan to produce the products to fulfill the customer’s orders. To manufacture the products the company will then have to purchase the raw materials needed.
- Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customer’s orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date.
- Inventory: The raw materials are received from the suppliers, checked for quality and accuracy, and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department.
- Production: Based on a production plan, the raw materials are moved inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer.
- Transportation: When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products.
Supply Chain Models
There are a variety of supply chain models, which address both the upstream and downstream elements of supply chain management (SCM). The SCOR (Supply-Chain Operations Reference) model, developed by a consortium of industry and the non-profit Suppl Chain Council (now part of APICS) became the cross-industry de facto standard defining the scope of supply chain management. SCOR 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. 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 has 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 interfaces with key customers and suppliers, the processes of customer relationship management and supplier relationship management form critical linkages in the supply chain. The American Productivity and 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 organizations 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. In the developing country's public health setting, John Snow, Inc. has developed the JSI Framework for Integrated Supply Chain Management in Public Health, which draws from commercial sector best practices to solve problems in public health supply chains. In 2013, the Supply Chain Roadmap has been presented. It is a method where an organization's supply chain strategy can be reviewed in an organized and systematic approach in order to assure alignment of the supply chain with the business strategy. The method is supported in the most important and recognized theories and practices about supply chain strategy and business strategy. The method allows the characterization of the supply chain under analysis by 42 factors in a single page view called "The Map", and allows the comparison of this supply chain with 6-supply chain archetypes (fast, efficient, continuous flow, agile, custom-configured, flexible), in order to find gaps between supply chain under analysis and the most proper supply chain archetype. The method is applied in four steps (scope, understanding, evaluation, and, redesign and deployment). The method was developed by Hernan David Perez, an experienced supply chain manager in several industrial sectors, and, professor and international speaker in supply chain strategy.