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What is Supply Chain Management Definition, Introduction, Process & Examples | AIMS UK

What is Supply Chain Management? Definition, Introduction, Process & Examples | AIMS UK

Introduction

A supply chain is a global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash. It encompasses the steps involved from initial material acquisition to the final delivery to the consumer.

Basic Supply Chain for a Product

A basic supply chain consists of three entities: a producer, a supplier, and a customer. The four fundamental flows that connect these entities are:

  1. Flow of physical materials and services: from suppliers to the end customer.
  2. Flow of cash: from the customer to the raw materials supplier.
  3. Flow of information: back and forth along the chain.
  4. Reverse flow of product returns.

Entities defined in the basic supply chain include:

  • Seller: Provides goods and services or does business with a buyer.
  • Supplier: Supplies materials, energy, services, or components for a product.
  • Producer: Receives components from the supplier to produce a finished good or service.
  • Customer: The end user who receives the final product.

Strategies

There are three types of supply chain strategies:

  1. Stable: Focuses on execution efficiencies and cost performance.
  2. Reactive: Fulfills demand from trade partners based on market changes.
  3. Efficient Reactive: Focuses on efficiency and cost management of delivered finished goods.

Flows in Supply Chains

There are four primary flows in supply chains:

  1. Information Flow: Includes invoices, sales literature, specifications, and orders.
  2. Primary Cash Flow: Includes payments for products and supplies.
  3. Primary Product Flow: Includes materials, components, supplies, services, and finished products.
  4. Reverse Product Flow: Includes returns for repair, replacements, recycling, and disposals.

Supply Chain Example

Consider a bakery selling cakes:

  • Supplier: A wholesale food distributor providing ingredients like flour, cream, and sugar.
  • Producer: The bakery that creates the cakes.
  • Retailer: The bakery owner selling the cakes.
  • Customer: The individual buying and consuming the cakes.

Supply Chain in Manufacturing

Manufacturing supply chains can be complex, including multiple tiers of suppliers and distribution centers. For example, a flour supply chain starts from a farmer’s wheat field and moves through processors, wholesalers, and stores.

Supply Chain in Services

Service industries also have supply chains. Examples include electricity providers, legal advisors, and software houses. A service supply chain model involves receiving products, services, and supplies in order to provide final services to consumers.

Vertical and Horizontal Integration

Vertical Integration: A company controls its entire supply chain, adding departments or merging with other companies to cover different parts of the supply chain. For example, Ford once owned iron ore mines, steel mills, and all necessary assets to produce and sell cars.

Horizontal Integration: A company expands by acquiring similar businesses in the same industry. For example, a shampoo manufacturer may add other brands to cater to a broader customer base.

Benefits of Integration

  • Vertical Integration: Provides enhanced control and synchronization within the company.
  • Horizontal Integration: Achieves economies of scale, focuses expertise, and better market understanding.

Supply Chain Management Evolution

Supply chain management advances through the following stages:

  1. Multiple Dysfunction: Lacks internal definition and goals, with minimal external connections.
  2. Semi-Functional Enterprise: Begins improving effectiveness and efficiency within functional areas.
  3. Integrated Enterprise: Departments are fully integrated, focusing on business processes.
  4. Extended Enterprise: Integrates internal networks with supply chain partners for improved efficiencies and quality.

What is Supply Chain Management?

Supply chain management involves the flow of goods and services, movement and storage of raw materials, work-in-process inventory, and finished goods from origin to consumption. Effective management requires coordinated activities across multiple organizations to deliver products to the final customer.

Keywords

  • Supply chain
  • Physical materials flow
  • Cash flow
  • Information flow
  • Reverse product flow
  • Supply chain strategies
  • Vertical integration
  • Horizontal integration
  • Supply chain management

FAQ

1. What is a supply chain?

A supply chain is a global network used to deliver products and services from raw materials to end customers through the engineered flow of information, physical distribution, and cash.

2. What are the basic flows in a supply chain?

The basic flows in a supply chain include the flow of physical materials and services, cash flow, information flow, and reverse product flow.

3. What are the types of supply chain strategies?

The three main types of supply chain strategies are stable, reactive, and efficient reactive.

4. What is the difference between vertical and horizontal integration in supply chain management?

Vertical integration involves a company owning its entire supply chain, whereas horizontal integration involves a company expanding by acquiring similar businesses in the same industry.

5. What are the stages of supply chain management evolution?

The stages of supply chain management evolution include multiple dysfunction, semi-functional enterprise, integrated enterprise, and extended enterprise.

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