Getting goods and services to market successfully is typically a complex process requiring the interaction and cooperation of numerous organizations and suppliers. This network of organizations involved in the production, delivery, and sale of a product is called the supply chain. Supply chains tend to be both complex and dynamic, making their management a difficult process. To be successful, supply chain management needs to focus on integrating the activities among all the organizations in the supply chain. This requires an approach that is both systematic and flexible to optimize the process for all parties involved. Computer modeling can aid managers and other decision makers in this task. Simulation software is available to support performance analysis of the various subsystems in the process. Although the software is not yet perfect, approaches to supply chain modeling software continue to evolve.
As consumers, we tend to think of the availability of products as a binary concept: the bookstore has the book I am looking for; the grocery store is out of radishes. However, whether or not the book or the radishes are available in the store is the end result of a very complicated and interactive process. Whether or not I can purchase what I want depends not only on whether or not the store in question has ordered or shelved the item, but on layer upon layer of other organizations that provide goods and services, each of which may contain one or more fail points where the process may break down. In the example of the bookstore, I cannot buy the book if the store has not ordered it or if they have not put it on their shelves (or at least know where to find it in the back room). However, the store cannot have the book in stock if the distributor does not have the book available or the transportation company is unable to deliver the book. The transportation company cannot deliver the book if it does not have fuel to run the vehicle that was to deliver the book or if the mechanic who was supposed to repair the vehicle was sick and could not fix it. Even if the mechanic was able to isolate the problem on the vehicle, if she or he does not have the parts necessary to fix the vehicle, the transportation company will be unable to deliver the book. This chain of events and failure points can go back to the parts distributor, the parts manufacturer, the raw material provider, the miners, and their associated transportation agencies. The availability of the book is similarly dependent on whether or not the publisher printed the book on time. This ability requires two chains of events itself: the chain regarding the content of the book (e.g., whether or not the author wrote it and the editor edited it) and the materials chain (e.g., the availability of paper and ink; the printing presses are in good working order).
Even if they are not producing a tangible product, organizations do not act in isolation; they are part of a larger system that includes various subsystems, each of which affects the ability of the other subsystems to efficiently do their jobs. At a minimum, this system includes the customer who buys the organization's product or service and the suppliers who provide the necessary raw materials, parts, or other supplies necessary for the organization to do its work. This system is called the supply chain. It is a network of organizations involved in the production, delivery, and sale of a product. The supply chain may include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the network provides a value-added activity to the product or service. The supply chain includes the flow of tangible goods and materials, funds, and information between the organizations in the network. It is essential that the processes within the supply chain be efficiently managed so that each member organization receives the materials, money, or information that it needs to do its part of the work in getting the product or service to the customer in time. This process of managing the flow of materials, information, and money within and between organizations in a supply chain is called supply chain management. Typically, organizations do not just belong to one supply chain, but are also part of a network of supply chains that interact with each other. A simplified schematic of the flow of goods and information within a supply chain and a supply chain network is given in Figure 1. As shown in the figure, each organization belongs to at least one supply chain (i.e., typically has multiple suppliers and customers).
Importance of Supply Chain Management
Supply chain management has always been important. If a business does not receive the raw materials, supplies, or components that it needs to produce its product, it cannot deliver it to the customer on time and cannot remain profitable. Because the supply chain is a system, possible fail points at any point in the system can have a cascading effect and negatively impact other parts of the system. In a simplified example, if Company B does not receive the needed raw materials to make its product from Company A in a timely manner, it will not be able to deliver the product to Company C within the time frame set forth in the contract. If Company C needs to deliver its product or service to Company D, it, too, will fail in its delivery unless it can find another source of the raw materials. Each of these companies runs the risk of having its contract cancelled for nondelivery and of not making a profit.
Challenges of Globalization
In modern commerce, of course, the actuality is much more complex than this simple example. Globalization presents increasing challenges to organizations as they work to receive and deliver goods and services in the international marketplace and materials, goods, and services need to be delivered in a timely manner not only across the city but across the globe. In addition, because of the increasing complexity of many products, it is virtually impossible for any single organization to make, gather, or mine its raw materials, manufacture parts and products, transport and distribute, and sell the products in-house. Even if one could, a supply chain would exist between the various functions within the organization. As a result, most organizations are increasingly concerned with optimizing their supply chains.
Supply chain management can be a complex and difficult process. In many instances, the networks comprise a large number of parties. With improved transportation and communications technologies, the network members no longer need to be geographically close together. In fact, in this age of globalization, facilities of the network members may be widely distributed not only across the country but around the world. In addition, although the supply chain is a system where each subsystem affects the others, not all the parties in the network have the same goals. For example, a book distributor may want to make automatic shipments to retail facilities so that it can keep its inventory down and its sales up. This constant stream of goods to be delivered may work well for the transportation company because it, too, wants a steady, reliable source of business. However, this plan may not be advantageous to the retail bookstore which may not have sufficient storage for the extra products or may want more control over what it orders so that it can better serve its customers.
Dynamic Nature of Supply Chains
In addition, supply chains are not only systems, they are dynamic systems. This means that the needs of the individual parties may change over time. Using the above example, the needs of the retail bookstores may change as the demographics of their markets change or as they try to change their market position. On the other hand, the bookstore may decide...
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