If you’re a small business manager you probably are dealing with a few products or services and you can do that with a telephone line and a fax machine. You probably don’t have many suppliers.
However, at bigger firms there are usually more complex products and services and hundreds of suppliers who have suppliers of their own. You must coordinate the activities of hundreds (sometimes thousands) of other firms in order to produce products and services.
How? Supply Chain Management (SCM) systems.
The supply chain is a network of organizations and business processes for procuring raw materials, transforming those materials into intermediate and finished products and distributing the finished products to customers. Supply chain management systems provide the kind of information that helps members of the supply chain with purchasing and scheduling decisions.
I think the best way to describe what supply chain management actually is can be summarized by this sentence from our textbook, “Supply Chains are aimed at reducing uncertainties about demand and supply when all members share dynamic information about inventory levels, schedules, forecasts and shipments, they have more precise knowledge about how to adjust their sourcing, manufacturing and distribution“.
Nike is one of my favorite companies, so we’re going to take a look at their supply chain.
Obviously Nike sells products (shoes, athletic apparel) throughout the world. It’s primary suppliers are contract manufacturers with factories in China, Thailand, Brazil and Indonesia.
Nike’s contract suppliers do not manufacture sneakers from scratch. They obtain components for the sneakers (laces, eyelets, soles) from other suppliers and then assemble them into the finished product. Now, those suppliers – for example: the supplier who provides the soles for Nike shoes, has their own supplier that provides synthetic rubber, molds for the rubber to fit in and chemicals to melt the rubber. The suppliers of the shoe laces have suppliers who sell thread and dye.
Contract Supplier — Nike — Distributor — Retailer — Customer
The contract supplier is the firm that produces the Nike shoes. (Tier 1)
The suppliers of the soles, laces etc. are known as the Tier 2 suppliers.
The suppliers to the Tier 2 suppliers are tertiary suppliers (Tier 3).
This is often described as the Upstream portion of the supply chain.
The Downstream portion of the supply chain involves the process of distributing and delivering products to the final customers.
Nike has hundreds of contracts manufacturers producing finished its products, each with it’s own set of suppliers and own supply chain. Nike also has numerous distributors and thousands of retail outlets where its products are sold.
Issues with Supply Chain Management
Parts Shortages. Underutilized Plant Capacity. Excessive Finished Goods Inventory. High Transportation Costs. These issues are due to inaccurate or untimely information. Manufactures might have too many parts in inventory because they don’t know how many orders there will be for their next shipment from suppliers. Suppliers might order too few raw materials because they don’t know how much they are supposed to produce.
The opposite of that is a just-in-time strategy in which components arrive just when you need them and finished good are shipped just as they are finished.
Supply Chain Management Software
This is software specifically designed to do two things. A) Help businesses plan their supply chains. B) Help them execute and monitor the supply chain steps. These systems are designed so that the firm can model its existing supply chain, generate demand forecasts and develop an optimal sourcing and manufacturing strategy.
SAP and Oracle are big firms that offer supply chain management solutions.
Feel free to reach me on Twitter: @cdelucia, or email me @ firstname.lastname@example.org
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