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commerce Commerce is the large-scale organized system of activities, functions, procedures and institutions directly and indirectly related to the exchange (buying and selling) of goods and services among two or more parties within local, regional, nation ...
, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activities, information, and resources involved in delivering a
product Product may refer to: Business * Product (business), an item that serves as a solution to a specific consumer problem. * Product (project management), a deliverable or set of deliverables that contribute to a business solution Mathematics * Pr ...
or
service Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a ...
to a consumer. Supply chain activities involve the transformation of
natural resource Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest and cultural value. O ...
s,
raw material A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feed ...
s, and components into a finished product and delivering the same to the end customer. In sophisticated supply chain
system A system is a group of interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its boundaries, structure and purpose and expres ...
s, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link
value chain A value chain is a progression of activities that a firm operating in a specific industry performs in order to deliver a valuable product (business), product (i.e., Goods, good and/or Service (economics), service) to the end customer. The concept ...
s. Suppliers in a supply chain are often ranked by "tier", with first-tier suppliers supplying directly to the client, second-tier suppliers supplying to the first tier, and so on.


Overview

A typical supply chain begins with the ecological, biological, and political regulation of natural resources, followed by the human extraction of raw material, and includes several production links (e.g., component construction, assembly, and merging) before moving on to several layers of storage facilities of ever-decreasing size and increasingly remote geographical locations, and finally reaching the consumer. At the end of the supply chain, materials and finished products only flow there because of the customer behaviour at the end of the chain; academics Alan Harrison and Janet Godsell argue that "supply chain processes should be co-ordinated in order to focus on end customer buying behaviour", and look for "customer responsiveness" as an indicator confirming that materials are able to flow "through a sequence of supply chain processes in order to meet end customer buying behaviour".Harrison, A. and Godsell, J. (2003)
Responsive Supply Chains: An Exploratory Study of Performance Management
Cranfield School of Management, accessed 12 May 2021
Many of the exchanges encountered in the supply chain take place between varied companies that seek to maximize their revenue within their sphere of interest but may have little or no knowledge or interest in the remaining players in the supply chain. More recently, the loosely coupled, self-organizing network of businesses who cooperate in providing product and service offerings has been called the ''
extended enterprise An extended enterprise is a loosely coupled, self-organizing network of firms that combine their economic output Output in economics Economics () is the social science that studies the Production (economics), production, distribution ( ...
'', and the use of the term "chain" and the linear structure it appears to represent have been criticised as "harder to relate ... to the way
supply networks Supply may refer to: *The amount of a resource that is available ** Supply (economics), the amount of a product which is available to customers ** Materiel, the goods and equipment for a military unit to fulfill its mission *Supply, as in confi ...
really operate. A chain is actually a complex and dynamic supply and demand network. As part of their efforts to demonstrate ethical practices, many large companies and global
brand A brand is a name, term, design, symbol or any other feature that distinguishes one seller's good or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create an ...
s are integrating codes of conduct and guidelines into their corporate cultures and
management system A management system is a set of policies Policy is a deliberate system of guidelines to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policies are generally a ...
s. Through these,
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...
s are making demands on their
suppliers In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activ ...
(facilities, farms, subcontracted services such as cleaning, canteen, security etc.) and verifying, through social
audit An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.” Auditing ...
s, that they are complying with the required standard. A lack of transparency in the supply chain can bar consumers from knowledge of where their purchases originated and facilitate socially irresponsible practices. In 2018, the
Loyola University Chicago Loyola University Chicago (Loyola or LUC) is a Private university, private Society of Jesus, Jesuit research university in Chicago, Illinois. Founded in 1870 by the Society of Jesus, Loyola is one of the largest Catholic Church, Catholic univers ...
's Supply and Value Chain Center found in a survey that 53% of supply chain professionals considered ethics to be "extremely" important to their organization. Supply-chain managers are under constant scrutiny to secure the best pricing for their resources, which becomes a difficult task when faced with the inherent lack of transparency.
Cost benchmarking Cost benchmarking is the measurement, refinement and analysis of ones Cost of goods sold, Cost of Goods Sold (COGS) when compared to market peers. Cost benchmarking identifies Competition (companies), competitiveness of pricing in industry terms, hi ...
is one effective method for identifying competitive pricing within the industry. This gives negotiators a solid basis to form their
strategy Strategy (from Greek στρατηγία ''stratēgia'', "art of troop leader; office of general, command, generalship") is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of the ...
on and drive overall spending down.


Typologies

Marshall L. Fisher (1977) asks the question in a key article, "Which is the right supply chain for your product?" Fisher, and also Naylor, Naim and Berry (1999), identify two matching characteristics of supply chain strategy: a combination of "functional" and "efficient", or a combination of "responsive" and "innovative" (Harrison and Godsell). Brown ''et al.'' refer to supply chains as either "loosely coupled" or "tightly coupled": These ideas refer to two polar models of collaboration: tightly coupled, or "hard-wired", also known as "linked", collaboration represents a close relationship between a buyer and supplier within the chain, whereas a loosely-coupled link relates to low interdependency between buyer and seller and therefore greater flexibility.CIPS
Loosely-Coupled vs Tightly-Coupled Supply Chain
no date, accessed 13 May 2021
The
Chartered Institute of Procurement & Supply The Chartered Institute of Procurement & Supply (CIPS), formerly the Chartered Institute of Purchasing & Supply, is a global professional body working for the procurement and supply profession in many regions of the world. It promotes best prac ...
's professional guidance suggests that the aim of a tightly coupled relationship is to reduce
inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Stock management, Inventory management is a discipline primarily about s ...
and avoid stock-outs.


Modeling

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 Supply-chain operations reference (SCOR) model is a process reference model developed and endorsed by the Association for Supply Chain Management, Supply-Chain Council as the cross-industry, standard diagnostic tool for supply chain management. The ...
) model, developed by a consortium of industry and the non-profit Supply Chain Council (now part of
APICS APICS, currently known as the Association for Supply Chain Management is a Nonprofit organization, not-for-profit international education organization offering certification programs, training tools, and networking opportunities to increase wo ...
) became the cross-industry
de facto standard A ''de facto'' standard is a custom or convention that has achieved a dominant position by public acceptance or market forces (for example, by early entrance to the market). is a Latin phrase (literally " in fact"), here meaning "in practice b ...
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 supply chain can be split into different segments, after which stage in the supply chain process it considers. The earlier stages of a supply chain, such as
raw material A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feed ...
processing and
manufacturing Manufacturing is the creation or Production (economics), production of goods with the help of equipment, Work (human activity), labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary secto ...
determine their
break-even point The break-even point (BEP) in economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Ec ...
by considering production costs, relative to market price. The later stages of a supply chain, such as
wholesale Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. I ...
and
retail Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, a ...
determine their
break-even point The break-even point (BEP) in economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Ec ...
by considering
transaction costs In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a Market (economics), market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of compani ...
, relative to market price. Additionally, there are financial costs associated with all the stages of a supply chain model. The Global Supply Chain Forum has introduced another supply chain model. This framework is built on eight key
business process A business process, business method or business function is a collection of related, structured activities or Task (project management), tasks by people or equipment in which a specific sequence produces a service or product (serves a particular ...
es 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 the 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 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.


Mapping

Similarly, supply chain mapping involves documenting information regarding all participants in an organisation's supply chain and assembling the information as a global map of the organisation's supply network.


Management

In the 1980s, the term supply-chain management (SCM) was developed to express the need to integrate the key business processes, from end user through original suppliers. Original suppliers are those that provide products, services, and information that add value for customers and other stakeholders. The basic idea behind SCM is that companies and corporations involve themselves in a supply chain by exchanging information about market demand, distribution capacity and production capabilities.
Keith Oliver Keith Oliver is a British logistician and consultant known for coining the terms "Supply Chain" and "Supply Chain Management", first using them in public in an interview with Arnold Kransdorff of the Financial Times on 4 June 1982. Education and c ...
, a consultant at
Booz Allen Hamilton Booz Allen Hamilton Holding Corporation (informally Booz Allen) is the parent of Booz Allen Hamilton Inc., an American management consulting, management and information technology consulting firm, headquartered in Tysons Corner, Virginia, McLean ...
, is credited with the term's invention after using it in an interview for the ''Financial Times'' in 1982. The term was used earlier by Alizamir et al. in 1981. If all relevant information is accessible to any relevant company, every company in the supply chain has the ability to help optimize the entire supply chain rather than to sub-optimize based on local optimization. This will lead to better-planned overall production and distribution, which can cut costs and give a more attractive final product, leading to better sales and better overall results for the companies involved. This is one form of
vertical integration In microeconomics, management and international political economy, vertical integration is a term that describes the arrangement in which the supply chain of a company is integrated and owned by that company. Usually each member of the supply c ...
. Yet, it has been shown that the motives for and performance efficacy of vertical integration differ by global region. Incorporating SCM successfully leads to a new kind of competition on the global market, where competition is no longer of the company-versus-company form but rather takes on a supply-chain-versus-supply-chain form. The primary objective of SCM is to fulfill customer demands through the most efficient use of resources, including distribution capacity,
inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Stock management, Inventory management is a discipline primarily about s ...
, and labor. In theory, a supply chain seeks to match demand with supply and do so with minimal inventory. Various aspects of optimizing the supply chain include liaising with suppliers to eliminate bottlenecks; sourcing strategically to strike a balance between lowest material cost and
transportation Transport (in British English British English (BrE, en-GB, or BE) is, according to Oxford Dictionaries, " English as used in Great Britain, as distinct from that used elsewhere". More narrowly, it can refer specifically to the Engli ...
, implementing just-in-time techniques to optimize manufacturing flow; maintaining the right mix and location of factories and warehouses to serve
customer In sales, commerce, and economics, a customer (sometimes known as a :wikt:client, client, buyer, or purchasing, purchaser) is the recipient of a Good (economics), good, service (economics), service, product (business), product or an Intellectual p ...
markets; and using location allocation, vehicle routing analysis,
dynamic programming Dynamic programming is both a mathematical optimization method and a computer programming method. The method was developed by Richard Bellman in the 1950s and has found applications in numerous fields, from aerospace engineering to economics. I ...
, and traditional
logistics Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics manages the flow of goods between the point of origin and the point of consumption to meet the requirements of ...
optimization to maximize the efficiency of distribution. The term "logistics" applies to activities within one company or organization involving product distribution, whereas "supply chain" additionally encompasses manufacturing and procurement, and therefore has a much broader focus as it involves multiple enterprises (including suppliers, manufacturers, and retailers) working together to meet a customer need for a product or service. Starting in the 1990s, several companies chose to outsource the logistics aspect of supply-chain management by partnering with a
third-party logistics provider Third-party logistics (abbreviated as 3PL, or TPL) in logistics and supply chain management is an organization's use of Third-party access, third-party businesses to outsourcing, outsource elements of its distribution (business), distribution, war ...
(3PL). Companies also outsource production to contract manufacturers. Technology companies have risen to meet the demand to help manage these complex systems. Cloud-based SCM technologies are at the forefront of next-generation supply chains due to their impact on optimization of time, resources, and inventory visibility. Cloud technologies facilitate work being processed offline from a mobile app which solves the common issue of inventory residing in areas with no online coverage or connectivity.


Resilience

Supply chain resilience is "the capacity of a supply chain to persist, adapt, or transform in the face of change". For a long time, the interpretation of resilience in the sense of engineering resilience (= robustness) prevailed in supply chain management, leading to the notion of ''persistence''. A popular implementation of this idea is given by measuring the ''time-to-survive'' and the ''time-to-recover'' of the supply chain, allowing identification of weak points in the system. More recently, the interpretations of resilience in the sense of
ecological resilience In ecology, resilience is the capacity of an ecosystem to respond to a perturbation or Disturbance (ecology), disturbance by resisting damage and recovering quickly. Such perturbations and disturbances can include stochastic events such as fires ...
and social–ecological resilience have led to the notions of ''adaptation'' and ''transformation'', respectively. A supply chain is thus interpreted as a social-ecological system that – similar to an ecosystem (e.g. forest) – is able to constantly adapt to external environmental conditions and – through the presence of social actors and their ability to foresight – also to transform itself into a fundamentally new system. This leads to a panarchical interpretation of a supply chain, embedding it into a
system of systems System of systems is a collection of task-oriented or dedicated systems that pool their resources and capabilities together to create a new, more complex system which offers more functionality and performance than simply the sum of the constituent s ...
, allowing to analyze the interactions of the supply chain with systems that operate at other levels (e.g. society, political economy, planet Earth). For example, these three components of resilience can be discussed for the
2021 Suez Canal obstruction In March 2021, the Suez Canal was blocked for six days after the Ship grounding, grounding of , a container ship. The vessel was buffeted by strong winds on the morning of 23 March, and ended up wedged across the waterway with its bow and ste ...
, when a ship blocked the canal for several days. Persistence means to "bounce back"; in our example it is about removing the ship as quickly as possible to allow "normal" operations. Adaptation means to accept that the system has reached to a "new normal" state and to act accordingly; here, this can be implemented by redirecting ships around the African cape or use alternative modes of transport. Finally, transformation means to question the assumptions of globalization, outsourcing, and linear supply chains and to envision alternatives; in this example this could lead to local and circular supply chains.


Social responsibility

Incidents like the
2013 Savar building collapse The 2013 Rana Plaza factory collapse (also referred to as the 2013 Savar building collapse or the Collapse of Rana Plaza) was a structural failure that occurred on 24 April 2013 in the Savar Upazila of Dhaka District, Bangladesh, where an eigh ...
with more than 1,100 victims have led to widespread discussions about
corporate social responsibility Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethica ...
across global supply chains. Wieland and Handfield (2013) suggest that companies need to audit products and suppliers and that supplier auditing needs to go beyond direct relationships with first-tier suppliers (those who supply the main customer directly). They also demonstrate that visibility needs to be improved if the supply cannot be directly controlled and that smart and electronic technologies play a key role to improve visibility. Finally, they highlight that collaboration with local partners, across the industry and with universities is crucial to successfully manage social responsibility in supply chains. This incident also highlights the need to improve workers safety standards in organizations. Hoi and Lin (2012) note that corporate social responsibility can influence the enacting of policies that can improve occupational safety and health management in organizations. In fact, international organizations with presence in other nations have a responsibility to ensure that workers are well protected by policies in an organization to avoid safety related incidents.


Food supply chains

Many
agribusiness Agribusiness is the Industry (economics), industry, Business, enterprises, and the field of study of Agribusiness value chain, value chains in agriculture and in the Bioeconomy, bio-economy, in which case it is also called bio-business or bio-ent ...
es and food processors source raw materials from
smallholder A smallholding or smallholder is a small farm operating under a small-scale agriculture model. Definitions vary widely for what constitutes a smallholder or small-scale farm, including factors such as size, food production technique or technology ...
farmers. This is particularly true in certain sectors, such as
coffee Coffee is a drink prepared from roasted coffee beans. Darkly colored, bitter, and slightly acidic, coffee has a stimulant, stimulating effect on humans, primarily due to its caffeine content. It is the most popular hot drink in the world. S ...
, cocoa and
sugar Sugar is the generic name for Sweetness, sweet-tasting, soluble carbohydrates, many of which are used in food. Simple sugars, also called monosaccharides, include glucose, fructose, and galactose. Compound sugars, also called disaccharides o ...
. Over the past 20 years, there has been a shift towards more traceable supply chains. Rather than purchasing crops that have passed through several layers of collectors, firms are now sourcing directly from farmers or trusted aggregators. The drivers for this change include concerns about
food safety Food safety (or food hygiene) is used as a scientific method/discipline describing handling, food processing, preparation, and food storage, storage of food in ways that prevent foodborne illness, food-borne illness. The occurrence of two or ...
,
child labor Child labour refers to the Exploitation of labour, exploitation of children through any form of work that deprives children of their childhood, interferes with their ability to attend regular school, and is mentally, physically, socially and ...
and
environmental sustainability Specific definitions of sustainability are difficult to agree on and have varied in the literature and over time. The concept of sustainability can be used to guide decisions at the global, national, and individual levels (e.g. sustainable livin ...
as well as a desire to increase
productivity Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proc ...
and improve crop quality. In October 2009, the
European Commission The European Commission (EC) is the Executive (government), executive of the European Union (EU). It operates as a cabinet government, with 27 European Commissioner, members of the Commission (informally known as "Commissioners") headed by a P ...
issued a ''Communication'' concerning "a better functioning food supply chain in Europe", addressing the three sectors of the
European economy The economy of Europe comprises about 748 million people in 50 countries. The formation of the European Union (EU) and in 1999 the introduction of a unified currency, the Euro, brought participating European countries closer through the ...
which comprise the food supply chain: agriculture,
food processing Food processing is the transformation of Agriculture, agricultural products into food, or of one form of food into other forms. Food processing includes many forms of processing foods, from grinding grain to make raw flour to home cooking to co ...
industries, and the distribution sectors.European Commission
Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: A better functioning food supply chain in Europe
provisional version published 28 October 2019, accessed 26 April 2022
An earlier interim report on
food prices Food prices refer to the average price level for food Food is any substance consumed by an organism for nutritional support. Food is usually of plant, animal, or fungal origin, and contains essential nutrients, such as carbohydrates, ...
(published in December 2008) had already raised concerns about the food supply chain. Arising out of the two reports, the Commission established a "European Food Prices Monitoring Tool", an initiative developed by
Eurostat Eurostat ('European Statistical Office'; DG ESTAT) is a Directorate-General of the European Commission The European Commission (EC) is the Executive (government), executive of the European Union (EU). It operates as a cabinet government, ...
and intended to "increase transparency in the food supply chain". In March 2022 the Commission noted "the need for EU agriculture and food supply chains to become more resilient and sustainable".


Regulation

Supply chain security has become particularly important in recent years. As a result, supply chains are often subject to global and local regulations. In the United States, several major regulations emerged in 2010 that have had a lasting impact on how global supply chains operate. These new regulations include the Importer Security Filing (ISF) and additional provisions of the Certified Cargo Screening Program. EU's draft supply chain law are due diligence requirements to protect human rights and the environment in the supply chain.


Development and design

With the increasing
globalization Globalization, or globalisation ( Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 2 ...
and easier access to different kinds of alternative products in today's markets, the importance of product design to generating demand is more significant than ever. In addition, as supply, and therefore competition, among companies for the limited market demand increases and as pricing and other marketing elements become less distinguishing factors, product design likewise plays a different role by providing attractive features to generate demand. In this context, demand generation is used to define how attractive a product design is in terms of creating demand. In other words, it is the ability of a product's design to generate demand by satisfying customer expectations. But product design affects not only demand generation but also manufacturing processes, cost, quality, and lead time. The product design affects the associated supply chain and its requirements directly, including manufacturing, transportation, quality, quantity, production schedule, material selection, production technologies, production policies, regulations, and laws. Broadly, the success of the supply chain depends on the product design and the capabilities of the supply chain, but the reverse is also true: the success of the product depends on the supply chain that produces it. Since the product design dictates multiple requirements on the supply chain, as mentioned previously, then once a product design is completed, it drives the structure of the supply chain, limiting the flexibility of engineers to generate and evaluate different (and potentially more cost-effective) supply-chain alternatives.


See also

* Supply-chain sustainability * Digital Supply Chain * Software supply chain *
Freight forwarder A freight forwarder, or forwarding agent, is a person or company who, for a fee organizes shipments for individuals or corporations to get goods from the manufacturer or producer to a market, customer or final point of distribution.
*
Logistics Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics manages the flow of goods between the point of origin and the point of consumption to meet the requirements of ...
*
Supply chain attack A supply chain attack is a cyber-attack that seeks to damage an organization by targeting less secure elements in the supply chain. A supply chain attack can occur in any industry, from the financial sector, oil industry, to a government sector. ...
* 2021 global supply chain crisis


References


External links


Supply Chain and Logistics Terms and Glossary
{{DEFAULTSORT:Supply Chain Networks fr:Gestion de la chaine logistique ja:サプライチェーン