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Definition: The supply chain refers to the network of manufacturers, wholesalers, distributors, and retailers, who turn raw materials into finished goods and services and deliver them to consumers. For example, the supply chain for a personal computer company consists of suppliers of computer chips and other components, the computer manufacturer, the distributors, retailers, and others who sell the computers.
The concept of supply chain management refers to the managing of the upstream and downstream value-added flows of materials and final product among the suppliers, the company, resellers, and final consumers. Supply chain management has come to the forefront of today’s businesses and many organizations are strengthening their connections with partners all along the supply chain. Today, companies treat suppliers and distributors not just as vendors and customers, but consider them an important aspect in achieving their organizational goals. Each one of these partners is responsible for adding something to the value chain. Businesses need to not only be sure that they themselves succeed, but that their partners along the supply chain stay competitive as well. The success of the suppliers and distributors correlates directly with how well the organization performs in its day-to-day activities.
Many companies are starting to place greater emphasis on their supply chain management for several reasons. First, companies that are stressing the importance of their supply chain system are creating a bigger competitive advantage by using the improved logistics to give customers better and quicker service. Second, improvement along the supply chain can help the company, and the consumer, save a great amount of money by making it more efficient. Third, the expansion of product variety has created a greater need for the improvement of the supply chain. Twenty years ago, there was not nearly as much choices found in the grocery aisle as there is today. All these additional products need to be moved from the hands of the producers to the hands of the consumers as quickly as possible. The final reason for the recent emphasis that businesses are putting on their supply chain, is the advancement of technology. Today, many companies use sophisticated equipment such as supply chain software, point-of-sale scanners, satellite tracking, and electronic transfers.
An example of a company that has built its success on their supply chain process is Wal-Mart. Wal-Mart has long been the industry leader and standard setter in this particular function. It is not unusual at Wal-Mart to have their shelves refilled in less than three days – directly from the manufacturer to the Wal-Mart shelf. When a product is bought at the store, the automated checking system alerts not only Wal-Mart, but the manufacturer as well. This way the manufacturer knows exactly when, and how many, units they need to produce in order to fill the next shipment. In turn, this helps Wal-Mart maintain its low inventories, costing them less money, and is still be able to meet its customers’ demands.
Though Wal-Mart has received its share of criticism for creating an unfair advantage by driving down prices to the point where no supplier is turning a profit, many companies are starting to follow in their footsteps. The automation of many points along the supply chain will only grow quicker and stronger. The idea of the creating the most efficient supply chain is an ever increasing trend that will lower prices for companies and consumers alike. Companies will need to evaluate their business process model in order to ensure that they are prepared for the next level. Unfortunately, companies that choose to ignore this important change in the business environment may soon find themselves too far behind to catch up.