What Is a Supply Chain?

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain includes not only the manufacturer and suppliers, but also transporters, warehouses, retailers, and even customers themselves. Within each organization, such as a manu­facturer, the supply chain includes all functions involved in receiving and filling a customer request. These functions include, but are not limited to, new product development, marketing, operations, distribution, finance, and customer service.

Consider a customer walking into a Walmart store to purchase detergent. The supply chain begins with the customer and his or her need for detergent. The next stage of this supply chain is the Walmart retail store that the customer visits. Walmart stocks its shelves using inventory that may have been supplied from a finished-goods warehouse or a distributor using trucks supplied by a third party. The distributor, in turn, is stocked by the manufacturer (say, Procter & Gamble [P&G] in this case). The P&G manufacturing plant receives raw material from a variety of sup­pliers, which may themselves have been supplied by lower-tier suppliers. For example, packag­ing material may come from Pactiv Corporation, whereas Pactiv receives raw materials to manufacture the packaging from other suppliers. This supply chain is illustrated in Figure 1-1, with the arrows corresponding to the direction of physical product flow.

A supply chain is dynamic and involves the constant flow of information, product, and funds among different stages. In our example, Walmart provides the product, as well as pric­ing and availability information, to the customer. The customer transfers funds to Walmart. Walmart conveys point-of-sales data and replenishment orders to the warehouse or distribu­tor, which transfers the replenishment order via trucks back to the store. Walmart transfers funds to the distributor after the replenishment. The distributor also provides pricing infor­mation and sends delivery schedules to Walmart. Walmart may send back packaging mate­rial to be recycled. Similar information, material, and fund flows take place across the entire supply chain.

In another example, when a customer makes a purchase online from Amazon, the supply chain includes, among others, the customer, Amazon’s website, the Amazon warehouse, and all of Amazon’s suppliers and their suppliers. The website provides the customer with information regarding pricing, product variety, and product availability. After making a product choice, the customer enters the order information and pays for the product. The customer may later return to the website to check the status of the order. Stages further up the supply chain use customer order information to fill the request. That process involves an additional flow of information, product, and funds among various stages of the supply chain.

These examples illustrate that the customer is an integral part of the supply chain. In fact, the primary purpose of any supply chain is to satisfy customer needs and, in the process, generate profit for itself. The term supply chain conjures up images of product or supply moving from suppliers to manufacturers to distributors to retailers to customers along a chain. This is certainly part of the supply chain, but it is also important to visualize information, funds, and product flows along both directions of this chain. The term supply chain may also imply that only one player is involved at each stage. In reality, a manufacturer may receive material from several sup­pliers and then supply several distributors. Thus, most supply chains are actually networks. It may be more accurate to use the term supply network or supply web to describe the structure of most supply chains, as shown in Figure 1-2.

A typical supply chain may involve a variety of stages, including the following:

• Customers
• Retailers
• Wholesalers/distributors
• Manufacturers
• Component/raw material suppliers

Each stage in a supply chain is connected through the flow of products, information, and funds. These flows often occur in both directions and may be managed by one of the stages or an intermediary. Each stage in Figure 1-2 need not be present in a supply chain. As discussed in Chapter 4, the appropriate design of the supply chain depends on both the customer’s needs and the roles played by the stages involved. For example, Dell has two supply chain structures that it uses to serve its customers. For its server business, Dell builds to order; that is, a customer order initiates manufacturing at Dell. For the sale of servers, Dell does not have a separate retailer, distributor, or wholesaler in the supply chain. Dell also sells consumer products such as PCs and tablets through retailers such as Walmart, which carry Dell products in inventory. This supply chain thus contains an extra stage (the retailer), compared with the direct sales model used by Dell for servers. In the case of other retail stores, the supply chain may also contain a wholesaler or distributor between the store and the manufacturer.

Source: Chopra Sunil, Meindl Peter (2014), Supply Chain Management: Strategy, Planning, and Operation, Pearson; 6th edition.