Its activities begin with a customer order and ends when a satisfied customer has paid for his or her purchase. Generally, more than one player is involved at each stage. A manufacturer may receive materials from several suppliers and then supply several distributors. Thus, most supply chains are actually networks.
Supply chain is an integral part of the value chain. According to Michael Porter, who first articulated the value chain concept in the 1980s, the value chain is comprised of both the primary and support activities. The supply chain consists only of the primary activities or the operational part of the value chain. The supply chain, therefore, can be thought of as a subset of the value chain. In other words, while everyone in the same organization works in the value chain, not everyone within the organization works in the supply chain.
The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request. The supply chain profitability is based on the effort involved in the appropriate management of the flows between and among stages in a supply chain. Unlike the traditional measure of organizational success in terms of the profits at an individual stage, supply chain success is measured in terms of supply chain profitability.
The objective of every supply chain is to maximize the overall value generated so that the final price of the good covers all of the costs involved plus a profit for each participant in the chain. Figure 11.2 shows the supply chain as a network and also as a part of the value chain.
The appropriate design of the supply chain will depend on both the customer’s needs and the role of the stages involved. In some cases, a manufacturer may fill customer orders directly. For example, Dell has been one of the most successful examples of effective supply chain management. Dell builds-to-order, that is, a customer order initiates manufacturing at Dell. Dell does not have a retailer, wholesaler, or distributor in its supply chain.
Logistics focuses on the physical movement and storage of goods and materials. This involves evaluating and selecting various transportation options, developing and managing networks of warehouses when needed, and managing the physical flow of materials into and out of the organization.
These physical flows are often called in-bound and out-bound logistics, respectively. In-bound logistics is the movement of materials from suppliers and vendors into production processes or storage facilities. Outbound logistics is the process related to the movement and storage of products from the end of the production line to the end user.
Logistics decisions are often tightly intertwined with production and inventory decisions, particularly when businesses must decide where to hold inventory in the supply chain. In some cases, logistics help decide on the appropriate type of packaging for products. Logistics personnel also must work closely with marketing to determine the channels (e.g., wholesalers, retailers, and mail-order) by which to distribute the firm’s products and services.
Material and products can also flow back up the supply chain. For example, customers might need to return damaged or outdated products. This process is called reverse logistics. An important new trend is the recovery and recycling of products after they have reached the end of their useful lives.
There is a new trend due to the increasing concern for the environment where supply chains often extend beyond the final customer to include the acceptance and “dis-assembly” of final products for re-use in new products. In this sense, this is an attempt by organizations to “close the loop”, so that they can avoid harming the environment. With increasing demand for this type of service, reverse logistics presents a different set of logistics challenges that organizations have to meet in the future.