Basic Supply Chain

  • In the past the strategic focus for many organizations was on improving their internal quality and reducing costs, the new focus is on implementing total supply chain solutions that require collaboration from partner organizations both upstream and downstream.
  • Forces that will impact virtually every supply chain:
    • Global Expansion
    • Increased project complexity and scope
    • Great market volatility

(Definition) A supply chain is a global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution and cash.

Three Entities


  • A provider of goods / services.
  • A seller with whom the buyer does business (On the other hand vendors is a generic term used for all sellers in the market).
  • The supplier provides materials, energy, services or components for use in producing a product or service.


  • A producer receives services, materials, supplies, energy and components to use in creating finished products.
  • Supply chains for services may be more abstract than those for manufacturing.


  • A customer that receives shipments of finished products to deliver to its customers.


  • Companies require their supply chain to guarantee a steady flow of supply while at the same time striving to reduce their supply chain costs. They can improve operating efficiency by employing the right supply chain structure.
  • Implementing the appropriate cost-centered structure and strategy is critical.


This strategy is appropriate for chains:

  • With a significant history of stability between demand and supply.
  • That are focused on execution, effectiveness and cost performance.
  • That use simple connectivity technologies and have little need for real-time information.

Example: Table salt manufacturer with commodity oriented processes that use scale production and dedicated capital assets.


This strategy work well when:

  • The chain acts to fulfill demand from trade partners’ sales and marketing strategies.
  • The chain is perceived as a cost center by all involved.
  • The chain needs minimal connectivity technologies and capital assets to respond to demand.
  • Ensuring the throughput at any cost is the chains primary goal.

Example: Manufacturer of sports team apparel for the fans of competing rivals in the world championship soccer tournament. When a team makes it to the next round, more products are needed. However, for the losing team, demand virtually disappears for their apparel.

Effective Reactive

With this strategy, the chain:

  • Supports competitive positioning by serving as an efficient, low-cost and integrated unit.
  • Focuses efficiency and cost management on the total delivered cost of finished goods.
  • Places greater importance on connectivity technology and new equipment to automate functions to reduce labor costs and improve capacity and throughput.

Example: Supermarket chains in the Netherlands, where the shops, distribution centers, third-party logistics providers, and manufacturers cooperated to replace what is sold in the shops within less than 24Hrs.

**The metrics of all these models focus on the return on investment (ROI) of the individual trading partners but not on the potential for joint strategic value and collaboration payback.

Four Flows

Four basic flows connect the supply chain entities together:

  1. The flow of information <——————————->
  2. The primary product flow ——————————–>
  3. The primary flow of cash <——————————–
  4. The reverse flow of products returned <——————————– (This is called the reverse supply chain and handled by reverse logistics).

Sample Manufacturing Supply Chain Model

  • Discussions of supply chains typically put manufacturing at the center and suppliers of the components to the immediate left.
  • No matter how far you travel toward the left, you will never run out of new tiers of suppliers.
  • Supply chains can double back on themselves.
  • **A distributor is a business that does not manufacture its own products but purchases and resells these products.

Services Also Have Supply Chains


A firm in the service industry is in its narrowest sense, an organization that provides an intangible product such as medical or legal advice.

In its broader sense, service industries include all organizations except farming, mining and manufacturing. It includes retail trade; wholesales trade; transportation and utilities; finance; insurance, and real estate; construction; professional, personal, and social services; and local, state, and federal governments.