Supply chain management personnel, realise the significance of a supply chain network. It has grave importance, for logistics and business managers. What is a supply chain network? To illustrate, many companies, look at their extreme of the spectrum, – their product or service. This view is myopic in the best case however.
There is a need to consider the other end of the spectrum, – what the end user or customer receives. This completes the see-saw. Enter a supply chain network. Companies suddenly get:
- a firm overview of the overall movement of materials and information end to end;
- the value of creating partnerships; and
- The value in this synergy, to ensure the best value, for the end customer.
Supply chains and supply networks both clarify the flow and movement of materials and information. This happens by connecting organisations, to serve the end user. A network refers to a complex structure, composed of distinct entities. For organisations in a network, they can be cross-linked, with two-way exchanges between them.
A chain by contrast, considers a sequential set of links that are simpler by nature. A supply chain network (SCN), is premised on the lean supply chain. Understanding supply chain networks, need prior understanding, of what a supply chain is.
Simply put, a supply chain is a series of processes linked together, to form a chain. Let’s take the example of supply chain in fruit juice production. It all begins at the fruit farm. The material flow continues, to the fruit juicing plant. It carries on to the National Distribution Centre (NDC), and there are a few more trips to various Regional Distribution Centres (RDC). Finally, there is coordinated distribution to shops, supermarkets, and vending machines.
This final step moves the fruit juice closer to the end user, than it was at the beginning of the process. A supply chain network will highlight the links between organisations, and flow of information and materials, between these links. The detail within the supply chain network defines the complexity in the network web.
Rapid strides in technology is enabling organisations with basic supply chains, to evolve their chains into structures, of greater complexity. This involves higher degrees of interdependence and connectivity, between more organisations and it is the nucleus of a supply chain network.
An organisation’s supply chain network will have upstream and downstream components. With businesses forming part of a much bigger network of interwoven organisations, a supply chain network is a reliable tool, to showcase key flows, across organisations.
Two types of flows link organisations. An organisation’s supply chain network necessitates a mapping of information flow and material flow. Informational flow comprises the demand from the end user, to organisations preceding it in the network, while material flow comprises the movement of goods, from raw material form (fruits, wool, trees),to finished goods (mobile phones, computers, clothing),which are delivered to the end customer.
In informational flow, the firm at the centre, the focal firm, provides suppliers with their sales data, or forecasting demand information. Armed with this information, the supplier is able to reduce costs, (by producing what’s required, for instance), and improve prices.
Strong partnerships within your supply network, helps you serve the customer better. This happens when these partnerships are designed, to positively influence the end user, whether you are the manufacturer, distributor or retailer. Improving communication by trust, is key to these partnerships, and ultimately enhances efficiency and productivity.
Supply chain networks have assumed vital global dimensions, from which five key areas can be crystallised:
- external suppliers
- production centres
- distribution centres
- demand zones; and
- transportation assets
Nothing stops any organisation from investing in the components needed, to build a supply chain network. It only needs a set of locations, transportation vehicles, and supporting systems, to manage and deliver products and services, from markets. Physical locations in a supply chain network can be production plants, warehouses, major distribution centres, and ports. These may be owned by the company, suppliers, third-party logistics provider, a retail store or an end customer.
Many transportation means can exist within a supply chain network, depending on the scale and model of operations. These may include various truck types, trains, intermodal unit movement, container ships and cargo planes. To manage and improve a supply chain network, some systems that can be employed include:
- order management
- warehouse management
- transportation management
- strategic logistics modelling
- inventory management
- supply chain visibility
- optimisation tools
With thriving technologies and standards such as RFID and GS1 Global Standards, it is now possible to automate supply chain networks in real-time. This is more efficient now, than before.
Refrigeration in the supply chain
With perishables, it becomes increasingly important to speak of the cold chain. The cold chain (cool chain) is a supply chain that is controlled by temperature. An unbroken cold chain is an unhindered series of production, storage and distribution tasks that all employ refrigeration, at the core. Refrigeration is also intrinsic to the equipment and logistics that maintain a low-temperature range.
By employing refrigeration, cold chains aim to minimise post-harvest losses on food products. This improves the supply chain, ensuring all stakeholders get greatest returns, for their efforts. A scarcity of refrigeration in the supply chain increases the pressure to spray chemicals, to preserve farm produce. This is in addition to the imbalance between production, and consumption.
The refrigerated cold chain ensures high-value products reach the market, in the most hygienic and nutritious form, while contributing to the frozen food market, and economy at large. It also assures food safety, and prevents food wastage through judicious use of evolving refrigeration techniques.
Efficient supply chain network design
Supply chain network design is often called network modelling. This is because, a mathematical model can be created, to optimise the network. To design a cost-effective supply chain network, 80% of supply chain costs are influenced by the location of facilities, and the flow of products, between the facilities.
Tax regulations, availability of resources, and company position in industry, are factors that can determine the complexity of company supply chain network designs. To design an efficient supply chain network, account for all facilities, means of production, products, and transportation assets owned by the organisation and its third-party partners that directly support the supply chain operations, and product flow. This design should have details of the number and location of facilities, that is production plants, supplier base,and storage facilities.
Supply chain design is more or less an aggregation of nodes with capability and capacity, connected by lanes, to help products move between facilities. The design of a supply chain network is a very fluid process that depends on network footprint, capacity and capability, and product flow. These are independent as much as they intertwine. Optimal design is elusive in SCN design, as key trade-offs are happening in real time with responsiveness, risk tolerance, and efficiency.
Supply chain network risk analysis
Supply chain network risk analysis, has become of infinite importance. Since SCN guarantees cost cuts within a company, it is pivotal to realise that supply chain is dynamic. There is continual improvement of models and adaptation, to market forces.
Firms must ensure that the network is versatile enough, to embrace uncertainties. While the future remains uncertain, supply chain network risk analysis can be carried out, using available information, simulating the future business environment.
Uncertainties in SCN include endogenous uncertainty and exogenous uncertainty. Where the origin of risk is within the SCN, as with market volatility and technological turbulence, it is endogenous. Whereas it is exogenous where the origin of risk is external to the SCN. Exogenous risk can be further broken down into:
- continuous exogenous risk – ongoing risks such as economic volatility
- discrete exogenous risk – isolated events (like natural disasters) with spotty frequency, that could upset the supply chain process
Risk management in supply chain networks
Having a grasp of the various types of uncertainties, an organisation can weigh its options for managing risk. There’s little any firm can do, to deter a natural disaster, thus exogenous uncertainties remain largely uncontrollable.
Supply chain risk can be minimised by proper preparation, for potential occurrences. Endogenous uncertainty can be contained with precautions that include regular communication, between an organisation and its suppliers.