What are Supply Chain Networks & their branches

 

What are Supply Chain Networks?

Behind every product there is a supply chain.

Earlier, the network was fully owned by one company (e.g. Ford).Today, it is a network of companies, located in different countries, involved in product design, manufacture and delivery to customers.

Components may be sourced from several countries, assembled in another country and distributed to customers all over the world => Network coordination is important.

 

Horizontal and Vertical Globalization

In Horizontal FDI, MNCs duplicate the same activities in multiple countries.

In Vertical FDI, firms locate different stages of production in different countries.

 

The basic difference between the two is:

Horizontal integration always occurs at the same stage in the supply chain.

Vertical integration always occurs at different stages in the supply chain.

 

Three (Material, Information & Financial) Flows

 

·         Logistics network provides a streamlined material flow between all partners, reducing lead time and cost.

·         Communications network provides information integration between companies of the supply chain network.

·         Financial network connects all institutions providing funds, letters of credit and insurance.

 

Three Sub Networks

 

§  Demand sub-network: Consists of manufacturing, distribution, retailing, logistics and finance. Perfect delivery is important.

§  Supply sub-network: B2B network consisting of suppliers, manufacturers, inbound logistics, financial institutions and freight forwarders.

§  Service sub-network: Connects consumer with suppliers and manufacturers after sales service centers.

 

The Three Business Processes

·         Procurement: Sourcing raw materials and components from the suppliers: Vendor and logistics provider selection, delivery scheduling and inventory management.

·         Manufacturing: Could be in a single location or geographically distributed.

·         Distribution and Retail: Consists of packaging, transportation and warehousing. Options include direct shipping or outsourcing to third parties.

 

The Six Dominant Players

 

·         Suppliers

·         Logistics players: B2B and B2C

·         Contract manufacturers

·         Distributors

·         Retailers

They are independent companies globally distributed and highly connected.

 

Life cycle-based Logistics

Logistics depends on the product life cycle.

v  Manufacturing logistics: Movement of semi-finished items from on machine shop to another.

v  Outbound logistics: Movement of finished products from one end of the production line to the consumer.

v  Inbound logistics: Movement of raw materials from one source of supply to the beginning of the production line.

v  Spare part logistics: Movement of spare parts from manufacturers to the customers via dealers.

v  Reverse logistics: Movement of used goods from consumers to the manufacturers.

 

1PL, 2PL and 3PLs

 

§  1PL: Most manufacturers handle all logistics functions including trucking and warehousing.

§  2PL: 2PLs are basic transportation and storage providers such as truckers, warehouses and container lines and have high levels of asset intensity.

§  3PL: 3PLs provide end-to-end total value added logistic solution.

 

Lead Logistics Providers (LLP).

 

LLPs follow the leveraged growth model that mobilizes the needed assets and capabilities existing within other companies to deliver to its customers.

 

Global Supply Chain Networks

 

Global manufacturing supply chains networks have proliferated as a result of convergence of several technologies and co-evolution of several global players.

 

·         CDM -Contract Design and Manufacturing

·         CM -Contract Manufacturing

·         EMS -Electronic Manufacturing Service

·         ODM -Original Design and Manufacturing

Institutions and Supply Chains

 

Global supply chains pass through several countries and have to be managed effectively to minimize the lead time and inventory.

Zara Fashion Retailer

 

Founded in 1963 by Amancio Ortega - He thought that customers would regard clothes as a perishable commodity, no different from yogurt or bread; to be consumed rather than stored in closets.

First Zara shop opened in 1975 selling low price imitations of more up-market fashions.

Today, Zara is part of the 4 billion euro Inditex group and over 80% of the group's sales are contributed by Zara's 600 stores.

Zara produces and presents very limited volumes of new items in certain key stores. Failure rates on new products are only 1%, compared to an average of 10% for the sector.

Zara' supply chain is highly unconventional.

 

Physical Supply Chain (PSC)

A Physical Supply Chain (PSC) is the system of organizations, people, activities, information, and resources involved in moving a product or service from a Seller to a Buyer, either domestically or across borders.

Physical supply chains transform natural resources, raw materials and components into semi-finished and finished products that are delivered to the end customer. In initial links of the chain the flow is primarily of materials, in later stages of finished products.

Non-supply chain factors

·         Political unrest

·         Financial crisis

·         Environmental regulations

 

The Ecosystem Model:

A framework to visualize all Operational, Strategic, Management and Execution issues.

 

Ecosystems comprise of a network of:

·         Companies, countries and their governments, Social and political organizations

·         Natural, Industrial (clusters) and Financial and Human resources

·         Delivery infrastructure including logistics and IT

·         Connections, and knowledge of the industrial environment.

All interacting together with the landscape and climate (economic and industrial).

 

Supply chain ecosystems consist of:

 

v  Institutions

v  Resources

v  Delivery Services infrastructure

v  Supply Chain

Institutions:

·         Customs, Export and Other Govt. Regulators

·         Quality Control and Environmental issues

·         Social, Financial and Trade issues

Resources:

·         Infrastructure, Sea ports, Airports, Roads

·         Industry clusters

·         Human, Financial and Natural resources and labor unions

 

Delivery Services infrastructure:

·         Logistics and IT companies

·         Transport - Rail, Air, Ship, Road

·         Logistics parks, SEZs, Freight corridors

Supply Chain:

·         Retail chains

·         Distribution

·         Manufacturing

·         Suppliers

 

Drivers of Supply Chain Competitiveness

·         Resources: Labour, Materials and Energy

·         Government policies and investments on institutional, environmental and infrastructural elements

·         Delivery mechanisms: Logistics and IT

 

SES Framework can help to study:

·         Governance

·         Risk

·         Innovation

·         Performance

 

The Five STERM Forces:

·         Science research

·         New Technologies

·         New Engineering materials

·         Regulations and policies

·         New Management techniques

 

Modular Product:

§  Made by appropriately combining different modules.

§  Provides customers a number of options for each module and thus the product.

§  Products differ from each other in terms of the subsets of modules assembled to produce them.

Modular Process:

- Each module undergoes a specified set of operations making it possible to outsource its manufacturing and inventory to them in a semi-finished form.

Part Standardization:

- Common parts are used across many processes

- Products redesigned as necessary

 

Process Standardization:

- Standardizing as much of the process as possible, making a generic or family product.

- Final product assembly delayed until the customer order is received (i.e. called "postponement").

 

Modular Organization Designs

Modularization of product designs paves the way for similar modularization of organization designs facilitating coordination of activities via an "information structure" rather than managerial authority or hierarchy.

The codification of knowledge and standardization (through technical standards and design rules) of the interfaces between organizationally separate stages of production has made vertical specialization (organizational modularity) replace vertical integration.

Types of Resources

Classical economics define:

·         Natural resources

·         Human resources

·         Financial resources

·         Capital assets

Modern view also includes:

- Knowledge, Intellectual property

- Social capital relationships with stake holders

- Management of high value delivery processes

 

Special Economic Zones (SEZs)

SEZ is a geographical region that has economic laws different from the rest of the country.

The goal of SEZs is to attract foreign investments.

SEZs have been established in many countries - China, India, Jordan, Poland, Philippines, Russia and North Korea.

Indian SEZs are not as effective as those in China probably because they are not as focused.

 

Clusters

Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions (universities, training) in a particular vertical.

Clusters allow companies to operate more productively in sourcing inputs; accessing information, technology and human resources.