A supply chain is a network of suppliers, manufacturer and distributors which helps in transformation of raw materials into valuable products and delivering them to the customers at right price, right place and right time. The concept of supply chain applies not only to the physical products but also to services. In the case of services, suppliers become service supporter, manufacturer becomes service creator and the distributors become service provider. The aim of the supply chain is to create value by providing the customer with products and services efficiently.
The supply chain is not a simple series of connections, rather it’s a complex chain of people and organizations connected to each other and interacting to create value. The various components of a supply chain are explained below:
1. Suppliers/Service Supporter: It refers to person(s), firm(s) or organization(s) that supply raw materials that can be used to manufacture the final product. For example in case of manufacturing car as final product, someone who provides tyres, engines, car chassis or any other part would be called a supplier.
In case of a service, it refers to someone who provides the support in the creation of the service to the customer. For example in case of creating hotel services for customer the catering, the laundry etc. act as service supporter.
In a supply chain there do not exist a single supplier, rather there are multiple suppliers or multi-tier suppliers. The supplier which is closest to the manufacturer is called first tier supplier and the chain goes on to second tier, third tier… as we move away from the manufacturer. For example in car manufacturing supply chain the firms providing engines, windows, car chassis, tyres etc. are first tier suppliers whereas the firms providing steel to manufacture car chassis, rubber to manufacture tyres are second tier suppliers.
2. Manufacturer/Service Creator: It refers to person(s), firm(s) or organization(s) that manufacture the final product by processing and assembling all the raw materials. In case of services it refers to someone who assembles all the service supports and creates the final service.
A firm can act both as a supplier and a manufacturer. In above case of car manufacturing the firm which supplies tyre to the manufacturer of car act as supplier for that firm but it acts as a manufacturer for the firm supplying rubber.
3. Distributor/Service Provider: It refers to person(s), firm(s) or organization(s) that take the finished (final) products to the customer. So in case of car supply chain, the showrooms or dealers that provide the cars to customers are distributors. In case of a service, it refers to someone who provides the final service to the customer. For example in case of telecom services, Airtel, Vodafone etc. are the service providers. There can be many distributors in a supply chain depending upon the customer location.
Sometimes the customers get the final product/service directly from the company showrooms and stores (for e.g. BMW and Audi showrooms, McDonald’s outlets) while sometimes the product reaches the customer through a network of wholesalers and retailers (the FMCG products, Pepsi and cola drinks etc.)
4. Customer/Consumer: They are the one who use the final product or service.They end this chain.
A Case study of Ford: How did Supply Chain system helped the company to grow. Since the 1970s, the Big Three automakers (GM, Ford, and Chrysler) have seen their home markets invaded by foreign-based auto manufacturers (Toyota and Honda). In addition, the auto industry was facing overcapacity of an estimated 20 million vehicles. This lead to decreased profit margins for automakers as well as reduced sales.
So, with all of these issues in the automobile industry, it was no wonder that Ford felt like it needed to make some changes to compete.
Ford, like many older companies, was still using a traditional to their supply chain. Ford had tried to control as many aspects of the end vehicle production as possible; from the production of raw materials in steel mills and rubber plantations, through all of the design, manufacturing, assembly and distribution activities. A truly vertically integrated supply chain. Unfortunately, this approach made it difficult for Ford to complete in the global automobile industry, and for that reason Ford Management felt it was time to change Ford’s supply chain. Since the late 1980s, Ford has been using a modified version of the traditional supply chain approach, by utilizing outsourcing and partnerships to handle certain functions of the supply chain. Ford does this through its “Tier 1” suppliers.
These suppliers have a long term relationship with Ford and then they manage the relationships with the larger base of component suppliers. Later on Ford began using virtually integrated supply chain. With a virtually integrated supply chain, we instead have loose affiliations of companies organized as a supply network, where physical assets are replaced by information. Within a virtually integrated supply chain, manufacturing continues to be controlled by the company’s planning department, however this is not through the issuing of purchase orders, but instead by providing logistics management and forecasts for demand and receipts. With this information, the companies’ manufacturing partners can plan their production to meet the needs of the company and the market. Finished goods are no longer delivered by the company, instead they go directly to a warehousing/distribution partner who sends the products to the customers as orders come in.
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