Supply Chain Management

Definition: 

The supply chain is the flow of material inputs through the value stream, including suppliers, internal processes, and distribution to customer. It is expensive to shift goods, and improvements can be made in supply chain to reduce costs (COGS and running costs) and boost profitability. 

Upstream supply chain: Most firms exist within a value-stream; firms downstream rely upon firms upstream for the provision of material inputs. The purchasing of inputs from suppliers is a large cost (COGS) impacting profitability. A firm could;

• Continually monitor and assess suppliers in terms of service, flexibility, reliability and cost. Change suppliers if performance lapses.

• Source cheaper supplies from global market; with consideration for quality issues, extended lead times, and possible CSR and ethical issues.

• Reduce number of suppliers (supplier rationalisation) to decrease administrative burden (costs) in the purchasing / procurement department.

• Consider the methods and costs of transportation vs lead times; consider bulk purchases to reduce COGS (but where to hold this front-end stock?)

• Use e-commerce to build digital systems to manage supply and increase communication / partnerships up the value-stream

• Vertical integration; downstream firms can acquire suppliers to guarantee the quality, quantity and timing of inputs for the downstream firm.

When to apply this strategy:

• When a firm has a high variety and volume of material inputs (high COGS). 

• When a firm is experiencing trouble in obtaining inputs. 

• When a firm has a complex supply chain (high administration costs). 

• When transportation costs are high; change method to reduce costs...