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What is Supply Chain?

What is Supply Chain?

A supply chain, also known as a value chain or demand chain, includes customers, suppliers, processes, products, and various resources that affect products and services. Supply chain emphasizes the processes and relationships between companies. Supply chain management refers to the management of products and services in the entire process from the procurement of raw materials to the sale of finished products to customers. It emphasizes the coordination of activities between companies in order to produce a win-win effect.
Supply chain management, through its five main functions, planning, buying, manufacturing, moving, and selling, has two effects: reducing costs and adding value. Specifically, supply chain management can bring the following benefits to enterprises:


(1) Improve strategic, operational and financial performance within the supply chain;
(2) Reduce costs and effectively manage working capital;
(3) Effective management of inventory of raw materials, work-in-progress and finished products;
(4) Reduce transaction costs and improve transaction efficiency among supply chain members;
(5) Increase customer value, provide products and services required by customers, and provide a package of solutions;
(6) Enhance the ability to balance supply and demand.

According to some companies, good supply chain management can reduce inventory by 50%, reduce total supply chain cost-to-revenue ratio by 20%, increase on-time delivery by 40%, and increase inventory turnover by 2 times.

The needs of the enterprise's own survival prompt the enterprise to pay more and more attention to supply chain management, and actively seek the improvement of the supply chain according to the continuous changes of customer demand, globalization, competition, information and communication, policy and environment, so as to improve the competitiveness of the enterprise .

In recent decades, supply chain management has received unprecedented attention and developed rapidly. According to the scope of supply chain management coverage, it can be divided into 3 stages:
(1) Logistics management stage: It integrates the two functions of transportation and warehousing.
(2) Logistical stage: The functions of manufacturing, acquisition and order management are added, supplemented by advanced information transmission technologies such as EDI.
(3) Synchronized and integrated supply chain stage: suppliers and customers are added to both ends of the original supply chain. Integration means bringing together many functions throughout the process to achieve a common goal. Integrated supply chain management covers the management of information flow, logistics and capital flow and requires more collaboration between functions. The information transfer is changed from the original step-by-step transfer to the synchronous transfer, which reduces the information transfer time and greatly shortens the delivery time.


1. The development of science and technology and management methods provides the impetus for the progress of supply chain management.

1 Information Technology
The development of computers and various communication methods has played a crucial role in the development of supply chain management.
(1) Internet. The continued growth of the Internet has enabled more direct sales and better customer service. In the LL.Bean online store, for example, customers can browse a large selection of items (sizes, colors, and other characteristics), and can also check for availability before ordering.
(2) Low Earth Orbit satellite communications. At least four powerful consortiums are currently launching hundreds of low-Earth orbit communications satellites. They will provide satellite communications systems with global coverage at prices lower than today's fiber-optic networks. The global communication of the economy will accelerate the development of global supply chains.
(3) Advanced distribution or decision support systems. This kind of system makes it possible for supply chain operators and managers to conduct analysis quickly and get the analysis results quickly. They are free to connect with any party in the supply chain, regardless of their location.

2. Manufacturing Technology
Seeing manufacturing as part of the supply chain is unacceptable for many businesses. Because the function of manufacturing has long been considered to be "tell us what to produce, let us produce it as efficiently as possible, and then ship it out by the logistics department." However, more and more people are finding that the high efficiency of the entire supply chain is inseparable from Advances in manufacturing technology.


(1) Agile manufacturing. The agility of the manufacturing process enables short production cycles and frequent product changes.

"Location agility" is another characteristic of agile manufacturing. For example, a company producing the same product all over the world could benefit from investing in a certain amount of "excess" production capacity. Excess production capacity enables manufacturers to shift manufacturing tasks to the best factories in a timely manner according to fluctuations in international exchange rates, reducing costs throughout the supply chain.

(2) Postponing manufacturing. Enterprises ship semi-finished products to warehouses or factories close to the customer, where the final product is completed according to the special requirements ordered by the customer. This not only reduces the total inventory, but also reduces costs due to mass production. Gillette's blades, for example, are produced in two of its high-tech factories, but the packaging is moved to regional distribution centers, where the packaging process is similar to the assembly line for manufacturing operations and is done entirely to order. Gillette expects to reduce inventory by 50% if all manufacturing is postponed.

3 Transport technology
Although transportation technology has not developed as rapidly as information technology, transportation technology is still advancing steadily and sometimes with breakthroughs, such as double-deck container freight trains, computer-aided planning, routing and load distribution.

The key elements of supply chain management
To successfully implement supply chain management, it is not enough to rely on large investment alone, it is important to effectively control the following key factors:

(1) Pay attention to customers. Make every effort to identify and understand the needs and expectations of the end customer as the primary basis for decision-making. A pharmaceutical company, for example, has changed the way sales reps are awarded bonuses based on sales and profits, and instead evaluates their customers for satisfaction. This way, sales reps don't push products by any means, regardless of whether customers want them or not.
(2) Application of advanced information technology. Develop an advanced information management system to ensure the smooth flow of data and information in the entire supply chain; the use of computer-aided decision support systems can help managers make better decisions and transmit them quickly within the supply chain.
(3) Quantitative management of performance. Time and cost are key measures and decisions are made on a quantitative basis.
(4) Cross-functional teams. Close collaboration among team members from related functions can eliminate organizational boundaries and benefit the improvement of the entire supply chain.
(5) Pay attention to human resources, eliminate the barriers between people and departments, and realize the cooperation and mutual assistance of the entire supply chain.
(6) Respond quickly to changing environments and design flexible supply chains.



3. Supply chain management innovation
The survey results show that while many companies invest significant time and money to improve their supply chain capabilities, only 27% of companies believe their supply chain performance is better than the industry average. The U.S. food industry is estimated to lose $30 billion annually due to poor collaboration among supply chain partners. The reasons are various, such as: no formal supply chain development strategy; lack of management environment to support supply chain integration; lack of trust, function-oriented rather than process-oriented; lack of effective management of logistics, information flow and capital flow in the supply chain tool. Among them, strategic planning and financial analysis are the most lacking skills in current supply chain management. Many companies have taken isolated improvement measures, but have not been able to achieve breakthrough results. Therefore, supply chain management innovation is an urgent problem to be solved in enterprise management innovation.

1 Innovation basis
The best basis for whether an enterprise needs to carry out supply chain innovation is to analyze whether the whole process of the supply chain creates value for customers. A common approach is to expand the process, including what the company does and what the customer does, and then answer the following questions: Is there a redundant process here; is there anything that has been done more than once; what can be removed without affecting the end result ; what has only indirect value and needs to be minimized; etc. Through the analysis of these problems, it can help enterprises to discover the innovation point of supply chain management.

2 Innovative ideas
According to Dr. Hamer, supply chain innovation begins with the complete elimination of two longstanding assumptions in business: one is that any one company can do anything. In fact, work should be done by the company or person in the best position, not by those who directly benefit from it. Another assumption is that units outside the company are the enemy of the company, and other departments within the company are the enemy of this department. Enterprises should establish a win-win relationship with other enterprises to share benefits, and there should also be close collaboration between various departments within the enterprise. The goal of many business management now is to strive to achieve better performance within their own enterprise, and the next wave is to tear down the wall between the company and its customers, between the company and its suppliers, and seek to achieve the best performance in the scope of the supply chain.

3 ways to innovate
(1) Reduce the number of suppliers. In the past, companies have chosen multiple suppliers for the same component, in order to put pressure on suppliers to reduce purchase prices. The company's gains come at the expense of its suppliers. Now, this situation has begun to change. By reducing the number of suppliers and expanding the supply of suppliers, enterprises can obtain economies of scale, and both enterprises and suppliers can benefit from low costs.
(2) Streamlining retailers. Partnerships are established with selected retailers, through which companies and their retailers jointly conduct training and provide specific services.
(3) Send a representative in the customer's office to fully understand the customer's operation system and needs. The representative in the factory sends orders to their own company and plans the materials to be supplied for the customer.
(4) Share detailed information with suppliers and customers. Reduce intermediate links and improve efficiency.
(5) Early participation of suppliers. In the new product development phase, the involvement of suppliers can significantly reduce development time, saving resources and expenses.
(6) Select a supplier to be responsible for coordination. When multiple suppliers are required to provide the same service, select a lead supplier to coordinate the entire logistics.
(7) Develop a benefit-sharing plan. Benefit sharing is very important for all parties in the supply chain. Only by fully mobilizing the enthusiasm of all parties in the supply chain can it be possible to generate synergies.
(8) Maintain close cooperative relationship with customers and suppliers. Form teams that include customers and suppliers to develop new products and share information to create a competitive advantage. Innovative managers are trying to turn loose buyers and sellers into tight collaborations, even organizing with some suppliers and their customers to provide products and services that a single company cannot.
(9) Cooperate with competitors. Not only can product lead times be shortened, but costs can also be reduced, benefiting both parties.

4 Innovation directions
The change in supply chain management is currently in its infancy. Technological advancements have improved people's ability to manage complex systems, enabling supply chain management to move forward and make breakthroughs.
(1) Closed-loop supply chain: Xerox and some other companies already operate closed-loop supply chains, recycling end-of-life equipment, parts, and packaging, refurbishing them, and selling them as raw materials. In fact, Xerox has benefited enormously from this recycling.
(2) A flexible supply chain with rapid response. Because the market is constantly changing, it is necessary to continuously improve the configuration of the supply chain. Therefore, flexible supply chains are designed for a range of possible changes to avoid confusion, excessive investment or wide-ranging personnel changes.
(3) Natural allocation of supply chain elements. Currently, companies must expend a lot of effort designing supply chain elements to produce the best overall results. In the future supply chain, its elements can naturally adapt to changes in other elements, changes in external conditions and substitution of elements (such as changing a supplier).

5 Innovation Cases
Siemens Healthineers is a world-renowned company producing medical CT equipment. The CT devices are manufactured at Siemens plants in Germany and then shipped to hospitals around the world for installation. Over the past few years, the company has restructured its CT equipment supply chain from supplier to customer, reducing lead time for orders from 22 weeks to 6 weeks. Its main measures are:
(1) Product designers are involved in changing the design to make it easier to manufacture, install, and customize.

(2) Reduce the number of suppliers, 20 key suppliers provide 90% of the required items, one of which is a pure service carrier.
(3) Help key suppliers adopt new technologies and improve management.
(4) Under the framework of the agreement, a simplified ordering method is adopted.
(5) Share annual, quarterly, monthly or even shorter forecast and ordering information with key suppliers.
(6) Hold monthly supplier meetings to share performance information and discuss methods and measures for further improvement.
(7) Closely track the readiness of the hospital site so that CT equipment can be delivered on time.
(8) Use the factory team to do some installation work to promote two-way communication and mutual learning between the manufacturing and on-site installation teams, which results in a greatly shortened installation time.

Supply chain management innovation is becoming a hot spot in enterprise management innovation. The supply chain should be based on the optimal deployment of the special capabilities of all partners. In order to achieve innovative results in supply chain management, enterprises need to communicate with supply chain partners in multiple aspects and levels, jointly train, develop and improve, establish long-term cooperative relationships, and reach agreements on performance evaluation and benefit distribution. Although this takes a long time and a lot of resources, it creates a unique competitive advantage.


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