What is a supply chain? Virtually every product that reaches an end user, whether or not it is completely manufactured in-house, is derived from an accumulation of efforts from multiple organizations around the globe. A supply chain consists of all of the suppliers, business partners, and service providers, as well as sourced manufacturers, distributors, retailers, and transporters, that take part in producing a product and delivering it to the customer. The supply chain also includes all the major departments within an organization. And, of course, at the end of the supply chain is the customer.

Companies acquire raw materials from global vendors to use in their factories that are often located on different continents. The finished goods then pass through multiple distribution networks involving warehouses, distributors, and retailers before finally reaching the end customer. The information and communication systems needed to coordinate these activities are also a significant part of the supply chain system. The proliferation of new telecommunications and computer technology has created communication and information systems that can link together suppliers, manufacturers, distributors, retail outlets, and, ultimately, customers, regardless of location.

A supply chain is fluid and constantly changing, and demands great communication and coordination between all involved parties to achieve the greatest efficiencies. Supply chains are a part of every business—service, manufacturing, profit, and not-for-profit.

How does a company decide which suppliers to use? Establishing a business relationship with a supplier is like entering into a partnership. To find suppliers that truly fit its requirements, a firm must first clearly define and understand its needs relative to its competitive strategy. Cost is always a factor, but it should never be the sole factor. For example, one supplier might offer to manufacture a part for significantly less but of such poor quality that later repairs or recalls would end up costing a company more than the higher cost of producing quality parts. As a result, the firm’s reputation would also be affected, which is incredibly costly to repair.

The challenge for operations managers is in finding the best suppliers that offer optimal solutions. Some companies, such as Patagonia, the activewear clothing company, chooses and manages its supply chain partners to ensure that each step of the supply chain—from crop to finished garment—reflects Patagonia’s commitment to be as environmentally conscious and conservative as possible. The company publishes articles about its supply chain process, called “The Footprint Chronicles,” on its website (www.patagonia.com/us/footprint).

A vast collection of resources is available to help businesses connect with suppliers. These resources include the Better Business Bureau, local chambers of commerce, exhibitions, trade magazines, the Internet, and old-fashioned recommendations from friends and business acquaintances. In addition, as explained earlier, to find good, reliable suppliers at home and abroad, many companies look for supply chain partners certified by the ISO.

Why is supply chain management important? A supply chain is as strong as its weakest link. Supply chain management is the management of activities from all organizations involved in the production process. The goal of supply chain management is to maximize value and achieve a sustainable competitive advantage. Moreover, supply chain management helps companies reduce their carbon footprints by critically looking at each component of the supply chain (see Figure 11.5). Until recently, companies did not consider the chain of activities that ultimately delivered their product to the final customer. A poor relationship within any link of the supply chain can have disastrous consequences for all other supply chain members.

Figure 11.5

Supply Chains Manage Carbon Footprints

Supply chain management is important to improving efficiencies not only within the organization but also among all the components of the production and distribution process. In addition, companies are seeking ways to strengthen their global presence by positioning inventories so products are available when customers want them, regardless of location, in the right quantity for the right price. This can happen only if all components along the supply chain are working together. The partnering in manufacturing and design with other companies involved along the supply chain has increased the need for better sharing of product information and collaborative product development. Companies like IKEA have been forced to become global enterprises as they seek the lowest-cost suppliers, making the supply chain a more complicated process and ripe for inefficiencies if not managed well.

Is supply chain management only for manufacturing companies? Supply chains also exist in service organizations. The goal is the same for service organizations: to maximize value in the delivery process to achieve a competitive advantage; however, instead of managing “things,” supply chain management for service organizations (sometimes referred to as service chain management) manages the time and actions of the labor force required to perform the service. Supply chain management also measures and forecasts the responses and needs of the customer. In addition, it involves planning, scheduling, workforce management, and enterprise resource planning. Finally, supply chain management focuses on establishing strong relationships with customers through enhanced communication technologies.