1.2 Entity View of Supply Chains
Every company, regardless of its size or industry, is part of a supply chain. A supply chain exists wherever there is a flow of goods, information, and money between a company and its suppliers and customers. At its simplest, a supply chain can be viewed as a network of entities, with the nucleus company at the center, surrounded by multiple tiers of suppliers and customers.
Let’s consider the example of Kellogg’s, the food manufacturing company we discussed earlier. Kellogg’s supply chain might include several tiers of suppliers. Tier 1 suppliers are those that directly provide materials to Kellogg’s, such as grain farmers or packaging manufacturers. Tier 2 suppliers are those that supply to Tier 1 suppliers, such as companies providing seeds and fertilizers to the grain farmers or raw material providers for the packaging manufacturers. Similarly, there could be Tier 3 suppliers and so on.
On the distribution side, Kellogg’s might sell its products to large retail chains or wholesalers (Tier 1 customers). These large retail chains sell directly to end consumers. The wholesalers, on the other hand, sell to smaller retail stores or convenience stores (Tier 2 customers), which in turn sell to the end consumers.
Now, let’s consider a service company, for instance, a bank. The bank’s Tier 1 suppliers could be software companies providing banking software solutions, while Tier 2 suppliers could be the companies providing hardware or cloud services to the software companies. On the customer side, the bank’s Tier 1 customers could be individual account holders, while Tier 2 customers could be businesses to whom these individuals provide services or goods.
In both these examples, each entity in the supply chain operates independently, focusing on its own financial performance. However, this lack of collaboration can lead to inefficiencies and missed opportunities. For instance, a supplier might produce more than required due to lack of accurate demand information, leading to excess inventory. Or a customer might face stock-outs due to lack of timely supply. These problems highlight the need for better collaboration and integration among the entities in a supply chain.
While supply chains are a given, the management of these supply chains is a voluntary activity that requires strategic planning and coordination. This transition from simply having a supply chain to actively managing it is what we refer to as supply chain management. In the next section, we will delve deeper into this concept and explore the functional view of supply chains, which looks at the different activities or functions involved in managing a supply chain. This perspective will help us understand how these functions can be effectively coordinated to optimize the overall performance of the supply chains.
