Supply Chains/Supply Networks

Supply Chains/Supply Networks

 

A supply chain is a set of three or more entities directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer. A supply network is a less linear, more flexible virtual system that is linked by advanced communication systems and enhanced supplier relations. A supply management professional/organization can apply the philosophy and practice of TCO to the strategic optimization of costs within the chain or network. For example, an American company with the option of making a new product in Asia and shipping it to its customer base in the United States or manufacturing it in United States with minimal shipping will have to determine the total cost of each alternative before making a decision. This TCO analysis should include the study of the following:

 

  • ·        The manufacturing of the product
  • ·        The manufacturing infrastructure requirements
  • ·        Whether to outsource or self-manufacture.
  • ·        The abilities/location/responsiveness of potential tier two, three, and so on, suppliers relative to the manufacturing operation.
  • ·        The structure of foreign and domestic tariffs/duties/taxes
  • ·        The costs of transportation and the timelines of delivery.
  • ·        Foreign business/labor/environmental regulations
  • ·        Foreign political//economic stability.
  • ·        Foreign exchange risk.
  • ·        Language/communication requirements
  • ·        Volatility of end-consumer demand and responsiveness of the network to changes in that demand.
  • ·        Inventory carrying costs
  • ·        Inventory risk
  • ·        Quality costs
  • ·        Managerial travel costs

 

Although much of the analysis is ultimately quantifiable in dollars, some elements require a qualitative evaluation that offers less certainly. In this example, Asia may seem at first the logical choice, but distance from the customer base and other international issues may guide the decision toward domestic production.