Supply chain management and technology
Supply chains link suppliers, manufacturers, distributors, and customers. Managing them well is a major source of competitive advantage.
What a supply chain is
A supply chain includes all the organisations and activities involved in getting a product from raw materials to the customer: sourcing, manufacturing, warehousing, transport, and retail. Supply chain management coordinates these to reduce costs, improve speed, and ensure reliability.
Logistics
Logistics manages the movement and storage of goods. Choices include transport modes (road, rail, sea, air, pipeline), warehouse locations, and distribution networks. Sea freight is cheap but slow; air freight is fast but expensive. The standard shipping container, introduced in the 1950s, dramatically cut the cost of global trade.
Sourcing and outsourcing
Businesses decide whether to make components themselves or buy from suppliers (make-or-buy). Outsourcing moves activities to other firms, often lowering costs or adding expertise. Offshoring moves them to other countries. Reshoring and nearshoring bring production closer to home, motivated by resilience, shipping costs, and geopolitics.
Supplier relationships
Strong supplier relationships, built on trust, communication, and shared goals, can improve quality and reliability. Single sourcing relies on one supplier for close cooperation; multiple sourcing spreads risk. Supplier audits check quality, ethics, and environmental practices.
The bullwhip effect
Small changes in customer demand can cause increasingly large swings in orders further up the supply chain, as each stage over-reacts: the bullwhip effect. Sharing real-time sales data with suppliers and reducing order delays help dampen it.
Technology in operations
Technologies transforming operations include automation and robotics, enterprise resource planning (ERP) systems integrating data across departments, radio-frequency identification (RFID) tags tracking items, 3D printing for prototypes and parts, the Internet of Things linking sensors to machines, and artificial intelligence for demand forecasting and logistics routing.
Sustainability in supply chains
Supply chains account for much of many companies' environmental impact. Firms are measuring and cutting emissions across their supply chains (Scope 3 emissions), designing products for reuse and recycling (the circular economy), and choosing lower-carbon transport. Customers and regulators increasingly demand transparency about where and how products are made.
Worked example
A retailer sees a 10% rise in demand for umbrellas during a rainy week. Its store managers, fearing shortages, order 20% more from the distributor, who orders 40% more from the manufacturer, who orders 80% more raw materials. When the rain stops, everyone is left with excess stock: the bullwhip effect. Sharing actual sales data along the chain would have prevented the over-reaction.
Key takeaways
A supply chain runs from raw materials to customers; supply chain management coordinates it. Logistics balances speed and cost across transport modes; containerisation cut trade costs. Make-or-buy, outsourcing, offshoring, and reshoring shape sourcing. Supplier relationships and audits manage risk. The bullwhip effect amplifies demand swings; data sharing helps. ERP, RFID, robotics, 3D printing, IoT, and AI transform operations. Sustainability efforts target supply chain emissions and circular design.
Flashcard
All activities from raw materials to customer
Check your understanding
What is the bullwhip effect?