Chapter 10 – Supply Chain
SUPPLY CHAINS – refers to the flow of materials, information, money and services through
factories and warehouses, to the end customers.
The Structure and Components of Supply Chains – a typical supply chain links a company
with its suppliers and distributors and customers. It can involve three segments:
1. Upstream – where sourcing from external suppliers occurs. For goods and services a
company needs to produce their product or service. It also includes the processes for
managing inventory, receiving and verifying shipments, transferring goods etc.
2. Internal – where packaging or manufacturing takes place. Quality levels are monitored
and also production output and worker productivity.
3. Downstream – distribution takes place by external distributors. Warehouses networks
are developed and carriers are selected to deliver their products to customers.
The flow of information can also be bidirectional. Returning goods is called reverse
• Tiers of Suppliers – there could be many different tiers of suppliers. A supplier may have
one or more sub suppliers and the sub supplier may have its own sub suppliers.
• The Flows in the Supply Chain – materials, information, and financial flows usually occur
in the supply chains. Material flows also include reverse flows. Information flows include
shipments, orders, and schedules and financial flows involve money transfers,
payments, credit card information etc. service industries may not have any physical
flows but they do have the non-physical ones.
SUPPLY CHAIN MANAGEMENT – the function is to plan, organize and optimize activities
performed along the supply chain. SCM utilized IS. The goal is to reduce problems like
increased costs, time etc. SCM is type of interorganizational information system (IOS). IOS
involves information flows among two or more organizations. IOS enables partners to perform
• Reduce the costs of routine business transactions
• Reduce and eliminate errors to improve information quality
• Reduce business transaction time • Eliminate paper processing and costs
• Makes the processing of information easier
The Push Model versus the Pull Model – many supply chains use the push model (make-to-
stock) which begins with a forecast of customer demand. The production is usually mass
production and the products are “pushed” to the customers. If the forecasts are wrong the
company can suffer serious losses. To avoid this companies use web-enabled information flows
of pull-model. It is also referred to as make-to-order therefore companies only make what
customers want. Not all companies however can employ the pull model, for e.g. automobile
Problems Along the Supply Chain – problems with supply chains occur when products are
not delivered to customers. Sometimes they can provide poor quality products. There are also
other friction factors such as high inventory costs and loss of revenues. The pro