In its simplest form, a supply chain is composed of a company and the suppliers and customers of that company. This is the basic group of participants that creates a simple supply chain. Extended supply chains contain three additional types of participants. First there is the supplier’s supplier or the ultimate supplier at the beginning of an extended supply chain. Then there is the customer’s customer or ultimate customer at the end of an extended supply chain. Finally there is a whole category of companies who are service providers to other companies in the supply chain. These are companies who supply services in logistics, finance, marketing, and information technology.
In any given supply chain there is some combination of companies who perform different functions. There are companies that are producers, companies that are distributors or wholesalers, companies that are retailers, and companies or individuals that are the customers who are the final consumers of a product. Supporting these four kinds of companies there are other companies that are service providers providing a range of needed services. In this post we’ll look at the four main participants in every supply chain.
Producers or manufacturers are organizations that make a product. This includes companies that are producers of raw materials and companies that are producers of finished goods. Producers of raw materials are organizations that mine for minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the land, raise animals, or catch seafood. Producers of finished goods use the raw materials and sub-assemblies made by other producers to create their products.
Distributors are companies that take inventory in bulk from producers and deliver a bundle of related product lines to customers. Distributors are also known as wholesalers. They typically sell to other businesses and they sell products in larger quantities that an individual consumer would usually buy. Distributors buffer the producers from fluctuations in product demand by stocking inventory and doing much of the sales work to find and service customers. For the customer, distributors fulfill the “Time and Place” function – they deliver products when and where the customer wants them.
A distributor is typically an organization that takes ownership of significant inventories of products that they buy from producers and sell to consumers. In addition to product promotion and sales, other functions the distributor performs are ones such as inventory management, warehouse operations and product transportation as well as customer support and post sales service. A distributor can also be an organization that only brokers a product between the producer and the customer and never takes ownership of that product. This kind of distributor performs mainly the functions of product promotion and sales. In both these cases, as the needs of customers evolve and the range of available products changes, the distributor is the agent that continually tracks customer needs and matches them with products available.
Retailers stock inventory and sell in smaller quantities to the general public. This organization also closely tracks the preferences and demands of the customers that it sells to. It advertises to its customers and often uses some combination of price, product selection, service, and convenience as the primary draw to attract customers for the products it sells. Discount department stores attract customers using price and wide product selection. Upscale specialty stores offer a unique line of products and high levels of service. Fast food restaurants use convenience and low prices as their draw.
Customers or consumers are any organization that purchase and use a product. A customer organization may be an organization that purchases a product in order to incorporate it into another product that they in turn sell to other customers. Or a customer may be the final end user of a product who buys the product in order to consume it.
Modeling these Supply Chain Participants using SCM Globe
When you define your facilities select “Factory” for the producers in your supply chain; select “Warehouse” for the distributors; and select “Store” for the retailers. Model your customers by setting demand levels for products at the different stores. A model using these different facilities is shown in the screenshot below. By placing the facilities on a map and defining their operating characteristics plus the product delivery routes connecting them, you can create an accurate model of any supply chain.
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Define different combinations of these supply chain participants and run simulations of those supply chain designs. You will see how different combinations produce different operating results. Understanding the interactions between these different participants is central to creating good supply chain designs.
The key to good supply chain management lies in making accurate forecasts of customer demand and managing the interactions between producers, distributors and retailers so as to meet customer demand. And to do so at the lowest operating costs and lowest amounts of on-hand inventory at facilities across the supply chain.
It takes a lot of experimentation and practice to develop skills in these areas. Using interactive simulations is a good way to experiment with different supply chain designs and practice using those designs (best practices) that deliver the best results.
As you figure out how to get the best results in SCM Globe simulations, you will also be learning techniques you can use to get similar results in the real world as well.
Part of this article is excerpted from my bookEssentials of Supply Chain Management, 4th Edition, 2018
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