A supply chain consists of all the parties involved, directly or indirectly, in fulfilling a customer request / demand. The supply chain extends from the final customer through a variety of retailers, wholesalers and distributors, and goes back to the manufacturers and their component and raw material suppliers. Within the chain, there are flows of materials and products, information and money.
The final customer’s demand sets the entire supply chain in motion and following is track path it follows on:
It generates a course of actions at retailing to respond to such demand, by having the necessary products in place to satisfy the customers.
These ultimately involve the generation of requests / demand at the next level upstream in the supply chain, at wholesalers or distributors.
As a supply chain lengthens, there are more stages at which orders are placed. The original consumer demand is translated into an order from the retailer to replenish its stock; this depletes the stock at the next stage (e.g., wholesaler), which necessitates an order on the next stage (e.g., manufacturer), and so on until the end of the chain is reached.
At any supply chain level, it involves many customers, suppliers, locations and products. Demand will then need to be aggregated at various hierarchical echelons to inform decision making at a wide range of functional levels. If the final consumers’ demand were constant or known with certainty well in advance, then the operation of a supply chain would be a straightforward scheduling exercise. However, demand is not known and thus it needs to be forecasted. It is the uncertainty associated with this demand that makes supply chain management very difficult. In addition, the frequency with which forecasts are produced varies considerably not only between the various supply chain stages and within the stages. Demand uncertainty is among the most important challenges facing modern supply chains.
Given the length of a supply chain which may be considerable, spanning various supplying levels, as well as the nature of supply chain decisions, that typically are hierarchical in nature.
The objective of every supply chain should be to maximize the overall value generated. The value (also known as supply chain surplus) a supply chain generates is the difference between what the final product is worth to the customer and the costs the supply chain incurs in filling the customers’ requests. Upstream flow of requests constitutes the transmission of information from one supply chain member to another. This information flow is complemented by a flow of materials / products downstream the supply chain to satisfy these requests. Although the length of supply chains may vary considerably under demand uncertainty and satisfaction of the final consumers’ requests is the raison d’être of all supply chains.
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