Skip to 0 minutes and 9 secondsThink of an object. An everyday object. Maybe the cup you drank your coffee from this morning, the shoes on your feet or the newspaper you were reading on the train. Where do these objects come from? What are they made of? How have they been produced? Where did you buy them? The journey of a product from its raw materials to the consumer is referred to as 'the supply chain of things'. This is the interconnected system of all the individuals, organisations, resources, activities and technology involved in the creation and sale of a product.
Skip to 0 minutes and 45 secondsFrom the collection of the raw materials and their transport to the manufacturer via the assembly, storage and distribution of the finished goods, through to the eventual delivery to the customer, all are links in the supply chain of things.
Supply chain of things
We start the course by looking at a key concept in logistics – ‘the supply chain of things’.
In the video, Nick Wright explains how a supply chain of things relates to the journey of a product from its raw materials to the consumer.
However, before an understanding of the supply chain of things can be explored further, it’s important to recognise that the goods we want and need come from raw materials, are processed and some ‘value’ is added to create the final product we want to buy. This is a fundamental engineering concept known as the ‘operations model’ (Waller 2003), which was developed in the first industrial revolution in the late 18th century. Raw materials were transformed into things that people bought with money.
Take potatoes, for example. You wish to obtain potatoes to cook a meal. Where do potatoes come from? How do you buy potatoes? What happens to potatoes before they are ready for you to buy?
- Potatoes are grown on farms and harvested when they are ready
- They are then sent to a processing facility that grades them by size, washes them and packs them in convenient sizes
- The potatoes are transformed so the consumer can buy one or two potatoes in a convenient bag
This can be viewed as a very basic supply chain or a ‘supply chain of things’.
The ideas of supply chains and logistics were not clearly developed or visible in business until the 1960s when the idea of physical distribution was noted. The likes of Forrester (1961) noticed that the flow of goods through physical distribution channels was often fragmented. This initial focus was on goods moving from manufacturing to retailers and the many stages in between, including:
- Material handling
- Finished goods inventory
- Distribution planning
- Order processing
- Customer service
Many of these activities were done independently and with no coordination with other parts of a business. Warehouses were built by manufacturers and exporters, often had their own vehicles for deliveries and managed all of the distribution. Manufacturers just made things efficiently and filled up warehouses. There was no connection to what a customer wanted or the sort of product desired.
As a result, practitioners expanded their interest to include the flow of materials from their source to the factory. In effect, examining the supply of materials into manufacturing. This included:
- Demand forecasting
- Requirements planning
- Production planning
- Manufacturing inventory
In the 1960s and 1970s, businesses began to address their disconnected and independent approach by investing their efforts into integrating their activities – creating a more joined up and efficient response to customer demand.
The term, ‘supply chain of things’ wasn’t commonly used until the 1990s, following the adoption of the value chain tool developed by Porter (1985). The tool demonstrated that potential savings could be made if businesses were better able to control the flow of goods and materials from the source to the final customer.
The key to a supply chain is that it deals with a physical ‘thing’.
Consider any physical item near you now and ask:
- Where does it come from?
- What is it made of?
- How did it get here?
Share in the comments area what you think is the supply chain for your chosen physical item.
Forrester, J. (1961) Industrial Dynamics. M.I.T Press
Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York: Simon and Schuster
Waller, D. (2003) Operations Management: Supply Chain Approach London: Cengage Learning