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Posted October 7 2021
Written by Lorenzo Vanzini

What Is the Supply Chain?

Definition

Unlike everyday items, it’s difficult to give a precise definition of the supply chain. It’s an abstract concept. It’s an integrated set of techniques, services and tools which ensure, when they interact correctly, the timely supply of goods, and of and the services that a company needs to function effectively in order to deliver to its customers what they ask for, without delaying or blocking its activities, whatever they may be (production, sales, distribution, R&D, etc.).

For example, an industry that produces vehicles would need, amongst other things:

  • Raw materials for parts manufactured in-house or for subassemblies produced by subcontractors;
  • Suppliers to buy materials or parts from, or to entrust certain production tasks to (subcontractors);
  • Customers to buy the cars;
  • Transportation to deliver the manufactured cars;
  • Communication systems for interacting with customers and suppliers;
  • Subcontracted services linked to non-strategic activities (cleaning and repair of premises, installation of machinery, etc.)

The list is obviously not exhaustive. Rather, it is a way to realize that knowing that you need aluminum and rubber is not enough to be effective – you also need to know how much aluminum and rubber you need, when, which materials will be needed, and where they will be used. Likewise, you need to be able to inform customers of the expected delivery dates of the vehicles they order, and to provide the cleaning company with a precise plan including recurring and one-off tasks.

Planning: An Essential Element of the Supply Chain

Another essential element is planning. It fits right into the supply chain. Through planning, the supplier network can adapt to customer needs. Customers can make informed decisions and choose one vehicle over another given certain factors: potentially different delivery times, staff availability at the cleaning company, etc.

But there is still a puzzle piece missing. If the planner does not know stock levels, or if the supplier cannot receive the orders, or if the customer cannot order the car, the system will be halted.

The Necessity of an Integrated System for Flexible Processes

In order for the business network to fulfill its mission through proper planning, the various stakeholders must communicate effectively with each other and certain data must be visible to them.

Each link in the chain has to be able to communicate with other links.

Here’s a summary of the different parts of this integrated system, based on the above insights:

Type Entity
Service or partner Suppliers, subcontractors, transportation
Tool Information system
Tool Network
Tool Machinery, assembly line or production line
Tool Enterprise Resource Planning (ERP) software package: management of costs, inventory, production, etc.
Technique Planning
Technique Communications and interfaces between partners and information systems, machinery, channels

I’ve often come across companies that calculate their needs for the week with Excel worksheets and then send orders to their suppliers by email or phone. Sometimes, suppliers can’t respond within the desired timeframe for the simple reason that they did not know whether their customer was going to order the products or services, or they didn’t know how much of the product or service would be ordered.

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What Are the Prerequisites for an Efficient Supply Chain?

For activities to run as smoothly as possible (though not perfectly, as we live in an imperfect world), the interaction and integration of the above entities must be organized as best as possible.

Here’s a summary of the prerequisites.

  • Customers need to be able to easily communicate their orders to the company in a precise manner—model, level of finish, desired delivery date, etc.
  • The company must be fully aware of the current workload and the time required to produce the requested vehicle, and be able to respond to customers in real time with an order confirmation or a modification request.
  • From the moment the order is placed, the company's information system must be notified and update itself accordingly so that it can:
    • Know the external services and materials needed (checking inventory levels, work in progress, orders already planned);
    • Ensure that orders to suppliers or subcontractors are issued on time to receive the necessary items on time;
    • Run the production process on time and monitor it to send alerts when problems arise that could delay delivery.
  • The information system must also be informed when the goods or services ordered have been received to verify and adapt planning where necessary
  • Transporters must be notified so that they can organize and distribute the cars within deadlines

What Are the Best Practices for Setting Up the Supply Chain?

All in all, communication between partners is not a particularly complicated task (RFC, XML and IDOC messages, etc.). The Achilles heel of a business is setting up the necessary information system for physical transfers to be reliably reproduced.

Here are some examples that result from this scenario:

  • Type of supply or production planning to be associated with each material (e.g., aluminum sheets and windows will most likely require different parameters compared to carbon steering wheels or buffalo leather seats);
  • Time required between ordering a part and it becoming available;
  • Duration of a production phase, taking into account the configuration and work time, setting up work locations, etc.;
  • Time required for subcontracting cycles (order, production, reception);
  • Definition of nomenclatures and ranges;
  • Management of delays;

It seems evident that if setup does not dovetail with the physical reality, the parts will be ordered late, the production will take longer than expected and the assembly line will be halted, because the subcontractor will not have finished producing assembly, and therefore the customer will get their product or service late.

In conclusion

The supply chain is a lot like an orchestra, and its components are like the individual musicians: if they don't all play in harmony, the concert’s quality will be poor.

What Are the Best Practices for Setting Up the Supply Chain_What is supply chain_Createch_EN

If you have more questions regarding the supply chain, our experts will be happy to answer you. Contact us!

 
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