Supply Chains and Supply Networks

chainsSupply chains aren’t actually linear chains, but socio-technical systems that can be expressed as networks. In an October 2004 article in DM World, a data management magazine, Dennis Ladd expressed it well:

Today’s competitive, fast-moving business environment has irrevocably changed the supply chain and the management of its functions as we know it. The traditional “chain” of sourcing/production/distribution linked in a linear and simple fashion is no longer a reality given the complicated and global rate at which business is now conducted. Many industry pundits have even created new nomenclature: it is no longer a “supply chain” but rather a “supply network.”

For simplicity, we’ll refer to a supply chain and a supply network interchangeably. A supply chain is a process of transformation:

  • A process starts with Inputs (which could be raw materials, components, or data),
  • which are Transformed by adding value (through processing, assembly, or applying specialized knowledge) into
  • Outputs (work-in-process material, physical products, knowledge products, services)

People and software are involving in all phases of the supply chain: getting inputs, adding value, and producing outputs. Together, they manage three types of flows through the system: 1) the flow of materials, 2) the flow of information, and 3) the flow of funds. Not surprisingly, supply chains can be challenging to manage! Here are three factors that can influence supply chains:

Environment. A supply chain defines the connection of a company’s operations with the outside world. When that world changes, the supply chain can be impacted – whether the changes are on a large scale (e.g. the current U.S. financial crisis) or a small scale (your most critical supplier just implemented a new ERP system and half their office staff quit).

Interactions. Coordinating the elements of a supply chain means that people must interact with people, software must interact with software, and people must interact with software. Sometimes the people and the systems are based in different companies, with different pressures, priorities, interests and levels of experience.

Complexity. Supply chains are only as strong and healthy as their component processes. And all too often, those processes are overly complex. This complexity works itself into the underlying supply chain management (SCM) software systems, sometimes making those systems unwieldy. The remedy is to strive for simple, understandable processes that are easy to explain – to yourself and to others.

[For network junkies: if you express your linear supply chain as a network, it will end up looking like a bow tie, with your company in the middle of the bow. If you add into this network the interactions between people and software, and how they interact with each other and with each stage of the supply chain itself, the result will be a complex socio-technical network that will have to be analyzed statistically.]

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