Consider what it took to produce the computer in front of you. First, a company located the raw materials -- the metal ores, the plastic alloys, for example. Then another company shipped the raw materials to a firm that built the very basic computer chips. This is the beginning of the computer's supply chain, the web of connectivity that links every firm involved in production.
Supply chain management consists of four typical components.
For a supply chain to function, chain members must treated each other equally. Members tend to form strong partnerships in order to maximize production. Partnerships usually extend to an agreement between two firms, but in supply chain managements, multiple firms agree to partnerships. These partners "manage the total flow of goods from the supplier[s] to the ultimate customer," according to John T. Mentzer, author of "Supply Chain Management." Each partner directly influences the entire supply chain and controls production efficiency.
Tiered Organization Structure
A supply chain is a web of connectivity. At the center of the web is the focal company, which is most likely the first point of sale for the good. Past the focal company is the first tier of suppliers and customers. First-Tier Suppliers in turn receive supplies from Second- and Third-Tier Suppliers in order to produce the good. First-Tier Customers may choose to use the good, or they may choose to sell the good. Their connectivity stretches to Second- and Third-Tier Customers, which will elect to either use the good or continue the web.
Emphasis on Research
Research into a supply chain allows managers to identify the chain's strengths and weaknesses. But research must be carried out frequently and in depth. Making a decision from shallow research can permanently damage a chain. Managers use research to establish benchmarks -- goals for the chain's growth and production. Successful companies put a large emphasis -- and fiscal support -- in research because "without enough people (and the right people) to participate in benchmarking activities, and without a sufficient budget, a company's efforts to benchmark its supply chain are doomed before the project even gets started," according to the book "Supply Chain Management: Best Practices" by David Blanchard.
Logistical Planning and Strategy
Logistics planning and strategy is a chain deploying all its resources to maintain constant production. But logistical strategy requires a chain to stay flexible. Logistical strategy allows a chain to realize where it can maximize the cost-service trade-off: "This process involves consideration of the company's strategic objectives, its specific marketing strategy and customer service requirements, and its competitors cost-service position," according to William C. Copacino in "Supply Chain Management: The Basics And Beyond."