1.1 What are supply chains?

a) In the end... and in the beginning

Supply chains are what serve to produce and deliver the goods and services
demanded by end customers. They involve many processes and many member
organizations and people, and have both a beginning and an end. The end is what
gives supply chains their reason for existence.

(i) The end of a supply chain...

At the end of every supply chain stand its final

customers. The aim of a supply chain is to provide
value to its end customers, i.e. to meet or exceed their
expectations – because only in this way will these customers
continue to demand and buy the supply chain’s products and / or
services.

And so the whole of the supply chain needs to focus on what the final
customer needs and wants, and is prepared to purchase. Any changes in
customers’ needs and wants – e.g. more or less quantities of a product, new
features, better quality, faster delivery, lower cost, etc. – will have an impact
all the way up the supply chain, affecting all of its members in one way or
another.

The final customer may be an individual – for instance a person buying a

meal, a shirt or a photocopying service. Or it may be an organization – for
example an enterprise, a farm, a laboratory, a government agency or a
school. These organizations are all final customers when they buy items to
meet their own needs. However, whenever organizations purchase items –
such as materials, components, data, finished products, etc. – that they sell
to others or use as inputs to produce products or services that they sell, then
they are acting as intermediary customers in the chain, and not as end
customers.

It is only the final customers’ demand that can be considered as the real
demand for any given product or service. All other demand is simply en route
towards the demand of the final customer.

End customers’ needs and wants are often difficult to know in advance,
which is why demand management – including customer market research
and demand forecasting – can be very important.

In this Module you will learn about ways to do this, and also about ways in
which demand information can be shared throughout a supply chain in order
to improve the chain’s ability to respond more rapidly and effectively to
changes in demand.

(ii) ...leads to its beginning

Every supply chain must begin with the design and development of the
goods and / or services it intends to provide, in the expectation that these will
meet the needs and wants of its prospective end customers.
 The start of a supply chain also involves determining which raw materials,
components and processes (e.g. production, handling, storage, distribution
and delivery) are required to provide these goods and services.

Design and development in a supply chain must draw its insights from
careful analysis of prospective customers’ needs and wants. This
understanding must then be reflected backwards through each stage of the
chain – from the end product or service up to the required materials.

Ideally, design and development should involve businesses at all stages of a

supply chain. This is especially true in the case of high-value, high-
technology items.

From a material perspective, the beginning of every supply chain typically

involves those enterprises drawing plant-, animal- or mineral-based raw
materials from Mother Earth, or nature. Nowadays, however, more and more
materials (e.g., metals, glass, paper, plastics, etc.) are being recycled rather
than taken entirely as raw materials from nature.

(iii) And then in between...

Finally – in between the end (the final customers) and the beginning (the
designers / developers and the suppliers of raw materials) of every supply
chain – will stand a range of intermediate players including, for instance,
suppliers of components, manufacturers, distributors, wholesalers and
retailers. Other intermediate supply chain members will likely include
providers of key services such as logistics, packaging, financing, and
information and communication technologies (ICTs).
Supply chains are increasingly being seen as an “extended enterprise”,
where all members perform one or more required roles or functions and –
ideally – operate as an organic whole.

The following figure shows a supply chain for an SME retailer providing high-
value customised bicycles made-to-order for very demanding customers.
The bicycles are individually tailored to the body size and build of each
customer, and include features that reflect the customer’s tastes and
preferences as to design, materials, colours, accessories, etc. The shop
buys the required components against these orders and custom-assembles
the bikes itself.

The figure below shows how design and development draws from its close
understanding of customers’ preferences, and determines the features of the
supply chain from the end product all the way back through to the
components and the materials being used. The material side of the supply
chain itself begins with these raw materials and finishes with the assembled
bicycles being delivered to customers.