SUPPLY NETWORKING

No operation, or part of an operation, exists in isolation.

Each operation is part of a larger and interconnected network of other operations. This network will include suppliers
and customers. It will also include suppliers’ suppliers and customers’ customers and so on. Including government
agencies, labour markets and other similar bodies as customers, suppliers or both, an organisation’s network becomes its
total business environment.

Supply chain planning and control is concerned with the flow of goods and services through the supply network, from
suppliers through to customers. In large organisations there may be many hundreds of strands of linked operations
passing through the operation. These strands are more commonly referred to as supply chains. A supply chain as a whole
can be viewed as the flow of water in a river; organisations located closer to the original source of supply are described
as being ‘upstream’, those located closer to the end customer are ‘downstream’.

At a strategic level, operations managers are involved in designing the shape and form of the network in which their
operation is set. Fundamental to the strategic design of any operations’ resources are network-related questions such as:

- Should we carry out this activity or should another company do it for us?
- Which of our current suppliers do we want to buy and incorporate into our current operation?
- How should we develop trading relationships with suppliers and customers?

Some of the terms used to describe the management of different parts of the supply chain
There are three main areas in understanding supply chain planning and control:

1) Purchasing and supplier management – the role of the purchasing function in forming contacts with
suppliers to supply the organisation (upstream activities).
At the supply end of the business, the purchasing function forms contracts with suppliers to buy-
in materials and services. Some of these materials and services are used in the production of the goods
and services sold on to customers. Other materials and services are used to help run the business, for
example, staff catering services or oil for machinery. These do not make up part of the finished goods or
services but are still essential purchases for operations. Those responsible for purchasing need to
understand the requirements of all the processes within the operation and also the capabilities of the
suppliers.
o Purchasing at the right quality
The quality of incoming goods and services will have an important impact on the quality of
the processed goods and services and also on their reliability and dependability. While in the
past many organisations would carefully inspect all incoming items, purchasing functions are
now working closely with suppliers to ensure that incoming goods and services will conform
to the agreed quality specifications, through supplier quality programmes.
o Purchasing for fast delivery
In some organisations where competition is based on fast response or where demand is
uncertain, a major purchasing objective will be to find suppliers who can themselves
respond quickly
o Purchasing for delivery at the right time and in the right quantity
Purchasing at the right time and in the right quantity can also have an important impact on
the operation’s overall performance. Success in this area requires the purchasing function to
understand the operation’s processes and forecast activity, and the intricacies of lead-times,
volumes and seasonalities, for example. Successful management of timing and quantities
has a big influence on inventory levels (working capital).
o Purchasing to retain flexibility
Supply flexibility, whether in terms of changing specification, changing delivery time or
changing quantity, will be particularly valuable to those organisations that themselves are
operating in fast-changing or uncertain markets.
o Purchasing at the right price
This is an important way of providing the organisation with a cost advantage as the cost of
materials may have a significant effect on an organisation’s overall costs. Historically, this
objective of purchasing has been emphasized in purchasing theory and practice.
o Purchasing from the right source
One key function of the purchasing department is to make choices between the various
suppliers. Decisions may not only rest on price and quality but also on future potential, and
willingness to develop what they do and to work with the downstream organizations. A
second issue here is the decision of whether to have just one organisation provide the goods
or services (single source) or to reduce the risk in problems of supply through multi-
sourcing.
o Purchasing, the Internet and e-commerce
For some years, electronic means have been used by organisations to confirm purchased
orders and ensure payment to suppliers. The rapid development of the Internet opened up
the potential for greater changes in purchasing behaviour. The Internet also provides the
opportunity to search through a wider pool of potential suppliers for new sources of supply.
Both e-commerce, the trade that takes place over the Internet, and e-procurement, when
groups of organisations group together to link e-commerce systems into a common
 exchange, have seen considerable growth over the past few years, although they are still not
as widely used as was expected.

2) Physical distribution management – the movement of products or services to the customer

(downstream activities). Logistics is an extension of physical distribution management and usually refers
to the management of materials and information flows from a business, down through a distribution
channel, to end customers.
o The mode of transport to be used – for example, road, rail, water, air or pipeline.
o The use of warehousing, or hubs, to simplify routes and communication, whereby many
products can be distributed to regional warehouses so that end customers only need
deal with one warehouse instead of many.
o Deciding contract terms, in particular agreeing who takes the risks involved in
transporting the products and deciding when the products will be paid for
3) Materials management - is a more limited term than supply chain management and refers to the
management of the flow of materials and information through the immediate supply chain, including
purchasing, inventory management, stores management, operations planning and control, and physical
distribution management.

It includes the functions of purchasing, expediting, inventory management, stores management, production
planning and control, and physical distribution management. In retail operations, the purchasing task is frequently
combined with the sales and physical distribution task into a role termed merchandising. A merchandiser typically has
responsibility for organising sales to retail customers, for the layout of the shop floor, inventory management and
purchasing.

Objectives of supply chain management

 To focus on satisfying end customers

It is only the final customer who has the only ‘real’ currency in the supply chain. When a
customer decides to make a purchase he or she triggers action along the whole chain. All the
businesses in the supply chain pass on portions of that end customer’s money to each other,
each retaining their margin for the value they have added. If each link in that chain does not
understand their role in the supply chain, the final customer’s needs may not be met.
 To formulate and implement strategies based on capturing and retaining end customer
business
The key operation in a chain is the strongest business, which is in a position to influence
and direct the others so that they work together in the common cause of capturing and retaining
the end customer’s business. This organisation may then take responsibility for setting the
standards and determining the design of the infrastructure, such as the information systems
used, to which the downstream dealer network needs to comply.
 To manage the chain effectively and efficiently

Taking a holistic approach to managing an entire supply chain opens up many

opportunities for analysis and improvement, especially in shortening time-to-market, dealing
with ‘bottleneck’ organisations, and performing cost and value analysis of the whole supply
chain to try to generate cost savings across the whole supply chain.