General introduction to supply

chain management
1. General introduction to supply chain management and
supply chain operations.
We need to identify the determinants of supply chain capability. These dynamics can be
considered as design parameters or operational determinants that determine the model and
capabilities of any supply chain. Within the sphere of influence of these decisions, the supply
chain attempts to perform its mission by performing routine activities. These essential activities
are the backbone of the supply chain.
To thoroughly understand these activities and how they are interconnected, we use the
simplified Supply Chain Operations Reference (SCOR) model, developed by Supply Chain
Council Inc. (Supply Chain Council Inc., 14400 Eye Street, Suite 1050, Washington, D.C.,
www.supply-chain.org). This model identifies the fundamental supply chain activities, which
consist of four processes:
- Plan
- Source
- Production
- Distribution
1. Plan: This process includes all the necessary stages related to planning and organizing
activities for the other three processes. In planning, we need to focus on three key stages:
demand forecasting, product pricing, and inventory management.
2. Source: The stages in this process include the necessary activities to gather input materials
for the production of goods or services. Here, we will examine two key stages. First,
procurement is the process of acquiring raw materials and services. The second stage -
trade credit and debt collection - is not traditionally considered a sourcing activity, but in
reality, it can be seen as a form of cash flow acquisition. Both of these stages significantly
impact the overall supply chain capability.
3. Production: To develop and build the products and services created by the supply chain,
this process requires the execution of several stages: product design, production
management, development, and overall operations. Clearly, the SCOR model does not
include product design and development processes, but we still mention them due to their
significant impact on the overall production process.
4. Distribution: This stage includes activities related to order fulfillment and product delivery
to customers. The three key stages examined are order management, delivery, and handling
returns. These elements serve as the connecting link between companies participating in
the supply chain.
1. Supply Chain Management Activities

Production: It mentions the production capacity and product inventory of the supply
chain. The production facilities include factories and storage warehouses. The major issue that
managers need to face when making production decisions is how to balance the flexibility of
response with production efficiency. If production is at maximum capacity or near it, the system
will become passive in response to market changes. Conversely, idle capacity will not generate
income. Therefore, factories need to be built to serve one of two production purposes:
- Product-focused: This approach emphasizes the product itself and involves a series of
different operations to create a production line, from producing the individual parts of the product
to completion.
- Function-focused: This focuses on a limited number of production tasks, such as creating
a group or designating certain parts for the assembly process. These functions can be applied to
produce various types of products.
The product-focused approach aims to specialize in a specific product line with costs
dedicated to developing particular features. On the other hand, the function-focused approach
specializes in a specific function rather than a particular product.
Inventory: It appears from the beginning to the end of the supply chain, including
everything held by manufacturers, distributors, and retailers, from raw materials to finished
products. Holding a certain volume of goods in inventory allows businesses or the entire supply
chain to respond flexibly to market fluctuations. However, production and storage incur significant
costs, so to achieve efficiency, inventory costs need to be kept low.
There are three basic decisions related to the production and storage of goods:
- Cycle Stock: This is the amount of inventory needed to meet product demand between
purchase cycles. The goal is to produce and sell large batches to achieve economies of scale.
However, large batches also increase transportation costs (storage, shipping, and insurance). A
balance must be found between reducing order costs to secure better prices and the increased
transportation costs associated with large-volume shipments when choosing cycle stock storage.
- Safety Stock: This is kept as a backup to meet changing market demands. The best balance
here is to carefully weigh the cost of storing additional goods against the potential loss of sales due
to stockouts.
- Seasonal Stock:This type of storage is based on predicting demand increases at specific
times of the year.
Location: The area chosen for placing factories also includes decisions related to the
operations that need to be carried out at each factory. The optimal combination of flexibility and
efficiency is a decision about whether to focus activities in a few locations to achieve economic
efficiency or reduce operations at locations familiar to customers and suppliers to enable more
flexible operations.
When making decisions about location, a range of cost factors must be considered: factory
buildings, labor costs, available skills in the workforce, infrastructure conditions, taxes, and tariffs.
Location decisions have a strong impact on the costs and performance of the supply chain. Once
the size, number, and location of the factories are determined, we can also identify the routes that
can facilitate the transportation of products to consumers.
Transportation: Everything related to transportation, from raw materials to the delivery
of finished products to customers. The best combination of flexibility and productivity depends on
the mode of transportation. For example, airplanes are fast but expensive, while trucks and trains
are cheaper but slower and less flexible. There are 6 transportation modes to consider:
- Sea: Slow but inexpensive, with large capacity.
- Rail: Cheap but slow, only applicable where there are railways.
- Pipelines: Only applicable for liquids and gases.
- Trucks: Relatively fast, flexible, but dependent on road conditions and difficult for
international transportation.
- Electronics: Fast, inexpensive, flexible, but only used for transporting goods like electricity
or data.
Based on the different modes of transportation, geography, and the location of factories and
warehouses, we can combine multiple modes on a single journey. For high-value products, the
focus should be on flexibility and safety, while for low-value products, the emphasis should be on
efficiency.
Information: The platform provides decisions related to the four cost drivers of the supply
chain. Information is the link that connects all activities and processes in a supply chain. Accurate,
timely, and complete data enable companies in the supply chain to make correct operational
decisions.
In any supply chain, information is used for two purposes:
1. Coordinating daily activities related to the operation of the four key factors affecting the
supply chain: production, inventory, location, and transportation. Based on available data on
supply and demand, companies in the supply chain make decisions on weekly production plans,
inventory levels, transportation routes, and warehouse locations
2. Forecasting and planning to anticipate and meet future demand. From available
information, companies can make accurate predictions to set production schedules for the month
and quarter. Information is also used to make strategic forecasts when deciding to establish new
factories, enter new markets, or exit current markets.

1. Supply chain structure

1.1. Basic Supply chain

A supply chain is essentially a complex system consisting of activities, organizations,

information, and resources aimed at transforming raw materials into finished products and
distributing them to consumers. It encompasses all stages, from sourcing raw materials, producing
goods, storing, transporting, distributing, and selling. An efficient supply chain helps optimize
costs, improve product quality, and quickly respond to market demand. The key components of a
basic supply chain include:

Suppliers: These are organizations or individuals who provide raw materials, components,
or input products necessary for the production process. Suppliers are the first link in the supply
chain and play a crucial role in ensuring a stable supply, high-quality materials, while also
complying with time and cost requirements.

Manufacturing: This is the stage where raw materials and components are transformed into
finished products. The production process includes several steps such as assembly, processing, and
product finishing. In the supply chain, optimizing the production process to minimize costs,
increase productivity, and ensure product quality is a key objective.

Warehousing: In the supply chain, warehousing plays an important role in storing and
preserving goods before they are distributed. Effective warehouse management helps businesses
control inventory levels, minimize waste, and ensure that products are always available to meet
market demand. Modern warehouse management systems often integrate IoT technology to track
the status and location of goods in real-time.
 Customers: Consumers or businesses are the final entities in the supply chain. They are
the ones who use or consume the products/services. Customer demand is the determining factor
for the entire supply chain, as it guides decisions related to production, inventory, and
distribution.

1.2. Extended Supply chain

Suppliers level 1: These are suppliers who directly provide products or services to the main
manufacturing or assembly business. These products are typically finished goods or semi-finished
products, used directly in the company’s production process. Tier 1 suppliers are responsible for
ensuring the quality and timely delivery to the main business.

Suppliers level 2: These are suppliers who provide products or services to Tier 1 suppliers,
rather than directly to the main manufacturing business. Tier 2 suppliers typically provide raw
materials or smaller components, which are used by Tier 1 suppliers to produce finished goods for
the main business.
à Suppliers level 1 provide products directly to the main business, while Suppliers level 2
provide products to Suppliers level 1.

Customers level 1: These are customers who purchase products or services directly from the
manufacturing or service-providing business. Tier 1 customers can be individuals or businesses
that directly use the product, or distributors and agents who buy to resell.
Customers level 2: These customers do not buy directly from the main manufacturing
business, but purchase through Tier 1 customers. They can be end consumers or other customers
within the distribution chain.
à Customers level 1 purchase directly from the manufacturer, while Customers level 2
purchase from Customers level 1 or other intermediaries in the distribution chain.
 2. Components involved in the supply chain:

Manufacturer: These are entities that directly produce products. Manufacturers include
companies that specialize in producing raw materials as well as businesses that produce finished
products. They can also create intangible products such as games, software, designs, or services.
Distributor: Receives goods from the manufacturer and delivers them to the customers. The
operating method involves purchasing large quantities, storing them, and then reselling to
customers.
Retailer: Stores goods in warehouses and sells them in smaller quantities. Retailers also
have complete information on customer preferences and sell accordingly.
Customer: Or consumer, is any individual or organization that engages in the act of
purchasing and using goods. They may buy one or more products, or buy and resell to other
customers.
Service Providers: These are individuals/organizations that provide services to
manufacturers, distributors, retailers, and customers. Service providers focus on specific tasks
required by the supply chain and specialize in particular skills necessary for those tasks. Therefore,
they can perform these services more efficiently and at better prices than suppliers, distributors, or
retailers. Examples include logistics and warehousing service providers, or financial services,
printing, advertising, market research, etc.
 3. Steps to align supply chain with business strategy

Step 1: Understand Customer and Market Requirements

The first stage in building a supply chain is gathering and analyzing information from the
market and customers. Businesses need to deeply understand consumer needs, wants, and
expectations, as well as market trends and fluctuations. This includes studying economic
indicators, consumer behavior, and industry competition factors. By understanding market
demands clearly, businesses can adjust their supply chain to respond quickly and effectively to
changes in demand, thereby enhancing competitiveness and flexibility in meeting customer needs.
Step 2: Identify Core Competencies and the Company's Role in the Supply Chain
After understanding customer needs and market context, businesses need to identify their
core competencies. Core competencies can be understood as the superior capabilities or strengths
that a company possesses and can leverage to create a competitive advantage in the supply chain.
Along with this, the business must determine its specific role within the global supply chain, such
as being a manufacturer, raw material supplier, or product distributor. Accurately identifying these
competencies and roles will help the business strategically develop its supply chain in the most
effective way.
Step 3: Develop the Necessary Supply Chain Resources to Support the Company's
Roles
The final step in this process is to develop and optimize the company’s resources to support
its roles and core competencies in the supply chain. Resources here can include infrastructure (such
as warehouses, transportation systems), technology (supply chain management systems, IoT
software), and people (management teams, skilled workers, supply chain experts). Additionally,
factors such as risk management, cost optimization, and enhancing sustainability should also be
prioritized to ensure the smooth and efficient operation of the supply chain. Developing these
resources helps the business not only support its role in the supply chain but also enhance its
competitiveness in the global market.