Generally speaking a supply chain is the entire network of entities, directly or indirectly interlinked and interdependent in serving the same consumer or customer. The aim of this network is to deliver the right customer, the right good, at the right place, to the right time, to the right price. 1) It comprises of vendors that supply raw material, producers who convert the material into products, warehouses that store, distribution centers that deliver to the retailers, and retailers who bring the product to the ultimate user.2)
This process is activated by a need of an end-customer and causes a flow of information to the beginning of the Supply chain containing information about e.g. the quantity and quality of the required product/material. This information causes a flow of products/material in return. Parallel money flows for the deliverd product/material.
Sourcing is responsible to ensure availability of raw materials or components that are being processed in the production process.
The term for all sourcing and purchasing activities in B2B-environment is procurement. Individual businesses set procurement policies that govern their choice of suppliers, products and the methods and procedures that are going to be used to communicate with their suppliers. For example, businesses often have set procedures for calling for and evaluating proposals. Issues in procurement include:
There are also general trends in procurement. One of the most recent of these is green procurement, with an increasing number of businesses creating procurement policies that emphasize sourcing and purchasing goods and services that are less environmentally damaging than comparable alternatives.4)
When this is done via online systems e.g. via Internet and often with the support of automatic processes and procedures it is called e-procurement.
In order to secure a smooth production process supplier relationship management (SRM) has thus become more and more important, in particular during the recent economic and financial crisis. And it plays a critical role in cost management.
Many businesses are seeking to increase bottom-line cost savings delivered by sourcing and procurement functions. By focusing on procurement operations as profit centers, forward-looking companies are strengthening supplier relationships and making procurement a more strategic partner in the organization.5)
SRM is a comprehensive approach to managing an enterprise's interactions with the organizations that supply the goods and services it uses. The goal of SRM is to streamline and make more effective the processes between an enterprise and its suppliers just as customer relationship management (CRM) is intended to streamline and make more effective the processes between an enterprise and its customers. According to proponents, the use of SRM software can lead to lower production costs and a higher quality, but lower priced end product. SRM products are available from a number of vendors, including 12 Technologies (www.12technologies.com), Manugistics (www.manugistics.com), PeopleSoft (www.peoplesoft.com), and SAP (www.sap.com). 6)
For cost reasons companies are trying to keep minimal stocks, which becomes very difficult the more extended the supply chain is. But in today’s globalised economy production networks are more and more spread around the world with suppliers, manufacturing facilities and customers in many different countries. Many production companies rely on service providers such as logistics service providers who often take on responsibilities such as sourcing, but also stock keeping and even assembly of final goods.
In this context multi tier supply chains are becoming more and more common. That means companies are not any longer supplied but all their suppliers and produce in their own facilities but that they purchase more complex components from their suppliers (who are themselves being supplied by own suppliers on earlier stages of the supply chain) and only the final assembly is done under their own roof. The picture 7) shows a multi supply chain.
To keep a multi tier supply chain up and running robust software systems need to be in place.