Page 17 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes The product/material flow in a supply chain is concerned with the procurement, movement and
storage of materials and finished products. For a large manufacturer, these operations may
consist of thousands of components, raw materials and parts and their movements, which
ultimately culminate in the delivery of products to an industrial user, retailer, wholesaler,
dealer, or other customer.

Did u know? For a large retailer, supply chain operations may commence with the
procurement of products from the manufacturer and may terminate with consumer pickup
or delivery of the product.
One of the key features of modern industrial system is that organisations use specialist services,
incorporate proprietary items into products, and develop ancillaries to support their product
and services. Very rarely does a single company perform all activities from product design,
production of components, and final assembly to delivery to the final user by itself. There is
usually specialization of role and a number of organisations are involved in the creation of the
final product. Therefore, all the organizations connected with delivering the product or services
to the final consumer are elements of a value chain system of the supply chain. Figure 1.6
extends the concept of the value chain from a single enterprise to a supply chain.

Figure 1.6: The SCM Value Chain System

Supplier Channel Customer
Value Chains Value Chains Value Chains

Organizations
Value Chain

Source: Upendra Kachru, (2010), “Exploring the Supply Chain,” Excel Books
The value a supply chain generates is the difference between what the final product is worth to
the customer and the effort the supply chain expends in filling the customer’s request. Therefore,
the profitability of the supply chain is based on the flows between and among stages in a supply
chain, unlike the traditional measure of organizational success in terms of the profits at an
individual stage. The final price of the goods should be such that it covers all of the costs
involved, with a profit share for each participant in the chain.
Within the whole value system, there is only a certain value of profit margin available. This is
the difference of the final price the customer pays and the sum of all costs incurred with the
production and delivery of the product/service (e.g. raw material, energy etc.). The structure of
the value system will determine, to a large extent, how this margin is distributed between the
various elements of the value system.

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