Defining the Supply Chain
Supply chain management is a vital, yet often underappreciated facilitator of trade that fosters customer convenience, business success, and societal development. Consumers benefit greatly from supply chain management, yet few people think about the planning, cost, or activities involved in getting fuel to the filling station, fresh foods to the store shelf, or essential medical supplies to the hospital emergency room. People just assume that products will be readily available without worrying about how much their quality of life depends on productive, efficient supply chains.
The same situation exists within many organizations. Despite the ability of supply chain management to facilitate cost-savings and a competitive advantage, relatively few individuals in marketing, finance, or manufacturing pay much attention to it. They primarily think of supply chain management in terms of operational activities that occur behind the scenes to complete a customer transaction. The only time that these individuals focus on the supply chain is when a supply disruption, manufacturing shutdown, or delivery delay occurs. They expect supply chain managers to quickly resolve the issue, return the organization’s supply chain to a state of balance, and take steps to prevent future occurrences.
The good news is that savvy organizations such as Amazon.com, McDonald’s, and Unilever recognize the importance of supply chain management and make it a strategic priority. They understand that it is impossible to compete effectively in isolation of their suppliers, customers, and other entities in the supply chain (Lummus & Vokura, 1999). This is critical in a complex global economy where your suppliers and customers may be on different continents, omnichannel fulfillment capabilities are needed, and service expectations are rising. Taking the time to develop efficient and agile supply chain capabilities to respond to these dynamic market requirements is the difference between great success and utter chaos.
The first step in the journey to supply chain management success is to understand its foundation concepts. A discussion of what supply chain management is, why it is important, and how it benefits the organization is needed to get everyone on the same page for the pursuit of supply chain excellence. Hence, this chapter provides a level-setting discussion of key terminology and definitions. The focus then turns to the purpose and goals of supply chain management to clarify the essential objectives that supply chain managers must pursue. Next, a review of the evolution of supply chain management and its key participants is provided. The chapter closes with an introduction to the value proposition of supply chain management and its capability to drive organizations toward better, faster, and cheaper demand fulfillment.
Key Terminology and Concepts
A fundamental challenge in supply chain management is the lack of a common “language” that is used across organizations and industries. Unlike financial accounting and other long-established business fields, there is not yet a universally accepted set of definitions and rules that drive supply chain management. For example, asking a group of business executives to simply define the term supply chain would lead to a long and potentially contentious discussion.
Such a situation is not unusual in a relatively new field like supply chain management. Initially, there will be a lack of consensus as to its definition or consistency in its application (Ballou, Gilbert, & Mukerjee, 1999). While this is to be expected, it is not desirable. Consistent definitions are essential for understanding the basic characteristics and scope of supply chain management. They provide clarity regarding what supply chain management is and is not, drive acceptance of its key elements, and facilitate its application (Gibson, Mentzer, & Cook, 2005).
This section reviews the popular definitions of essential supply chain management terms, evaluates their common components, and highlights the scope of the field. Having this solid frame of reference will help you avoid the dangers of defining the field too narrowly or too broadly. A narrow perspective will limit the potential value of supply chain management to your organization. In contrast, an overly broad conceptualization will make it difficult to establish control over the processes, foster collaboration, and control performance.