A supply chain is really a sprawling network, not a neat line
Behind any product sits a hierarchy of firms: direct suppliers, their own suppliers, and so on down. In chemicals there are typically nine such tiers. Each layer can add its own profit margin, which is why a buyer sometimes saves money simply by skipping the middleman and contracting further down.
The phrase may first have appeared in print in 1905, when The Independent noted how hard it was to keep supplies flowing from India during the British expedition to Tibet. The management version is younger. Keith Oliver, a Booz Allen Hamilton consultant, is usually credited with coining supply-chain management in a 1982 Financial Times interview, although academics had used the term in 1978 and 1981.
At its simplest, a chain splits into making and moving. Parts are produced in factories and put together in assembly plants, then pass through central and regional distribution centres to buyers. Mentzer and colleagues argue it takes at least three parties to count as a chain, and they grade them: direct, covering a firm with one supplier and one customer; extended, reaching one step further each way; and ultimate, taking in every organisation involved. Money and information travel along it too. Critics say the word chain misleads, since real supply networks are loosely coupled, dynamic webs of firms that often know little about one another.
That opacity has costs. Hidden links can keep shoppers from learning where goods came from and can shelter irresponsible practices, so large brands now impose codes of conduct and check suppliers with social audits. In a 2018 Loyola University Chicago survey, 53 per cent of supply chain professionals called ethics extremely important to their organisations. Profit layering is another hazard: in 2015 the UK Ministry of Justice found its lift work was being subcontracted to specialists, and began hiring those specialists directly.
Marshall Fisher's 1997 question, which chain suits which product, framed a lasting debate, pairing efficient chains with functional goods and responsive ones with innovative goods. Models such as SCOR now measure performance end to end. Where they succeed, rivalry shifts from firm against firm to one entire chain against another.
Source: Supply chain
