Benefits of supply chains

Supply chains are so complicated that you might wonder if there is some way of avoiding them.

Sometimes  this  is  possible,  when  we  move  products  directly  from  initial  producers  to  ?nal customers  –  when,  for  example,  farm  shops  sell  vegetables  directly  to  consumers,  or  authors publish their works on the Internet. In general, though, there are very good reasons for having a longer supply chain. Suppose the population of a town decides to buy vegetables from a farm shop. This would have a minimal supply chain, but the whole population would travel sepa-rately to the farm. It would make more sense to have a transport company collect the vegetables and  deliver  them  to  a  central  location  in  the  town  –  like  a  supermarket.  If  the  transport company delivers to one town, it can easily deliver to other nearby towns, perhaps stopping at a depot to organise local deliveries. As there is a depot, vegetables can be put into storage while the supply is plentiful, and removed when there are shortages. If the vegetables need cleaning or preparation, the transport company can divert to a processing plant. Continuing in this way, you can see why a long supply chain develops, and what bene?ts it brings.

Supply chains exist to overcome the gaps created when suppliers are some distance away from customers. They allow for operations that are best done – or can only be done – at locations that are distant from customers or sources of materials. For example, coffee beans grow in South America, but the main customers are in Europe and North America. The best locations for power stations are away from both their main customers in cities and their fuel supplies. As  well  as  moving  materials  between  geographically  separate  operations,  supply  chains allow  for  mismatches  between  supply  and  demand.  The  demand  for  sugar  is  more  or  less constant  throughout  the  year,  but  the  supply  varies  with  the  harvesting  of  sugar  cane  and beet. When there is excess supply, stocks are built-up in the supply chain, and these are used after the harvests ?nish. Supply chains can also make movements a lot simpler. Imagine four factories directly supplying products to eight customers.

 The following list suggests some other bene?ts of well-designed supply chains (where we use the terms ‘wholesaler’ and ‘retailer’ as a convenient label for intermediaries):

? Producers  locate  operations  in  the  best  locations,  regardless  of  the  locations  of  their customers.
? By concentrating operations in large facilities, producers can get economies of scale.
? Producers do not keep large stocks of ?nished goods, as these are held further down the supply chain nearer to customers.
? Wholesalers place large orders, and producers pass on lower unit costs in price discounts.
? Wholesalers keep stocks from many suppliers, giving retailers a choice of goods.
? Wholesalers are near to retailers and have short lead times.
? Retailers carry less stock as wholesalers provide reliable deliveries.
? Retailers can have small operations, giving a responsive service near to customers.
? Transport is simpler, with fewer, larger deliveries reducing costs.
? Organisations can develop expertise in speci?c types of operation.