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.
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