Mastering the art of supply chain: create a new canvas

Communication is key when it comes to the art of supply chain management, says CILTSA member DEVLYN NAIDOO.

This month, I’ve decided to open with a light-hearted story that takes us back in time, to the mid-1990s. A certain Swedish car manufacturer found itself with excessive stocks of green cars. In order to move them along, the principles of economics were applied: a drop in price was instituted, naturally resulting in increased demand. This ensured that the excess green cars began to sell at a pace never seen before.

Alas, no one had informed the manufacturing department about the promotion! The production team assumed that green was popular with the customers, so they began producing more green cars. This resulted in what is known as the Bullwhip Effect (also known as the Forrester Effect). This is defined as the demand distortion that travels upstream in the supply chain from the retailer through to the wholesaler and manufacturer due to the variance of orders, which may be larger than that of sales. (See also the sidebar: WHAT IS THE BULLWHIP EFFECT?)

HATS OFF TO THE SUPPLY CHAINS

As I pen this article, I cannot help but smile exuberantly in appreciation of the resilience that supply chains have displayed in recent times. Despite the adverse realities, the flow of goods – from the raw materials stages to the finished products we find on our shelves as we frequent our retailers again – has continued unabated!

As business leaders, we need to ensure that we deliver robust solutions that speak to the authenticities of today. This is key to meeting the demands of the future. The adage “change is inevitable” can never be more apt than in the times when we find our supply chains thriving, rebounding on the back of an unprecedented event – namely the Covid-19 pandemic and, more recently, Russia’s invasion of Ukraine. 

As we all very well know, a supply chain is a network between a company and its suppliers to produce and distribute a specific product or service. The entities in the supply chain include producers, vendors, warehouses, transportation companies, distribution centres, and retailers.

FOUR LEVELS OF SUPPLY CHAINS

Supply chains are complex and depend on the product being manufactured. However, four levels commonly exist for product distribution.

A level zero distribution channel is the simplest, involving a direct sale from manufacturers to consumers with no intermediary. A level one channel has one intermediary (the middleman) between the producer and consumer, one example being a retailer between the manufacturer and consumer.

Level two again relates to the number of intermediaries between producer and consumer. An example here would be a wholesaler buying from the manufacturer before selling to a retailer, who then sells on to the consumer.

Finally, there’s a level three channel, where an agent or broker comes into the picture. Agents work on behalf of companies and deal primarily with wholesalers. From here, the wholesalers sell on to retailers, who then sell to consumers.

Irrespective of the applicable level, the focus point of an efficient supply chain is the amalgamation of four key areas: planning, production, inventory management, and distribution.