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A supply chain is the network of relationships between the upstream and downstream activities with all stakeholders who are involved in this chain of relationships.
To take an example, if a particular good or service has to be delivered to the customer, there are raw materials that are needed for the manufacture, the forms of transport and means of storage for the raw materials, the transport of the finished goods to the retailers and the logistics involved in getting the goods to the customer are all parts of the supply chain that extend from the suppliers to the customers.
In other words, there is a chain of relationships between the firm and the partners involved in this chain. Therefore, supply chains are comprised of all these stakeholders and the relationships between them determine the effectiveness of the supply chain.
In contemporary times, supply chains can be sources of competitive advantage as efficient management of the supply chain leads to cost savings and synergies between the components of the supply chain leads to greater profitability for the firms. It is for this reason that many business leaders have focused their energies on optimizing the supply chains for increasing the top line as well as the bottom line.
In times of economic recessions, supply chains can be used as strategic levers as they can be optimized to perform better than the rivals do so that more profits can be extracted and lesser costs incurred.
The optimization of the supply chain through just in time or JIT methods of holding inventory, focus on reducing the COGS or the Cost of Goods Sold by rationalizing the expenditure on the components of the supply chain all lead to a situation that can be extremely beneficial to the firms. It is for this reason that many firms like Wal-Mart, Proctor and Gamble, Tata Motors, and Unilever has focused on rationalizing the activities that form the supply chain.
The point here is that with astute management of the supply chain, the firms can derive value from the process, which can then translate into greater profits and lesser costs.
Apart from this, the supply chains can also be of strategic and competitive advantage because a major portion of the cost of goods sold or COGS is made up of the logistics and the supply chain expenses.
To take some real world examples, Wal-Mart is one retailer that has managed its global supply chain in an adroit and efficient manner. As it operates in various countries around the world, it needs to have control over its global supply chain and this is where the company with its focus on local capabilities and global movement and integration has made its supply chain leaner and meaner.
Further, the company is obsessed with costs and therefore, it focuses exclusively on how to make its COGS and the logistics aspects of the supply chain efficient and effective.
Apart from this, the single-minded obsession with reducing costs has paid off handsomely for the company as it retains its number one position in the retailer market space mainly due to its cost effective strategies that translate into lower unit prices for the products it stocks.
Of course, there are many who believe that the company over emphasizes the cost reductions in its supply chain and this has led to some ethical issues.
However, the point here is that in times of economic gloom, Wal-Mart with its aggressive approach to supply chain management has scored over its rivals. Without suggesting that ethics should be discarded or ignored, the fact remains that a concentrated effort to rationalize the supply chain can pay off well for companies.
Finally, the twin challenges of the globalization of the world economy and the increase in the global complexity of supply chains are formidable and when taken together with the effect of the ongoing economic crisis, business leaders have their hands full trying to make decisions on how to meet these challenges.
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