Supply chain and the rules of the game
This article is a continuation of the writer’s intention to make
public awareness of the ‘supply chain’ process and for the benefit of
students who would like to take-up career’s in this field which is today
developing a good demand in the manufacturing sectors due to
chain management is a difficult game to master. It requires you to move
a great many pieces in a very specific ways, and you have to choreograph
those moves to make each piece arrive in the right place at the right
It’s also a game that plays out on grand scale, with a playing field
that spans the entire planet. Fortunately, the rules of the game - the
descriptions of the pieces and the ways they move - are simple enough to
be summarized in a few pages.
In a nutshell, supply chains consists of production and storage
facilities connected by transportation lanes, and they exist to support
the flow of demand, supply and cash.
The difficulty of managing supply chain comes primarily from the
complexity that creeps into their structure and the variability that
characterizes their flows.
It’s this complexity and variability that makes an easy game hard to
Facilities and links
A supply chain is a network of facilities, connected by
transportation lanes, Facilities, Production facilities, storage
facilities. Transport lanes are mode of transportation; they include
roadways, railways, waterways, sea lanes, air lanes, and pipelines.
Viewed in the largest context, supply chains consumers of the finished
good, the people who actually put those goods to their intended purpose.
Facilities contain controlled quantities of materials called
inventories. Production facilities hold inventory in three different
forms: Raw materials inventory consist of materials ready for
utilization in the production: work-in-process (WIP), inventory includes
all materials currently being worked on: and finished goods inventory
holds completed products ready for shipment.
Storage facilities vary: Warehouses usually contain only a single
kind of inventory, but distribution centers that do the final assembly
all three kinds.
Cross docks, which are used only to transfer goods between trucks, do
not contain any in separately managed inventory. Retail stores also vary
in, this regard.
Custom bicycle shops have all three types if inventory
warehouse-style stores contain only one and some appliance stores carry
none at all.
Lanes are used by vehicles and containers
Lanes are used to move inventory between facilities along a
particular mode of transportation, using a combination of vehicles and
Some vehicles, such as a truck and railway engines, can be decoupled
from their containers, whereas other such as delivery vans and tanker
ships, have container holds the cargo built in.
Decoupling is an important consideration because it offers more
flexibility in routing, dispatching, temporary storage, and other
transportation activities. In case of pipelines, the functions of the
vehicle and the container are merged with the lane itself, with pumps
providing the motive force and pipes containing the inventory in
Transport modes offer trade-offs
Each mode of transportation offers a unique mix of speed, cost,
availability, and capability. For example, shipping by air is fast,
expensive, available from all large cities, and limited to small and
By contrast, shipping by sea is slow, cheap and availability only to
cities with ports, and virtually unlimited with regard to size and
There are also different volume trade-offs within each mode. In
trucking it is much cheaper to send full truckload (FTL) shipments than
to use less-than truckload (LTL) shipments, and the FTL option offers
tighter control over the routing and timing of the shipment.
However, using FTL shipments requires building up more finished goods
inventory and may cause delays in shipments. Similar trade-offs apply in
the other modes.
Shipments can use multiple modes
Shipping within a limited geographical region normally uses a single
mode from source to destination. For larger distances, including most
international trade, shipments generally use two or more modes, a
practice known as Intern-modal transportation.
For example, a shipment might travel by rail to the nearest seaport,
cross the ocean by ship, and travel rest of the way by truck.
Inter-modal shipments are usually enclosed in steel containers that can
be transferred between specially fitted rail cars, container ships, and
Like facilities, transportation lanes contains inventory. This
in-transit inventory bridges the gap between the shipping facility’s
finished goods inventory and receiving facility’s raw material
inventory. In-transit inventory is different from other forms, in that
it is unavailable for use. Is at high risk of loss from theft and
accidents, and is subject to delays due to vehicle breakdown and lane
congestion. Along with raw materials, work in progress, and finished
goods, In-transit inventory represents the fourth major type of
The distinction between in-transit inventory and the two inventories
it connects is often blurred in practice. Trailers or railcars are
frequently used to store finished goods at production facilities until
full loads are produced, In which case the goods are still part of the
plant’s finished goods inventory.
But if the storage is brief and the destination of the goods is
determined by the choice of containers, the goods in the container may
be treated as inventor in transit as soon as they are loaded.
Similar issues come up at the destination. Where full containers may
sit for days or weeks in a yard before being unloaded. In one rather
perverse practice, railway care are actually kept on the move, circling
in wide arcs around the facility, until there is space to park them in
This is a very expensive way to hold inventory.
Package carriers are viewed as a mode
Although they don’t make use of a separate transportation medium,
package carriers such as UPS and FedEx are commonly viewed as a distinct
mode when making transportation decisions. In reality, these carriers
use a mix of air and highway transport to deliver their packages, using
their own fleets of aircraft and trucks.
As a practical matter, however, it doesn’t matter how a package is
conveyed because that decision is out of the shipper’s hands, so using a
packages carrier is viewed as an alternative on a par with shipping by
air, land or water. The trade-offs discussed for the other modes also
apply to package carriers.
They are fast, relatively expensive, available in most locations, and
limited to relatively small, lightweight products.
Demand, supply, and cash
The essential goal in managing a supply chain is to achieve an
orderly flow of goods from extractors to consumers.
It should not be surprising, then, that the deepest roots of the
discipline can be found in transportation management, which is
responsible for moving finished goods to the next link in the chain.
Over time, transportation management merged with a related function,
materials management, to form the broader discipline of logistics, which
handles the flow of materials all the way from suppliers through the
three internal inventories already explained in this article to the end