The supply chain of a company refers to the coordinated system of resources, information, activities and people involved in the movement of a product or service from raw materials to components and into a finished product or service delivered to the end customer.
This area of operations management is important for smooth functioning of a company because the increasing technical aspects of managing the entire supply chain and the global scope of the chain for a growing number of organizations are just too complex. Also, increasingly operations managers are required to match how they manage their supply chain to the nature of the business strategy and the dynamics and complexity of the market. As the complexity of managing supply chains increased, so has its potential strategic importance.
Operations managers can track component parts throughout the entire chain. The increasing use of electronic data interchange (EDI), or the integration and, in many cases, real-time exchange of supply chain information allows supply chain managers at Dell to manage such complicated relationships and processes.
Sometimes the integration is so deep that customers are able to determine that they can meet an up-tick in demand for computers with certain features by instructing their suppliers to use some spare capacity in one of the supplier’s plants. In other words, the emergence of the Internet and standard protocols is increasing the ease of these exchanges and lowering the costs as well.
Prior to the Internet, firms were required to invest in and commit to expensive and restrictive proprietary software systems. Web-based systems help in putting interchanges into practice in short order and with little expense. One consequence of this is that small firms, which previously didn’t have the size or global presence to link into supply chains, can now become partners much quicker if they are able to demonstrate superior quality, reliability, and cost. These factors create a dynamic tension between suppliers and customers.
On the other hand, the fact is that Web-based technologies lower the entry barriers for new suppliers and lower the switching costs to new suppliers. As a consequence, more managers want to not get too wedded to their current suppliers and leave themselves open to new suppliers. In addition, there is always a threat that suppliers of core components can decide to put their own supply chain together and become a competitor to their former customer.