A supply chain is a network that includes vendors of raw materials, plants that transform those materials into useful products, and distribution centers to get those products to customers.
Without any specific effort to coordinate the overall supply chain system, each organization in the network has its own agenda and operates independently from the others. However, such an unmanaged network results in inefficiencies. For example, a plant may have the goal of maximizing throughput in order to lower unit costs. If the end demand seen by the distribution system does not consume this throughput, there will be an accumulation of inventory. Clearly, there is much to be gained by managing the supply chain network to improve its performance and efficiency.
Decision Variables in Supply Chain Management
In managing the supply chain, the following are decision variables:
- Location - of facilities and sourcing points
- Production - what to produce in which facilities
- Inventory - how much to order, when to order, safety stocks
- Transportation - mode of transport, shipment size, routing, and scheduling
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