Supply-Chain Analysis

The parts of the value chain associated with producing and delivering a product or service—production and distribution—are referred to as the supply chain. The supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in one organization or in multiple organizations. Consider Coca-Cola and Pepsi: Many companies play a role in bringing these products to consumers as the supply chain in Exhibit 1-3 shows. Cost management requires integrating and coordinating activities across all companies in the supply chain to improve performance and reduce costs. For example, to reduce materials-handling costs, both Coca-Cola and Pepsi require their suppliers (such as plastic and aluminum companies and sugar refiners) to frequently deliver small quantities of materials directly to their production floors. Similarly, to reduce inventory levels in the supply chain, Walmart requires its suppliers, such as Coca-Cola, to directly manage its inventory of products to ensure the right quantities are in its stores at all times.