A simple definition of supply chain is the network of vendors that provides materials for a company's products, but in reality, the supply chain is more complicated. There is a stream of flows from supplier to supplier until a product reaches an end user. For example, oil is rigged from the ground, sent to a refinery, plastic is made, an injection molding shop buys plastic pellets, makes plastics components, ships the components to a customer, the customer assembles the plastic parts into their machine, and then sells the machine to their customer. The further away from the customer, the farther "upstream" a supplier is considered to be.
The network of vendors in a supply chain often includes tiered suppliers (meaning a company does not receive materials directly from the supplier, but is involved in getting materials or parts from an upstream supplier to a downstream supplier). The more complex a product, the more significant the upstream supplier's roles are. From a supply chain manager's perspective, his suppliers are primarily responsible for managing their own supply chain but he should have some involvement.
Oftentimes, a manufacturing facility acts as a supplier to a downstream manufacturing facility. For example, a company could have their manufacturing plant in the U.S. and their assembly plant in Mexico. The U.S. plant would be considered an internal supplier, since it's part of the same company. The transportation of materials throughout the supply chain is often called logistics. This includes air, land, and sea shipping as well as customs processing to allow materials to cross borders. The supply chain does not end until the product reaches the consumer. For this reason, distribution centers, distributors, and wholesalers are all part of the supply chain. It is not rare for a supply chain to involve a dozen parties.
The relationship between a supplier and a manufacturing company is not as simple as a supply chain manager ordering parts and the supplier shipping them. There are continuous flows between the supplier and the customer. Figure X below shows these flows in chronological order from top to bottom. (Note that this figure is for an already established supplier and material.) In the case of a new supplier, a supplier audit (a verification that a supplier has the potential to meet the manufacturer's needs) should be conducted first to determine if the supplier is appropriate for the work.
In the case of new material, the customer must first supply the anticipated number of units required, along with all of the drawings and specifications, to the supplier to get a quotation of unit price and lead time. After the quotes are received and a supplier is chosen, a purchase order should be done for the setup costs and samples. Setup costs can be a few hundred to hundreds of thousands of dollars (mostly tooling costs). A supply chain manager should always present the setup costs along with the piece price quote when working with engineers (so manufacturing methods are not specified solely on unit cost). For example, making a simple part by thermoforming would cost about $50 each, whereas making it by injection molding would cost $5 each. However, injection molding requires a $10,000 mold. If you only need 20 pieces annually, you are better off using thermoforming.
Depending on whether prototypes or the component have already been made or not, the samples ordered may be just to verify the ability of the supplier to make the parts, or to verify the design of the finished product. In other words, the supplier may fabricate a part correctly, but a manufacturer's engineering department may determine that the part needs to be redesigned. This would start the process over. Once samples have been approved, the flow of Figure X can be followed.
A manufacturing company has to furnish a forecast (usually annually) so the supplier can then go through his supply chain and make sure that all the materials needed (i.e. material, lubricant, machine capacity, labor resources) for the component the supplier provides will be available. A manufacturer then issues a purchase order, which serves as a commitment to purchase a defined number of units. A purchase order must have terms and conditions accompanying it to protect your company. Usually, a customer will not want to receive the entire forecast amount at once. Instead, a manufacturer could issue multiple purchase orders throughout the year, or do what is called a blanket purchase order for a large amount and then make releases against that purchase order for small amounts when they actually want it.
Visit Vault.com for more jobs and career articles