CHAPTER ONE

INTRODUCTION TO SUPPLY CHAIN MANAGEMENT (SCM)

1.1. SUPPLY CHAIN MANAGEMENT: A HISTORICAL PERSPECTIVE

Because of ease of world economic integration (globalization) and turbulent environment,
organizations realized the need to look in to new paradigm of operation structure to go beyond
their organization’s boundary and work with and manage other autonomous organizations in a
cooperative fashion- a Supply Chain Management Approach.

As clearly stated by Gupta & Sahay (2007:6) many organizations and professionals
misunderstood supply chain. Many people interpret this as another process of an organization,
which deals with logistics and shear IT operation. A supply chain consists of various stages,
which take part in conversion of raw material in to final products and its delivery to the end
customer. It not only includes suppliers and manufactures but also the distributors, transporters,
retailers and customers within each organization. It includes all the important functions i.e. order
management, planning, shop-floor operations, inspections, packaging and dispatch, etc.
Moreover, supply chain is the approach to regulate the flow of material, information and
finances.

The term “supply chain management” arose in the late 1980s and came into widespread use in
the 1990s. Prior to that time, businesses used terms such as “logistics” and “operations
management”. While reference to supply chain management can be traced to the 1980s, it is safe
to say that it was not until the 1990s that the term supply chain management captured the
attention of senior level management in numerous organizations.

The concept of supply chain management (SCM) however, can be traced back to just before the
1960s of the systems theory (1951). Increased study of the field began in the 1980s, with a
dramatic increase in the publication rate since 1990.

Supply chain management represents the third phase of an evolution that started in the 1960s
with the development of the physical distribution concept and focused up on the outbound side
of the firms’ logistics system. A number of studies during the 1950s and 1960s indicated the
potential of systems concept. The focus was up on total systems cost and analyzing trade-off
scenarios to arrive at the best or lowest physical distribution system cost (that crosses
organizational boundary and incorporates other firms also.

The Origins of Supply Chain Management goes back to during the 1950s and 1960s, when US
manufacturers were employing mass production techniques to reduce costs and improve
productivity while relatively little attention was typically paid to creating supplier partnerships,
improving process design and flexibility, or improving product quality, (Wisner et al., 2005:10).
In the 1960s and 1970s, material requirements planning (MRP) systems and manufacturing
resource planning (MRP II) systems were developed, and the importance of effective materials
management was recognized as manufacturers became aware of the impact of high levels of
inventories on manufacturing and storage costs.

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The 1970s were the breakout years for supply chain management. Intense global competition
beginning in the 1980s (and continuing today) provided an incentive for manufacturers to offer
lower-cost, higher quality products along with higher levels of customer service. Many
manufacturers utilized just-in-time (JIT) and Total quality management (TQM) strategies to
improve quality, manufacturing efficiency, and delivery times in fulfilling customers’ order.
Over the past ten years or above, many large firms or conglomerate have found that effectively
managing all of the business units of their own vertically integrated firm -a firm whose business
boundaries extend to include onetime suppliers and/or customers is quite difficult.

Historical evolution of supply chain is presented in the accompanying figure 1.1

Figure 1.1 Historic Supply Chain Management Events in the United States

Increased supply chain

Capabilities

Supply chain relationship

formation and extension

JIT, TQM, BPR,

supplier & customer
alliances

Inventory management & Cost

Containment

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s

Figure 1.1 Historic Supply Chain Management Events in the United States

As competition in the United States intensified further in the 1990s accompanied by increasing
logistics and inventory costs and the trend toward market globalization, the challenges associated
with improving quality, manufacturing efficiency, customer service, and new product design and
development also increased. To deal with these challenges, manufacturers began purchasing
from a selected number of certified, high- quality suppliers with excellent service reputations and
involved these suppliers in their new product design and development activities as well as in
cost, quality, and service improvement initiatives. This is done so by reducing the supply base as

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much as a single supplier and enter in to a long term agreement as strategic alliance in doing
their business.

As companies began implementing supply chain management initiatives, they began to

understand the necessity of integrating all key business processes among the supply chain
participants enabling the supply chain to act and react as one entity.

1.2. BASIC CONCEPTS OF SUPPLY CHAIN AND SUPPLY CHAIN MANAGEMENT

1.2.1 Definitions of a supply chain(SC)
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.
Known also as the value chain, it is the sequence, which involves producing and delivering of a
product or service (Zailani & Rajagopal, 2005:380).

“A supply chain is the alignment of firms that bring products or services to market.”
(Lambert et al., 1998)

“A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer
request. A supply chain not only includes the manufacturers and suppliers, but also includes
transporters, warehouses, retailers, and customers themselves” (Chopra and Meindl, 2001).”

A supply chain is a network of facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers.”(Ganeshan and
Harrison, 1995).

Within each organization, such as a manufacturer, the supply chain includes all functions
involved in receiving and filling a customer request. These functions include, but they are not
limited to, new product development, marketing, operations, distribution, finance, and customer
service. A supply chain is dynamic and involves the constant flow of information, product, and
funds between different stages.

Customer is an integral part of the supply chain. The primary purpose for the existence of any
supply chain is to satisfy customer needs, in the process generating profits for itself. Supply
chain activities begin with a customer order and end when a satisfied customer has paid for
his/her purchase. The term supply chain conjures up images of product or supply moving from
suppliers to manufacturers to distributors to retailers to customers along a chain. Thus, most
supply chains are actually networks.

Example 1: Supply Chain of Dell Computer

Customer --------- Manufacturer ------- Customer

Example2: Supply Chain of Hewlett Packard (HP)

Supplier ----- Manufacturer ------ Retailer ------ Customer

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1.2.2 Definition of Supply Chain Management (SCM)
Lummus et al. (2001) conclude that Supply Chain Management (SCM) includes the logistics
flows, the customer order management, the production processes, and the information flows
necessary to monitor all the activities at the supply chain nodes.

The simultaneous integration of customer requirements, internal processes and upstream supplier
performance is commonly referred to as supply chain management.

Chandra and Kumar (2000) mention that many firms have moved aggressively to improve
SCM to balance customers’ demands with the need focused mainly on flexible organizational
relationships, total supply chain coordination, improved inter-and intra-enterprise
communication, outsourcing of non-core competencies, built-to –order manufacturing strategy,
inventory management, and cost control.

Mentzer (2000) write:

… SCM has been conceptualized with two different components- an integrative business
philosophy and implementation actions- to manage the flow of a distribution channel from the
supplier to the ultimate user…

Scholars have placed emphasis on a reversed focus on the supply chain from the point-of – final-
consumption to the point- of origin.

It has been illustrated that the current SCM-definitions generally comprise and regard the
marketing channel as a single entity, i.e. from the point-of –origin to the point-of –final
consumption.

The interdependence between firms’ business activities and resources in marketing channels is
acknowledged. Sometimes the SCM-definitions do recognize the importance of the customer,
and eventually the ultimate consumer. The current theory generation of SCM frequently departs
towards suppliers, and sometimes towards customers, but rarely both.

Lamming (1996) introduced the theory of SCM as an extension of logistics, though referring to
the extended need of relationship issues to be considered in the theory of SCM as cited in the
work.

The supply chain encompasses organization and flows of goods and information between
organizations from raw materials to end-users .The supply chain is a meta-organization built up
by independent organizations that have established inter-organizational relationships and
integrated business processes across the borderlines of the individual firms.

The supply chain composed of, great number of products, customers, delivery points, suppliers,
costs, etc, in a complex network. The approach of SCM is derived from the fact that there are
dependencies between levels in channels from the point of origin to the point of consumption.

SCM might be seen as a business philosophy that strives to integrate the dependent activities,
actors, and resources between the different levels of the points of origin and consumption in

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channels. This means that SCM comprises different kinds of dependencies in, between and
across companies in channels from manufacturers/suppliers to customers/consumers.

Lambert et al. (1998) offers the following definition of SCM:

“Supply Chain Management is the integration of key business processes form end user
through original suppliers that provides products, services, and information that add value for
customers and other stakeholders” .

The importance of logistics and supply chain management (SCM) has been increasingly
recognized in the manufacturing environment. While a supply chain consists of a number of
partners or components (such as suppliers, manufactures, distributors and customers), its
effective management requires integration of information and material flow through these
partners from source to use.
Recent economic trends have de-emphasized the benefits of vertical integration (e.g. economies
of scale, access to capital, and large physical infrastructure investment) and instead have focused
on the benefits of being specialized (e.g. speed, agility, and rapid growth).

Successful SCM requires an integration of all the components involved into a combination of
business processes within and across organizations. This requires integration of the
organizational elements responsible for each activities and the external suppliers and customers
who are part of the planning and execution process.

The Institute for supply Management describes supply chain management as: “the design and
management of seamless, value-added processes across organizational boundaries to meet the
real needs of the end customer. The development and integration of people and technological
resources are critical to successful supply chain integration”

The Supply Chain Council’s definition of Supply chain management is:

“Managing supply and demand, sourcing raw materials and parts, manufacturing and
assembly, warehousing and inventory tracking, order entry and order management,
distribution across all channels, and delivery to the customer”

The Council of Logistics Management defines supply chain management as:

“… the systematic, strategic coordination of traditional business functions and the tactics
across the business functions within a particular company and across businesses within the
supply chain for the purpose of improving the long term performance of the individual
companies and the supply chain as a whole.”

Successful supply chain management, then, coordinates and integrates all of business activities in
to a seamless process. It embraces and links all of the partners in the chain. Supply chain

Managements (SCM) framework consists of three major and closely related elements; business
processes, management components and structure of the supply chain

The area of supply chain management (SCM) has seen a rapid increase in interest among many
organizations. Numerous reasons have been offered for this. First, a SCM focus has provided

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firms with competitive advantage given the diminishing returns that are being derived from intra-
enterprise improvement initiatives. Secondly, a restructuring of industries as a result of
technological discontinuities has lead to natural evolution to SCM. Thirdly, SCM has been seen
as a practical response to globalization deregulation and dynamic competitive markets.Finally,
dependencies that firms have on others as a result of developments such as lean operations;
outsourcing and JIT have intensified, leading firms to engage in SCM more strongly.

Therefore it can be inferred that the emergence of supply chain management philosophy of
competition in the 1990s was the realization of the systems concept developed in the mid 20 th
century.

1.3. OBJECTIVES OF SUPPLY CHAIN MANAGEMENT

The objective of supply chain management is to maximize the overall value generated, minimize
the cost, effective and timely distribution of products needed by ultimate customers. Supply
chain profitability in abstract is one of the objectives, which means profit sharing among partner
organizations. Profitability due to low cost to all partners creates value to customers. Value is
created by means of same or higher quality in lesser costs as compared to competitor’s products.
Supply chain responsiveness is another most sought supply chain objective. Responding to wide
range of customers demand, short lead times and wide ranges of products in appropriate cost
creates value to customers.

SCM provides unique opportunities for creating added value for customers by leveraging the
competencies and knowledge of the entire trading alliance, including:
 Lowering costs;
 Providing superior customer service;
 Adding new value-added services; and
 Achieving greater flexibility; and attaining faster innovation.

Simply put, the objective of supply chain management is to balance the flow of materials with
customer requirements though out the supply chain, such that costs, quality, and customer
service are at optimal levels.

1.4 CHARACTERISTICS OF SUPPLY CHAIN MANAGEMENT

Langley et al., (2006:22-24), identified five characteristics of supply chain management as
follows:

1. Inventory visibility:- managing the flow and level of inventory is a central focus of
supply chain management and major performance metric to gauge success
2. Pull systems: - Another important characteristic of effective inventory management is to
attempt to pull it through the supply chain in response to demand as opposed to pushing
out inventory in advance of demand, which tends to inflate inventory levels and lead to
obsolete inventory and lower inventory turnover.
3. Cost: - efficiency or lowering cost is an important objective of supply chain
management; this cost is to be considered at the end of supply chain which is called
landed cost.

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4. Information: - Managing the flow of information is a key factor for both efficiency and
effectiveness in the supply chain with the key characteristic of sharing information up
and down the supply chain related to the flow and demand requirements. If information is
shared, it can potentially available on a real-time basis.
5. Customer Service: - Among one of the supply chain characteristics, customer service is
a very important attribute of successful supply chain. In the final analysis, success of
today’s global supply chain is the value that they add for their ultimate customers in
terms of the supply chain’s landed cost/price and the related services that are provided.
Customer service has three recognized levels from supply chain perspective, these are;
reliability, on time delivery and accurately filled orders. As stated clearly, reliability, on
time delivery and accuracy of order fulfillment are the most three dimensions of customer
service to be filled by supply chain members.

1.5 THEORIES OF SUPPLY CHAIN MANAGEMENT

Halldorson et al., (2007:287) tried to consolidate different organizational theories in to Supply
chain management theories as follows:
a. SCM Mitigating Agency Problems- The Principal-Agent Theory (PAT)
Based on the separation of ownership and control of economic activities between the agent and
the principal, various agency problems may arise, such as asymmetric information between the
principal and the agent, conflicting objectives, differences in risk aversion, outcome uncertainty,
behavior based on self-interest, and bounded rationality. The contract between the principal and
the agent governs the relationships between the two parties, and the aim of the theory is to design
a contract that can mitigate potential agency problems. The “most efficient contract” includes the
right mix of behavioral and outcome-based incentives to motivate the agent to act in the interests
of the principal.

The alignment of incentives is an important issue in SCM. Misalignment often stems from
hidden actions or hidden information. However, by creating contracts with supply chain partners
that balance rewards and penalties, misalignment can be mitigated.

b. SCM as Coordination of Transferred Rights of Disposals-Transaction Cost Analysis

(TCA)
TCA offers a normative economic approach to determine the firm’s boundaries and can be used
to present efficiency as a motive for entering inter-organizational arrangements (Williamson,
1997, 1985, 1996). A company may reduce its total transactions costs (ex ante and ex post costs
of contact, contract, and control) by cooperating with external partners. They key question is:
why do firms exist? In the context of SCM, this question is addressed as: which activities should
be performed within the boundary of each firm, and which activities should be outsourced? SCM
relationships are represented by the hybrid more of governance between markets and hierarchies.
Asset specificity (limited value in an alternative application of, for example, physical, site,
human, and dedicated assets) is the most influential attribute of the transaction.

Behavioral assumptions of bounded rationality and the risk of being subject to opportunistic
behavior from a partner also influence the transaction costs. Bounded rationality may result from
insufficient information, limits in management perception or limited capacity for information
processing, Mechanisms for mitigating the risk of opportunism include safeguards and credible

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commitments such as long-term contracts, penalty clauses if a partner fails to fulfill the contract,
equity sharing, and joint investments. According to Williamson (1996), trust between the parties
is based on “calculated risk” and not on personal trust between individuals.

TCA has often been used in make-or-buy decisions in supply chains. Examples are outsourcing
of logistics activities buyer-supplier relationships, and restructuring of supply chains (In essence,
TCA is a useful instrument to decide whether a transaction should be performed in the
marketplace or in-house.

TCA focuses mainly on appropriation concerns, which originate from the behavioral
assumptions of bounded rationality and opportunism.

c. SCM as Reciprocated Interactions between Institutions -The Network Perspective (NT)

The performance of a firm depends not only on how efficiently it cooperates with its direct
partners, but also on how well these partners cooperate with their own business partners. NT can
be used to provide a basis for the conceptual analysis of reciprocity (Oliver, 1990) in cooperative
relationships. Here, the firm’s continuous interaction with other players becomes an important
factor in the development of new resources. Relationships combine the resources of two
organizations to achieve more advantages than through individual efforts. Such a combination
can be viewed as a quasi-organization.

The value of a resource is based on its combination with other resources, which is why inter-
organizational ties may become more important than possessing resources per se. Thus, the
resource structure determines the structure of the supply chain and becomes its motivating force.
The network theory (NT) contributes profoundly to an understanding of the dynamics of inter-
organizational relations by emphasizing the importance of “personal chemistry” between the
parties, the build-up of trust through positive long-term cooperative relations and the mutual
adaptation of routines and systems through exchange processes. Through direct communication,
the relationships convey a sense of uniqueness, ultimately resulting in supply chains as
customization to meet individual customer requirements. The parties gradually build up mutual
trust through the social exchange processes. A network does not seek an optimal equilibrium, but
is in a constant state of movement and change. Links between firms in a network develop
through two separate, but closely linked, types of interaction: exchange processes (information,
goods and services, and social processes) and adaptation processes (personal, technical, legal,
logistics, and administrative elements)

d. SCM as Coordination of Relational Assets – The Resource-Based View (RBV)

Only a few articles have applied the resource-based view (RBV) to the field in focus in order to
obtain the sources of competitive advantage through SCM or to analyze the structure of chains
and industrial clusters.

The RBV deals with competitive advantages related to the firm’s possession of heterogeneous
resources (financial, physical, human, technological, organization, and reputations) and
capabilities (combination of two or more resources). These resources and capabilities constitute
the core competence of the particular firm and serve ultimately as its source of competitive

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advantage. The static stream of research focuses on attributes that contribute to the heterogeneity
of resources and capabilities. Four barriers may prevent competitors from imitating a firm’s
resources and capabilities: durability; transparency; transferability; and replicability. These
attributes may also apply to inter-organizational arrangements. The more dynamic aspects of the
RBV consider a firm’s core competence to be its ability to react quickly to situational changes
and build further competencies or dynamic capabilities .Hence, a firm’s competitiveness is
associated with the configuration of resources and capabilities as the markets evolve. However,
inter-organizational relationships may also facilitate and advance the learning processes of
individual firms. As such, relationships are not only output – oriented but also learning oriented.

Efficiency may not only be explained in terms of productivity or operational measures, but also
in terms of the opportunity to access another firm’s core competencies through cooperative
arrangements as an alternative to building such competencies in-house.
The RBV is an implicit assumption in many supply chain decisions. Often, outsourcing decisions
are based on the idea of focusing on core competencies and outsourcing complementary
competencies to external partners. Third party Logistics (TPL) and outsourcing of standard
components and processes to subcontractors are examples. However, outsourcing of design,
NPD, or software development is often a way to gain access to other supply members’ core
competencies though inter-organizational collaboration.

Supply networks are complex sets of relationships between supply-related business partners. A
fundamental issue for all types of networks is their capability of creating value and the ultimate
test of value is how end-customers perceive and evaluate the offerings with competing networks
provide .

According to the Resource Based View of the firm (RBV), firms actively exchange resources in
their operation. We can see that intentional nets of actors are a form of collaboration, in which
the main elements or components from management can be recognized. In addition, we see that
it is possible to identify the different – but simultaneously extant – modes of management, and
we propose that in the supply net context they are influencing, control and monitoring,
coordination, and integration.

1.6 SUPPLY CHAIN DECISION MAKING AREAS

There are five areas where companies can make decisions that will define their supply chain
capabilities. Companies in any supply chain must make decisions individually and collectively
regarding their actions in five areas. These are:
1. Production—what products does the market want? How much of which products should
be produced and by when? This activity includes the creation of master production
schedules that take into account plant capacities, workload balancing, quality control, and
equipment maintenance.
2. Inventory—what inventory should be stocked at each stage in a supply chain? How
much inventory should be held as raw materials, semi finished, or finished goods? The
primary purpose of inventory is to act as a buffer against uncertainty in the supply chain.
However, holding inventory can be expensive, so what are the optimal inventory levels
and reorder points?

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3. Location—where should facilities for production and inventory storage be located?
Where are the most cost efficient locations for production and for storage of inventory?
Should existing facilities be used or new ones built? Once these decisions are made they
determine the possible paths available for product to flow through for delivery to the final
consumer.
4. Transportation—how should inventory be moved from one supply chain location to
another? Air freight and truck delivery are generally fast and reliable but they are
expensive. Shipping by sea or rail is much less expensive but usually involves longer
transit times and more uncertainty. This uncertainty must be compensated for by stocking
higher levels of inventory. When is it better to use which mode of transportation?
5. Information—how much data should be collected and how much information should be
shared? Timely and accurate information holds the promise of better coordination and
better decision making. With good information, people can make effective decisions
about what to produce and how much, about where to locate inventory and how best to
transport it.

CHOPRA AND MEINDEL’S SUPPLY CHAIN DECISION MAKING AREAS

Chopra and Meindl (2007) define these areas as performance drivers that can be managed to
produce the capabilities needed for a given supply chain. They further classified these supply
chain performance drivers in to two. These are: Logistical drivers and cross functional drivers.

1. Logistical Drivers-which include facilities, inventory and transportation.

a) Facilities- are the actual physical locations in the supply chain network where product is
stored, assembled or fabricated.
b) Inventory-encompasses all raw materials, work in process and finished goods within a
supply chain. Changing inventory policies can dramatically alter the supply chain’s
efficiency and responsiveness.
c) Transportation-entails moving inventory from point to point in the supply chain.
2. Cross Functional Drivers-which include information on sourcing and pricing.
a) Information- consists of data and analysis concerning facilities, inventory,
transportation, costs, prices, and customers throughout the supply chain.
b) Sourcing-is the choice of who will perform a particular supply chain activity such as
production, storage, transportation or the management of information.
c) Pricing- determines how much a firm will charge for goods and services that it makes
available in the supply chain.

Effective supply chain management calls first for an understanding of each driver and how it
operates. Each driver has the ability to directly affect the supply chain and enable certain
capabilities.

1.7 PARTICIPANTS IN THE SUPPLY CHAIN

In its simplest form, a supply chain is composed of a company and the suppliers and customers
of that company. This is the basic group of participants that creates a simple supply chain.
Extended supply chains contain three additional types of participants. First there is the supplier’s
supplier or the ultimate supplier at the beginning of an extended supply chain. Then there is the
customer’s customer or ultimate customer at the end of an extended supply chain. Finally there is

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a whole category of companies who are service providers to other companies in the supply chain.
These are companies who supply services in logistics, finance, marketing, and information
technology.

In any given supply chain there is some combination of companies who perform different
functions. There are companies that are suppliers, producers, distributors or wholesalers,
retailers, and companies or individuals who are the customers, the final consumers of a product.
Supporting these companies there will be other companies that are service providers that provide
a range of needed services.
1. Suppliers- Different layers of Suppliers in the upstream supply chain provide the raw
materials the focal firms need for value adding activity (transformation) and delivery to
the customer along the downstream supply chain.
2. Manufacturers- Producers or manufacturers are organizations that make a product. This
includes companies that are producers of finished goods. Producers of finished goods use
the raw materials and subassemblies made by other producers to create their products.
Producers can create products that are intangible items such as music, entertainment,
software, or designs. A product can also be a service such as mowing a lawn, cleaning an
office, performing surgery, or teaching a skill. In many instances the producers of
tangible, industrial products are moving to areas of the world where labor is less costly.
Producers in the developed world of North America, Europe, and parts of Asia are
increasingly producers of intangible items and services.
3. Distributors- Distributors are companies that take inventory in bulk from producers and
deliver a bundle of related product lines to customers. Distributors are also known as
wholesalers. They typically sell to other businesses and they sell products in larger
quantities than an individual consumer would usually buy. Distributors buffer the
producers from fluctuations in product demand by stocking inventory and doing much of
the sales work to find and service customers. For the customer, distributors fulfill the
“Time and Place” function—they deliver products when and where the customer wants
them.

A distributor is typically an organization that takes ownership of significant inventories

of products that they buy from producers and sell to consumers. In addition to product
promotion and sales, other functions the distributor performs are inventory management,
warehouse operations, and product transportation as well as customer support and post-
sales service. A distributor can also be an organization that only brokers a product
between the producer and the customer and never takes ownership of that product. This
kind of distributor performs mainly the functions of product promotion and sales. In both
these cases, as the needs of customers evolve and the range of available products
changes, the distributor is the agent that continually tracks customer needs and matches
them with products available.
4. Retailers- Retailers stock inventory and sell in smaller quantities to the general public.
This organization also closely tracks the preferences and demands of the customers that it
sells to. It advertises to its customers and often uses some combination of price, product
selection, service, and convenience as the primary draw to attract customers for the
products it sells. Discount department stores attract customers using price and wide

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product selection. Upscale specialty stores offer a unique line of products and high levels
of service.
5. Customers- Customers or consumers are any organization that purchases and uses a
product. A customer organization may purchase a product in order to incorporate it into
another product that they in turn sell to other customers. Or a customer may be the final
end user of a product who buys the product in order to consume it.
6. Service Providers- These are organizations that provide services to producers,
distributors, retailers, and customers. Service providers have developed special expertise
and skills that focus on a particular activity needed by a supply chain. Because of this,
they are able to perform these services more effectively and at a better price than
producers, distributors, retailers, or consumers could do on their own. Some common
service providers in any supply chain are providers of transportation services and
warehousing services. These are trucking companies and public warehouse companies
and they are known as logistics providers. Financial service providers deliver services
such as making loans, doing credit analysis, and collecting on past due invoices. These
are banks, credit rating companies, and collection agencies.

Some service providers deliver market research and advertising, while others provide product
design, engineering services, legal services, and management advice. Still other service providers
offer information technology and data collection services. All these service providers are
integrated to a greater or lesser degree into the ongoing operations of the producers, distributors,
retailers, and consumers in the supply chain.

Supply chains are composed of repeating sets of participants that fall into one or more of these
categories. Over time the needs of the supply chain as a whole remain fairly stable. What
changes is the mix of participants in the supply chain and the roles that each participant plays.
In some supply chains, there are few service providers because the other participants perform
these services on their own. In other supply chains very efficient providers of specialized
services have evolved and the other participants outsource work to these service providers
instead of doing it themselves.

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