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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 who create 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 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 who are 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.
Producers
Producers or manufacturers are organizations that make a product. This includes companies that are producers of raw materials and companies that are producers of finished goods. Producers of raw materials are organizations that mine for minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the land, raise animals, or catch seafood. 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.
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.
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 product selection. Upscale specialty stores offer a unique line of products and high levels of service. Fast food restaurants use convenience and low prices as their draw.
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.
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.