Supply chains hypothetical

To illustrate, let s consider a supply chain with 3 members. In this hypothetical supply chain, if the finished goods inventory for Firm 3 (which sells to the retail store) can be reduced by 50 pieces, its raw materials can also be reduced by 50 pieces. Considering only the cost of its raw materials, which is 25, then the firm has reduced its capital invested by 1,250 (50 X 25) by using information to reduce inventory by 50 pieces. Assume that Firm 2 pays about 13 for the raw materials in the finished goods that it sells to its customer. Firm 3, at 25. If Firm 2 can reduce its finished goods and raw materials by the same 50 pieces Firm 3 was able to reduce, then the amount of its reduction in capital invested due to the elimination of the 50 pieces of inventory is 650 (50 X 13). For Firm 1, if it experiences the same reduction in inventory as the other firms, and its raw material costs are 6 for each... 

There are many dangers in ignoring SCM as a discipline. The most serious is the loss of prohtable customers. The hypothetical supply chain in Figure 2.1 illustrates the physical movement of products through a traditional network. The flow begins with several suppliers. They send raw material to a factory. Other material that requires no conversion or supports the aftermarket as spare parts goes directly to warehouses that ship to customers. The factory outbound shipments supply a distribution center and regional warehouses. The distribution center and warehouses, in turn, support customer demand. 

An example illustrates the potential impact of market mediation cost on supply chain design. We ll use a hypothetical "widget" manufacturer and distributor for our illustration. The widget is a new product, and its product plan embodies management expectations for the first year s sales and profits. Figure 6.2 illustrates the case of the product with expected sales and costs for a "widget" product as shown below ... 

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