The delivery of a product or service to a customer is a complex process encompassing many different interrelated facilities, processes, and activities.  First, demand for a product or service is forecast, and plans and schedules are made to meet demand within a time frame.  The product or service can require multiple suppliers who prepare and then ship parts and materials to manufacturing or service sites.  Finally, these products are shipped to external or internal customers.  However, this may not be the final step at all as these customers may transform the product or service further and ship it on to their customers.  All of this is part of the supply chain; that is, the flow of goods and services from the materials stage to the end user.

What makes this process so complicated, and the management of the supply chain so complex, is the uncertainty all along the supply chain at every stage.  Uncertainty in the form of wrong forecasts, late deliveries, poor-quality materials or parts, machine breakdowns in the manufacturing  process, canceled orders, erroneous information, slow information, transportation breakdowns, and the like cause “breaks” in the supply chain that can result in poor customer service; that is, not having the product or service available to customers when and where they want it.  

Companies cope with this uncertainty with their own form of “insurance”, inventory.  All companies carry inventory to minimize the negative effects of uncertainty and to keep the productive process flowing smoothly from suppliers to the customer.  However, inventory is very costly so companies – both suppliers and their customers – would like to minimize it.  Thus, one important objective of supply chain management is to coordinate all the different activities, or “links” of the chain, so that goods can move smoothly and on time from suppliers to customers to distribution to suppliers to customers, while keeping inventories low and costs down.

Effective supply chain management requires that suppliers and customers work together in a coordinated manner by sharing and communicating information by talking to one another.  It is the rapid flow of information among customers, suppliers, distribution centers, and transportation systems that has enabled some companies to develop very efficient supply chains.  Suppliers and customers must also have the same goals; that is, that they be on the same page.  Suppliers and customers need to be able to trust each other: Customers need to be able to count on the quality and timeliness of the products and services of the suppliers. 

Further, suppliers and customers must participate together in the design of the supply chain to achieve their shared goals and to facilitate communication and the flow of information.  Some companies attempt to gain control of their supply chains by vertically integrating – by owning and controlling all the different components along with supply chain from materials and parts procurement to delivery of the final product and customer service.

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