Taking a Look: 4 Types of Supply Chains

We recently looked at supply chains and why they need to be managed.

To get you up to speed, a supply chain is the series of steps and activities required for a company to deliver goods and services to a consumer. Supply chain management oversees this by looking after coordination, management, and strategy, while collecting data, information, resources and materials to deliver the best product and service.

Now, we’re looking at the different types of supply chains that exist.

4 Types of Supply Chains

The four types of supply chain models all depend on the nature of the business and business goal.

1. Integrated Make-to-Stock Model

This is your more traditional production strategy. Companies use it to match the inventory with what they anticipate will be the consumer demand.

For this model to work, your forecasting needs to be accurate to determine how much stock to produce. This is where a completely integrated enterprise system helps you. You can develop and modify production plans and schedules based on real-time consumer demand information.

What companies do this? Starbucks uses several distribution channels. Beyond selling coffee drinks, they sell coffee beans and grounds to large businesses. Starbucks successfully integrates all sources of demand using an automated information system for manufacturing. The system covers distribution planning, manufacturing scheduling, and inventory control.

2. Build-to-order Model

This is when products are created only once an order is received. This model focuses on current demand and requires careful management of inventory and delivery methods needed to move supplies along the supply chain. All this can be done across several production lines and in several locations.

The benefit of this model is the perception of being custom made, rather than mass produced. Even though it’s mass customised. It also removes the overproduction of products where there might not be consumer demand.

What companies do this? Dell Computer is best known for its application of this model. The company positioned itself to offer enterprise-customised products at low prices by aggressively cutting internal operating costs, instead offering every customer the opportunity to order a unique product built to their needs.

3. Continuous Replenishment Model

This is where you consistently replenish inventory or stock by notifying supplies daily of sales or warehouse shipments. It’s most applicable to environments with stable demand patterns, such as prescription medication.

It offers the potential for more efficient supply chain processes through a “pulled” system where inventory information is shared between companies and their suppliers.

What companies do this? McKesson Co. built a special distribution hub for generic pharmaceuticals and difficult to source products. They reduced the number of generic manufacturers and switched from weekly deliveries to monthly deliveries. Its success hinged on McKesson providing the manufacturer with a rolling three-month demand forecast.

4. Channel Assembly Model

Similar to the build-to-order model, the parts of the product are gathered and assembled as the product moves through the distribution channel. This is usually achieved through strategic alliances with third party logistics.

For example, a computer company would have items such as the monitor shipped directly from its supplier to a third-party delivery facility. Other parts would be sourced from other suppliers. Only when all parts are together which make up an order would it be placed on a vehicle for delivery.

What companies do this? It’s popular in the computer technology industry as this model has low to zero inventory.

How we can help?

Pegasus, and our parent company Avetta, provides solutions to make maximise efficiency in your supply chain.

Talk to Pegasus today about managing your supply chain.

A version of this blog post first appeared on the Avetta blog here and has been republished with full permission.