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Ans.1. Value-Added Functions and Differentiation of Supply Chains. The purpose of supply
chains is to add value to production and distribution. Depending upon the markets and the value
chains they are servicing, supply chains can be differentiated according to criteria such as costs,
time reliability and risk. Efficient logistics contributes to added-value in four major interrelated
ways:
Location. Logistics adds value by taking better advantage of various locations, implying
access to expanded markets (more customers) and lower distribution costs.
Time. Added value derived from having goods and services available when required
along the supply chain (e.g. lower lead times) with better inventory and transportation
management.
Control. Added value derived from controlling most, if not all, the stages along the
supply chain, from production to distribution. By better synchronizing cycles and lead
times, logistics enables better marketing and demand response, thus anticipating flows
and allocating distribution resources accordingly.
Logistics costs. Considers the full array of costs to make products available to the final
consumer, namely transport, warehousing and transshipment. Supply chain managers are
particularly sensitive to the stability of the cost structure (consistent costs) implying that
routes having cost fluctuations may be discarded in favor to routes of a higher cost, but
with less volatility. Costs are therefore a standard criteria where the cheapest routing
option is sought, as long as the cost structure remains stable as supply chains are unlikely
to be modified if a cost advantage is only temporary. The concept of cost is relative since
its importance is in relation to the value of the cargo being carried. Cost considerations
tend to concern more containerized goods that have a low value, such as commodities
(e.g. paper) than high value goods (e.g. electronics).
Transit time. A factor that is increasingly being considered since it strongly influence
inventory carrying costs and inventory cycle time in supply chain management. So, for
cargo that has a higher value (clothing) or is perishable (reefers) the routing option that is
the fastest and/or shortest will be preferred.
Supply chain risk. Relates to a factor that is generally imponderable and generally
involving the level of confidence that the shipment will reach its final destination within
expected costs, time and reliability considerations. In some cases, risk can also involve
potential cargo damage or theft. Low risks routes are obviously preferred over higher risk
routes.
are delivered in a timely fashion. Additionally, those products must be available in the
location that customers expect. Customers should also receive quality after-sale customer
support.
Improves Bottom Line
SCM has a tremendous impact on the bottom line. Firms value supply chain
managers because they decrease the use of large fixed assets such as plants, warehouses
and transportation vehicles in the supply chain. Also, cash flow is increased because if
delivery of the product can be expedited, profits will also be received quickly.
Supply chain management helps streamline everything from day-to-day product flows to
unexpected natural disasters. With the tools and techniques that SCM offers, youll have
the ability to properly diagnose problems, work around disruptions and determine how to
efficiently move products to those in a crisis situation.
Conclusion
Hence Supply chain in todays business is a critical factor for success and more and more
companies are adopting advanced supply chain to gain greater efficiency and reduce cost.