Supply Chain Networking - Logistics and Supply Chain Management

Network Supply Chain Structure

Given that the supply chain is configured by a scheme of interaction between suppliers and consumers and involves participation in the interaction of channel intermediaries, you can find a kind of network structure of supply chains , in which each company or a separate unit thereof) supplies products or services via interaction, adding a certain value to the product. This definition of the supply chain is based on the notion of value chain.

The general scheme of the network structure is shown in Fig. 8.4.

When building a network structure, it is important to understand that the value of the goods is formed on the scale of the entire supply chain and its growth is influenced by the efficiency of all logistical processes and operations. At the same time, the most manageable are the processes in the sphere of production, and the most sensitive are in the marketing sphere, since the value "appears" exactly when the product is sold to the end user.

With the system management of supply chain management, it is necessary to decide which elements should be included in the supply chain structure. On the one hand, one should not underestimate the importance of managing the entire supply chain from the initial supplier to the end user. On the other hand, the management of a smaller scale structure, for example, only to places of consumption of products or only to suppliers and consumers of the first level, may prove to be a more realistic option.

First-tier suppliers and consumers are those organizations that interact (buy or sell goods and services) directly with the focus company. Suppliers and consumers of the second level are suppliers of suppliers and consumers of consumers of the first level, etc., up to the initial supplier (supplier of natural resources) and the end user.

It is quite natural that each company builds its supply chain, as its management sees its company as a central, focal point. At the same time, she considers the potential participants of the network structure, mainly based on their own interests. The remaining participants in the supply chain, such a network structure is perceived as a

Fig. 8.4. Network Supply Chain Structure

good, because each of them can also build their own network structure, in which it will take the place of the focus company. Thus, each organization appears simultaneously as a focal company of its own supply chain and one of the participants in other chains. In this regard, it becomes necessary to understand the interconnectedness of the goals, objectives and prospects for the development of participants: the implementation of logistics processes both within the individual company and throughout the supply chain will be successful only when it is appropriate from the point of view of each participant.

The format, or network structure configuration of the supply chain, is determined based on the following parameters:

• boundaries and structural dimensions of the network;

• participants in the supply chain;

• Types of economic links between participants in the supply chain.

In other words, building a network structure of the supply chain involves: identifying the participants and logistics processes of the supply chain, between which you need to establish links, the degree of integration with respect to each of them, their position relative to the focus company, as well as boundaries and structural dimensions network.

1. Borders and structural dimensions of the network. There are no hard and simple rules on how large the network structure of the supply chain should be, so enterprises come up with different solutions. In practice, this does not matter, provided that the network structure created is a complete and independent supply chain and no links are omitted.

The network structure manifests itself through a set of streaming processes that have their boundaries - the beginning and the end. For any single logistic process within the supply chain, the boundaries are set by the initial ones, i.e. primary inputs. These inputs are located at the source supplier of the supply chain and then through the suppliers of subsequent levels lead to the focus company. The process ends with an output that outputs the result to the end user. For example, the primary input in the functional cycle of sales logistics can be confirmation of the order made, and the primary exit is the presentation of payment documents for payment in a credit institution. After the start of the process, a significant number of secondary inputs may appear. For example, management information provided by the information service may be in demand at various stages of the product's reproduction cycle. Just as there are secondary inputs, there are also secondary outputs. They are obtained as by-products of the process and are not its main purpose. An example is the report on the number of overtime worked by staff. Secondary outputs usually initiate other, including non-logistic processes. In this example, overtime can be the beginning of the payroll process.

Limiting the dimension of the network should be the degree of manageability of the supply chain by the focus company, so you should first carefully examine how the established network structure boundaries are optimal in terms of increasing the ability to produce values.

When configuring, three structural dimensions of the network are considered:

1) the position of the focus company in relation to the boundaries of the network structure. The center of the network structure can be shifted to the suppliers when the focus company is closer to the beginning of the primary source of supply, closer to the end user, and be in the middle between the start and end points of all chains. For example, the center of the value of supplies, the focus company which is engaged in the supply of agricultural products, will be shifted to the left and located closer to the initial producer (farm). If a company engaged in the provision of services, such as a security business, is considered as the focus company, then the center of such supply pricing will be shifted to the right, closer to the final consumer;

2) vertical network structure. It characterizes the number of levels of suppliers and consumers in the supply chain. Obviously, the more levels in the supply chain, the longer it is, and, conversely, the fewer levels, the shorter it is. For example, the supply chain can consist of an initial supplier, a focus company and an end user and thus have only a supplier and consumer of the first level. Or the supply chain can consist of suppliers or consumers of several levels. For example, the supplier of the focus company and the initial supplier, which is the supplier of the focus company supplier;

3) horizontal network structure. It is determined by the number of suppliers or consumers at each level: the supply chain can have a narrow horizontal structure with a small number of companies at each level or a broad horizontal structure, many suppliers or consumers.

The configuration allows for different combinations. For example, a long and wide network structure on the supplier side with a biased focus company towards the end user can be combined with a short and narrow structure from the consumer side.

The boundaries and structural dimensions of the network can change significantly during the development of the value of supply. For example, as the focus company increasingly shifts from the option of interacting with a large number of suppliers to a single vendor option, the supply chain becomes narrower. Changing the vertical and horizontal parameters of the network will influence the decision on outsourcing, extending and expanding the supply chain, or, conversely, narrowing and shortening it. The decision on outsourcing can be made taking into account the exhaustion of the opportunities of the focus company to influence the implementation of logistics processes outside it within the supply chain. For example, a supply chain with too many consumers or first-tier suppliers limits the number of processes that a central company can integrate beyond the first level and which it can actually manage. Thus, in a supply chain with a broad horizontal structure, a focus company can actively manage only some consumers or second-tier suppliers. The situation can be improved if we transfer part of the work and services to outsourcing, thereby removing such subjects from ourselves. This principle, known as a functional department, can be applied both to the network of suppliers of the focus company, and to its customers.

2. Supply chain participants. When configuring the network structure, you should install the supply chain participants by selecting the producer (usually the producer is the "core" of the supply chain and that's it becomes the focus company), and the rest - feature: suppliers, including the initial supplier, consumers, including end-users, and intermediaries providing various services. The number of participants includes all companies with which the focus company either directly interacts, or indirectly, i.e. through suppliers or consumers of different levels - from the initial to the final.

Practice shows that with the involvement of all potential participants, the supply chain will inevitably grow to such a scale that management becomes ineffective or impossible. Therefore, it appears necessary to establish criteria for selecting participants.

Evaluate the significance of each of the participants by the degree of their influence on the integration and management of the logistics processes occurring in the supply chains: from supply management and execution of orders to management of customer relationships and customer service. Depending on how a chain member affects the value provided to end-users or other business partners, all participants in the supply chain can be divided into key (core) participants and auxiliary ones.

are independent companies or structural divisions of the focus company (its branches or subsidiaries) that directly influence the integration and management of the logistics processes occurring in the supply chain.

are companies that do not have a significant impact on the integration and management of logistics processes in the supply chain, but provide part of their resources to key stakeholders for their implementation their operations. The auxiliary participants include, in particular: channel intermediaries; firms that lease warehouse, production or retail space; leasing companies; consulting firms; other state and non-state, commercial and non-profit organizations, as well as public authorities in the person of tax, customs, etc.

For example, a carrier company that has provided the supplier with a vehicle for the carriage of goods, i.e. which has transferred resources for the implementation of the business process, is an auxiliary participant in the supply chain, and the supplier company that has used the services of the transport company and directly executes the sales order is a key participant in the supply chain.

Differences between key and auxiliary participants are not always obvious, as the same company can perform both key and auxiliary functions simultaneously. For example, a company that leases warehouse or manufacturing space can act as a supplier of raw materials for a focal company or as a buyer of finished products, i.e. the consumer. Nevertheless, a differentiated approach to identifying participants as key or ancillary allows us to streamline and, therefore, simplify the management of logistics processes within the supply chain.


For the successful organization of SCM in the company Castorama implemented a centralized management of processes. The quality of the tasks depends on the coordinated and professional work of the participants in the supply chain. All participants in the process should be focused on the effective and rapid implementation of the tasks assigned. The central office of the company is focused on unified information and strategic resources and knowledge. Supply Chain Department has become the link and control link in the SCM system. After the restructuring of the department in early 2008, it consists of two departments - Import (Import Logistics) and internal logistics.

3. Types of economic ties between participants in supply chains. Participants in supply chains interacting with each other establish economic ties, which, according to their degree of control, can be divided into four types (Figure 8.5):

1) managed links;

2) tracked links;

Types of economic links between participants in the supply chain

Fig. 8.5. Types of economic links between participants in the supply chain

3) unmanaged links;

4) links to entities that are not part of the supply chain.

Focus companies, managing their supply chains, seek to establish such relationships among the participants in the chain, under which the central company can most effectively monitor the economic links in the supply chain. It is not required that these links always and equally rigidly fall under the control of the focus company. For example, to achieve uninterrupted supply of raw materials and materials, to improve the quality of after-sales service, it is enough to track or even entrust this process to business partners - depending on the situation, the degree of integration of participants in the supply chain may change.


Baltika Brewing Company, interacting with consumers of its products, allocates "transparent" and opaque distributors. Under transparent distributors are understood to be those companies whose inventory management system with respect to the products of the company "Baltika" completely controlled by it. This means that the managers of the company "Baltika" decide what products, when and in what quantities it is necessary to ship to the address of this company. Thus, knowing the level of stocks of own products and controlling it, "Baltika" through transparent distributors can build their relationships with second-tier consumers with a higher degree of integration than through "opaque."

Managed business links are the links between the focus company and the most important participants that it allocates for integration and management in the supply chain. The focus company directly interacts with consumers and suppliers of the first level, therefore they are uniquely considered to be manageable. Managing these links, the focus company can also in cooperation with other companies in the supply chain.

Monitored business relationships are links that a focal company can not or does not consider inexpedient to manage, but controls them as necessary. For the activities of the focus company, these relationships are not critical, although they are also important, so it is quite possible to entrust them to other companies in the supply chain. A focal company can influence participants of such links indirectly, through suppliers and consumers of a level closer to it.

Tracking the links between supply chain members who do not directly contact a focal company can have a big impact and affect the configuration of the network structure. For example, the company-manufacturer established relationships with five suppliers of the same resource - starter for the production of yogurt. At a certain point in time, it turns out that none of the suppliers can provide the necessary products in the required quantity in a timely manner. Tracking the links between the first and second level suppliers, the focus company discovers that they all purchase raw materials from the same supplier - the starter for the yoghurt production. In this case, it will be inappropriate for the focal company to maintain relations with all its suppliers in the future, since this does not in any way reduce the risks of non-delivery of products; it will be enough to leave one of them or establish direct communications with the supplier of the second level (Figure 8.6).

Example of ineffective management of the links between the focus company and the first-tier suppliers

Fig. 8.6. An example of ineffective link management between a focus company and first-level providers

Unmanaged economic links are links that a focal company can not, or considers it impractical to manage, control over them, fully trusting the management of other participants in the chain. For example, it is important for the manufacturer to know which raw material the packaging material is made from for its products, but it will not be advisable to monitor the packaging production process up to the initial supplier.

Relationships with entities that are not part of the supply chain , are links between a focus company and participants who are not part of the supply chain, but can affect the efficiency of the circuit. For example, a consumer of a focus company can also be a consumer of another company's products that are not part of the supply chain, which is a competitor to the focus company. Many retail stores, seeking to expand their range, offer similar products from different manufacturers. In this case, changing the terms of the contract between the retail store and the competitor supplier may affect the scope of supply of the focus company.

Economic ties between participants in supply chains create the prerequisites for integration; integration, in turn, ensures the stability of chains.

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