Skip to content Skip to sidebar Skip to footer

Concept of Integrated Supply Chain

Table of Content


Concept of Integrated Supply Chain

Concept of Integrated Supply Chain 

Competition between companies these days is not only very tight but also occurs between many companies from many countries. 

Especially as a result of globalization and the "coercion" of the free market economy carried out by organizations such as the WTO (World Trade Organization), AFTA (Asean Free Trade Area), APEC (Asia-Pacific Economic Cooperation), and so on where things hinder market competition. 

Free must be eliminated such as import duties, protection, and government subsidies, whether done openly or covertly. 

To that end, companies have taken steps such as 'continuous improvement process' and many have even taken "Business process reengineering" (BPR). In short, companies are competing to find ways and ways to survive and develop (growth) and maintain their market share (market share).

Also, companies are competing to fulfill the wishes of consumers because indeed the name of the game must be 'customers oriented', namely in 3 main things:
  • Price
  • Quality
  • Service (speed, convenience, etc.)
In terms of price, for example, all vying for ways to continually get competitive prices. The only way is to find more efficient ways of producing goods. Many companies in carrying out BPR (business process re-engineering) have been downsizing, so it may no longer be possible to reduce their resources. 

To overcome this problem, a strategy of 'supply chain management' or 'supply chain optimization' can be adopted, which is to break down the boundaries between companies that have traditionally separated the actors who procure goods or services and also fragment their ability to increase efficiency. 

By analyzing the entire process, from 'initial supply' to 'ultimate consumption', the following benefits of the supply chain can be obtained: 

Reducing the inventory of goods in various ways

Inventory is the largest part of the company's assets, which ranges from 30% to 40%

While the inventory carrying cost ranges from 20% -40% of the value of the goods stored.

Therefore, efforts and methods must be developed to store these items as little as possible in the warehouse so that costs can be reduced to as little as possible ensuring smooth running. 

Provision of goods the smooth running of goods that need to be guaranteed is starting from the origin of the goods (manufacturers), suppliers, companies themselves, wholesalers, retailers to final customers. 

So the series of trips from raw materials to finished goods and accepted by the user/customer is a link long (chain) that need to be managed properly mushroom in quality 

The quality of finished goods is determined not only by the production process of these goods but also by the quality of the raw materials and the quality of safety in their delivery.

Quality assurance is also a series of long chains that must be managed properly. and developing a system or concept called the "Supply chain concept" (Supply chain concept or Supply chain management).


The supply chain is a system through which an organization distributes its production goods and services to its customers. This chain is also a network or network of various interconnected organizations that have the same goal, namely the best possible procurement or distribution of the goods. 

The word distribution may not be correct because the term supply includes the process of changing the finished goods, for example from raw materials to finished goods. The supply chain concept is also new in looking at logistics issues. 

The old concept saw logistics as more of an internal problem for each company and its solutions focused on internal solutions in each company.

In this new concept, the logistical problem is seen as a broader problem that stretches very long, from the basic materials to the finished goods used by the end consumers which form the supply chain of goods. 

Therefore, supply chain management can be defined as follows: 

"Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed in the right quantities, to the right. locations, at the right time, to minimize system-wide costs while satisfying service level requirements" (David Simchi-Levi)

Looking at this definition, it can be said that the supply chain is a logistics network. In this connection several main players are companies that have the same interests, namely:
  • Suppliers
  • Manufacturers
  • Distribution
  • Retail outlets
  • Customers
Chain 1: Suppliers Network starts from here, which is the source that provides the first material where the chain of goods distribution will begin. This first material can be in the form of raw materials, raw materials, auxiliary materials, merchandise, subassemblies, spare parts, and so on. This first source is called 'suppliers'.

In its pure meaning, this includes suppliers' suppliers or sub-suppliers. These suppliers can be large or small, but suppliers' suppliers are usually very large. This is the first link in the chain.

Chain 1 - 2 : Suppliers ==> Manufacturer The first chain is connected by the second chain, namely 'manufacturer' or plants or assembler or fabricator or other forms that do the work of making, fabricating, assembling, assembling, converting, or finishing goods (finishing).

For this paper, let's refer to the various forms as 'manufacturer'. This first link in the chain already has the potential to make savings. For example, inventories of raw materials and semi-finished materials, as well as finished materials that are on the side of suppliers, manufacturers, and in transit, are targets for this savings. 

It is not uncommon that between 40% and 60% or even more savings can be obtained from inventory carrying costs in this link. By using the supplier partnering concept, for example, these savings can be obtained.

Chain 1 - 2 - 3 : Suppliers ==> Manufacturer ==> Distribution Finished goods that have been produced by the manufacturer have started to be distributed to customers. Although there are many ways to get goods to customers, the most common is through distributors and this is usually the case for most supply chains. 

Goods from the factory through their warehouse are distributed to the warehouse of distributors or wholesalers or wholesalers in large quantities and in due time the wholesalers distribute in smaller quantities to retailers or retailers.

Chain 1 - 2 - 3 - 4 : Supplier ==> Manufacturer ==> Distribution ==> Retail Outlets Wholesalers usually have their warehouse facilities or can also rent from other parties. This warehouse is used to stockpile goods before they are distributed again to the retailer. 

Once again, there is an opportunity to obtain savings in the form of inventory and warehouse costs by redesigning the shipping patterns of goods from both the manufacturer's warehouse and to retail outlets. 

Although several factories sell their products directly to customers, they are relatively small in number and mostly use the pattern as above.

Chain 1 - 2 - 3 - 4 - 5 : Supplier ==> Manufacturer ==> Distribution ==> Retail Outlets ==> Customers From their shelves, these retailers offer their goods directly to customers or buyers or users of the goods.

In the sense of outlets, this includes shops, warungs, department stores, supermarkets, cooperative shops, malls, club stores, and the like where the final buyer makes a purchase. 

Although physically it can be said that this is the last link in the chain there is still more, namely the link from buyers (who come to the retail outlet) to real customers or real users, because buyers are not necessarily real users. 

The supply chain only stops until the goods concerned arrive at the direct user (actual user) of the goods or services.


Post a Comment for "Concept of Integrated Supply Chain"