Also called a “value delivery network”, this concept expands from traditional physical distribution (i.e., from factory to final destination, via stocking points and transportation carrier) to include both supplier network and channels of distribution. Namely, it starts from materials sourcing. This concept helps company to identify value-added suppliers and distributors, improving its productivity and reducing the cost. With the aid of information system, supply chain management gains the company competitive advantage. The company can either manage its own supply chain or have a third party to handle for it. Below I illustrate this concept by Fast Food Co., Ltd., the bakery factory that supplies one fourth of all breads sold at Taiwan’s major convenient stores[1].
Procuring right inputs (raw materials, component, capital equipment)
With the aid of supply chain management, the company identifies superior suppliers which are more punctual in delivery (e.g., truck), consistent in quality (e.g., flour, sugar, and oil), offer better payment term and warranty (e.g., oven facility). Constructing a value-adding supplier network helps the company to increase capacity at a lower marginal cost, which lead to better profit.
Converting efficiently into finished products
Following feedback from customers (e.g., data from point of sale), the company makes sales forecasting and optimizing factory capacity (e.g., material and human resource) to avoid an excess in inventory, thus reducing its cost.
Dispatching to final destinations
To ensure freshness of its product and minimize return, the company optimizes transportation planning to attain highest efficiency. It delivers to customers’ warehouses (e.g., 7-11), switching the cost of stocking point to its customers who have economies of scale. As a result, it bears less risk and earns more revenue faster.
[1] As reported in Business Today Weekly on April 14, 2011 (in Chinese) https://www.businesstoday.com.tw/article/category/80393/post/201104140020/%E8%AC%9D%E6%9C%9D%E9%8E%AE%E5%80%9F%E5%8A%9B%E8%94%A3%E5%8F%8B%E6%9F%8F%20%20%E6%89%93%E9%80%A0%E6%99%82%E5%B0%9A%E7%83%98%E7%84%99; the company introduction was translated to English by a design company at https://dem-global.com/2014/04/08/%E8%8F%AF%E7%A6%8F%E9%A3%9F%E5%93%81/