Categories: Practice

A typical supply chain begins with the ecological, biological, and political regulation of natural resources, followed by the human extraction of raw material, and includes several production links (e.g., component construction, assembly, and merging) before moving on to several layers of storage facilities of ever-decreasing size and increasingly remote geographical locations, and finally reaching the consumer.

Many of the exchanges encountered in the supply chain are therefore between different companies that seek to maximize their revenue within their sphere of interest but may have little or no knowledge or interest in the remaining players in the supply chain. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the extended enterprise.

As part of their efforts to demonstrate ethical practices, many large companies and global brands are integrating codes of conduct and guidelines into their corporate cultures and management systems. Through these, corporations are making demands on their suppliers (facilities, farms, subcontracted services such as cleaning, canteen, security etc.) and verifying, through social audits, that they are complying with the required standard. A lack of transparency in the supply chain is known as mystification, which bars consumers from the knowledge of where their purchases originated and can enable socially irresponsible practices. Supply-chain managers are under constant scrutiny to secure the best pricing for their resources, which becomes a difficult task when faced with the inherent lack of transparency. Cost benchmarking is one effective method for identifying competitive pricing within the industry. This gives negotiators a solid basis to form their strategy on and drive overall spend down.

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