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CHAPTER 1
PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT
Figure 1.1:
An example of supply chain management and procurement.
Figure 1.1 shows how a company that manufactures breakfast cereal purchases
grain from the farmer and processes it to make the cereal. Apart from the cereal,
it also purchases paperboard from a paper manufacturer and labels from a label
manufacturer. The paper manufacturer, in turn, purchases trees to make paper,
while the label manufacturer purchases semi-finished stock to make labels. After
making the cereal and packaging it, the cereal manufacturer sends the cereal
to the distributor. The distributor then ships the product to the grocery store,
which then sells it to the end customer.
As materials or products move from one source to another, information flows
between members. But it is worth remembering that members are only willing
to share information where there is trust. This is important because information
flow is necessary to ensure that the right product is delivered to the right place,
at the right time and at the right price.
Figure 1.1 is a simple illustration of supply chain. Supply chains can become
more complex in organisations with multiple products, technologies and
processes. In some organisations, such as automobile manufacturers, the
supplier networks include thousands of supplier organisations providing items
ranging from raw materials, such as steel and plastics, to complex assemblies
and sub-assemblies, such as transmissions, brakes and engines [13]. For
the purposes of this chapter, procurement, purchasing and buying are used
interchangeably.