What Is the Right Supply Chain for Your Product?

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The main problems in supply chain of many industries are the excess of some products and the shortage of others because of unpredictable demands for these products. In this paper, a framework that helps manager to understand the nature of demand for their product and manage their supply chain in line with their product requirements is suggested. The products are classified into two groups according to their demand patterns: Primarily functional products and primarily innovative products. Functional products are defined as the products that satisfy basic needs. The demand for that type of products is stable and predictable. They have a long life cycle. The competition in the market is fierce due to this stability in demand that results in low profit margins. On the other hand, innovative products are the ones that have clearly unpredictable demands. They may have very short life cycle because of the imitators. But luckily their profit margin is higher compared to the functional products. The supply chain management for the innovative products should clearly be different from the functional products. The managers should determine their product type and follow a supply strategy has a perfect match with their product type. Otherwise, some problems arise from the mismatch between the type of product and the type of supply chain. The author classifies the functions of supply chain into two groups: physical function and market media function. Physical functions include converting raw material into parts, components and finished good, and also transporting the product. The cost in physical function of supply chain arises from the production, transportation and inventory storage. The market media function, on the other hand, is mostly related to ensuring that variety of products reaching the market place matches what customer want to buy. The cost in marker media function arises when supply exceeds demand or supply falls shortage. Since the demand for the innovative...
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