The upstream portion of the supply chain includes the company’s suppliers, the suppliers’ suppliers, and the process for managing relationships with them. The downstream portion consists of the organizations and processes for distributing and delivering products to the final customers. Companies doing manufacturing, such as Nike’s contract suppliers of sneakers, also manage their own internal supply chain processes for transforming materials, components, and services furnished by their suppliers into finished products or intermediate products (components or parts) for their customers and for managing materials and inventory.
The supply chain illustrated in Figure 8.2 has been simplified. It only shows two contract manufacturers for sneakers and only the upstream supply chain for sneaker soles. Nike has hundreds of contract manufactures turning out finished sneakers, sock, and athletic clothing, each with its own set of suppliers. The upstream portion of Nike’s supply chain would actually comprise thousands of entities. Nike also has numerous distributors and many thousands of retail stores where its shoes are sold, so the downstream portion of its supply chain is also large and complex.
INFORMATION SYSTEMS AND SUPPLY CHAIN MANAGEMENT
Inefficiencies in the supply chain, such as parts shortages, underutilized plant capacity, excessive finished goods inventory, or high transportation costs, are caused by inaccurate or untimely information. For example, manufacturers may keep too many parts in inventory because they do not know exactly when they will receive their next shipments from their suppliers. Suppliers may order too few raw materials because they do not have precise information on demand. These supply chain inefficiencies waste as much as 25 percent of a company’s operating costs.
If a manufacturer had perfect information about exactly how many units of product customers wanted, when they wanted them, and when they could be produced, it would be possible to implement a highly efficient just-in-time strategy. Components would arrive exactly at the moment they were needed and finished goods would be shipped as they left the assembly line.
In a supply chain, however, uncertainties arise because many events cannot be foreseen uncertain product demand, late shipments from suppliers, defective parts or raw materials, or production process breakdowns. To satisfy