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  • Supply Chain, Value Chain & Logistics (Our Model)

    If you look up supply chain and value chain on the internet your head will virtually explode at all the information, explanations and diagrams going in all directions, primary, secondary this and that. People study years to understand it. We use a simplified concept that cuts out all the fluff, we have distilled it all into one diagram suitable for small businesses to use. It is important to see this in our context to see the big picture: Our goal is to create a framework for our members to follow and tailor our information around this framework.

    Definitions
    Supply chain: The sequence of processes involved in the production and distribution of a commodity.
    Value chain: The process or activities by which a company adds value to an article, including production, marketing, and the provision of after-sales service.
    Logistics: The commercial activity of transporting goods to customers.

    Now there is a LOT of information about these three subjects. We use the simple definition:
    Supply chains link Value chains using Logistics

    Supply Chain
    Supplier of raw materials
    Manufacturer
    Wholesaler
    Retailer

    Value Chain
    Skills
    Equipment
    Materials
    Products and/or Services

    Logistics
    Transport, Warehousing & Distribution

    Here is a simple example:
    Supplier of raw materials (logistics)-> Manufacturer (logistics)-> Wholesaler (logistics)-> Retailer (and of course the consumer, there might be more logistics involved depending on the sales channel: e.g. an E-commerce retailer will require goods to be delivered to consumer).
     

    supply-value-logistics.png.9e18d12c205c14e36ca89119f5e0c8e5.png


     

    Based on our simple example what does this mean?

    It means that each "link" in the supply chain has a value chain and this is linked using logistics. We define logistics as warehousing and distribution.

    1. The supplier of raw materials acquires or extracts and processes it (value addition) and ships it to manufacturer (logistics).
    2. The manufacturer takes the raw material and turns it into a product (value addition) and ships it to the wholesaler (logistics).
    3. As manufacturer does not have the capacity to supply retailers directly, wholesaler buys in bulk to sell to retailer (value addition) and ships it to retail store (logistics). Many manufacturers would collapse if they had to handle everything relating to distribution.
    4. The retailer brings the goods close enough to the consumer to acquire it at the right price (value addition).

    Now you have the picture. Try not to over think things, especially when it comes to "value addition" as this can take on many forms.

    Service Businesses
    One thing I want to touch on is service businesses: People who have a service based business or offer a service, often struggle to understand where they fit into the supply chain - they fit within the value chain. If you have a Caterpillar digger loader that you rent out by the hour, then based on the above graph you would operate in the supply of raw materials value chain. You are not a supplier of raw materials, you are not a manufacturer, you are not a wholesaler and you are not a retailer, you help extract the raw material from the ground, you are within that value chain. That is how we define it in our ecosystem.

    Logistics Operators
    Logistics are not just present between value chains but inside as well.

    The Expanded Smuse Model
    By simplifying the model across our eco-system our mebers can easily see where they fit in or want to fit in if they still getting started.

    The diagram above is not really enough to cover the entire supply chain of a lot of industries, this is because there might be more middlemen. While the diagram covers the main players, below is an expanded model that includes recycling of the end-product as well:

    Expanded Smuse Supply Chain
    Supplier of raw materials
    Manufacturer
    Distributor / Agent
    Wholesaler
    Retailer / Reseller
    Consumer
    Recycler

     

    Supplier of raw materials
    Supplies the raw materials that manufacturers will turn into finished goods.

    Manufacturer
    Takes raw materials supplied by supplier and turns it into a finished goods. Takes raw materials and produces finished goods.

    Distributor / Agent
    Somewhere between the manufacturer and consumer there is sometimes these guys. Some agents consider themselves distributors, but in our definition they are different. A distributor must have infrastructure (warehousing and distribution) to be called a distributor. An agent is a representative that is authorised to sell on behalf of another company. This can be a company or a self-employed individual. If all you do is linking buyer and seller using a catalogue or samples and holding no stock then you are an agent.

    Even though they are grouped together here a distributor and agent are two different things. Both help manufacturers sell goods either to a wholesaler or to a retailer (and even sometimes direct to consumer). A distributor is someone that has some logistics infrastructure such as a warehouse, an agent is someone, that just finds a buyer and usually works on commission (or ads their own markup).
    A distributor and wholesaler can have agents (not just a manufacturer)

     

    Wholesaler 
    Buys in bulk and resells to retailers in smaller quantities bulk.

    Retailer

    Buys in smaller quantity bulk from wholesale and sells individual products. 

    The 100/10/1 Principle
    Remember all that talk about "frameworks" and "eco-systems" the goal is to provide a standardised system that our members can follow, they don't have to follow anything that they feel doesn't work for them, but we are developing systems that some can use. One of this is the 100/10/1 principle and its really simple: it means a manufacturer will sell quantities of 100 to a wholesaler, a wholesaler will take that 100 and sell in of batches of 10 to a retailer and a retailer will buy batches of 10 and sell 1 individual items. In other words:
    Manufacturer          Wholesaler          Retailer 
          100                             10                       1

    Why do we use this principle in Smuse?
    We use this model for various reasons, one is so people understand where they fit into the Supply Value Logistics chain and can adapt their business model accordingly. 
    Take the person that makes less than ten items at a time, they can't supply wholesaler they have to sell retail direct to customer one at a time (this means you need to use sales channels that reach consumers - consider target market as well). If you are making more than 10 you will be acting as a wholesaler as well and your goal should be to sell to a wholesaler (use a sales channel to reach a wholesaler), your profit will be less but you will be able to sell more. See guides for more information.

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