Three Level of Supply Chain


Supply Chain is a network of people, processes and systems to source, transform, transport and store inventory and to deliver the finished goods to the customers by managing the four essential flows.

The four flows of a supply chain are product flow, cash flow, information flow and reverse product flow. In fact these four flows are well managed in an efficient and effective supply chains.

Supply chains can be visualised at three levels.
Level-1: Internal supply shain
Level-2: Extended supply chain
Level-3: End-to-end supply chain

The three levels of supply chain indicates the maturity level of a company’s supply chain. At Level-3 supply chain maturity is higher than Level-2 and much higher than Level-1. At Level-1 companies are focused very much on their internal operations. They consider procurement to dispatch as the only value chain. Their entire focus is within their premises.

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At Level-2 companies care about Supplier Relationship Management (SRM) and Customer Relationship Management (CRM) and implement the necessary systems to work closely with the upstream and downstream of their supply chain. They try to build strategic relationship with their suppliers. They identify their Tier-1, Tier-2, Tier-3 etc. in terms of suppliers and customers.

At Level-3 companies focus on their end-to-end supply chains. This is an ideal state any company would want to achieve. Attaining the level-3 is beneficial not only to all the participants of the supply chain, but also to the customers. This is the most efficient and effective form of supply chain. If all end-to-end supply chains work at level-3, all customers would get the products may be 10% to 40% cheaper than the current price. The main reason is that all the inefficiencies of the supply chains are camouflaged by building inventory and finally the price is paid by the consumers. Here is a social cause as well. When essential goods and medicines are 40% cheaper, it would make it affordable to millions of masses across the globe, who otherwise could not afford it. You can also find a parallel in “Profits at the Bottom of the Pyramid” article by Erik and Duncan.

Level-2 and level-3 companies should be a process-centric one and they should be able to map their supply chains with the echelons and nodes. The level-3 company will evolve as a channel master or channel orchestrator to influence the players in the end-to-end supply chain to adopt the best practices.

In summary, becoming a level-3 supply chain is not only increases their market size beyond their current segments but also, serve a social cause, thus becoming a more socially responsible company.

Written by IISCM

Integrated Institute of Supply Chain Management, a unit of Fhyzics Business Consultants Private Limited specialising in supply chain management consulting and education. IISCM trains and certifies SCM professionals in procurement, supply chain management, inventory, and warehousing.

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