Before answering "What
is supply chain management", First let's answer the below questions:
- What is the price of your mobile?
- What factors decide the final selling price of your
mobile?
For the first question everyone
has their own answer, but for the second question "What factors decide the
final selling price of your mobile", is common. When a product is costing
$1000 for manufacturing, do you think the company is going to ship it directly
to your vendor/distributor/seller for the same price, the answer is
"No". in most of the cases. It is because they can’t ship it for free
and it involves money for transporting, as a result, the cost price or the
price which the vendor/distributor/seller gets the finished goods includes the
shipping charges, which end up with a price greater than $1000
Let’s see this now in a
big picture:
Remember that every
manufacturer is a consumer, who requires raw material which is again procured
from a supplier or another manufacturer when the supplier is shipping raw
material to the manufacturer he again adds transportation charges. Confused! let’s
see a diagram to make it simple,
In the above diagram, we
can see a flow chart showing the movement of goods from suppliers to end
customers. In the diagram we can see, when a raw material reaching the
manufacturer, carries various costs like actual cost, material handling cost
(warehousing, packing, labeling.), shipping cost (transportation cost).
As a result, the
manufacturer receives the goods at the "X" price, now the
manufacturer has to process the raw material to make it into a finished product
which again includes manufacturing cost (pre-production, production), now the
finished goods have to be packed, labeled, stored which comes under post -
production and these three also carry cost.
If the distributor places
an order where the goods have shipped to the distributor's location which again
involves money and transferred to the distributor, in the same manner, the
additional costs of shipping & storing are kept on adding to the Cost price
which must be paid by the end customer.
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