A supply chain is a network of businesses, resources, and suppliers used to manufacture and distribute a specific commodity. There are four types of supply chain models depending on the nature of the business and business goals.
Integrated Make-to-stock Model
This model tracks customer demand in real time, so that finished good inventory can be processed and restocked efficiently. A fully integrated enterprise system can help organizations receive real-time demand information that can be used to develop and modify production plans and schedules. This information is then further integrated from the supply chain to the procurement function.
For example, Starbucks uses several distribution channels—not only selling coffee drinks to consumers but also selling beans and ground coffee to large businesses across industries. Starbucks successfully integrates all sources of demand by using an automated information system for manufacturing. The system covers distribution planning, manufacturing scheduling, and inventory control.
With this supply chain model, a company focuses on production after the customer demands the product. This model requires careful management of the inventories and delivery methods needed to move supplies along the supply chain, which can be done across several production lines and in several locations.
One of the primary benefits of this type of supply chain model is the perception that each customer is receiving a personalized product and is receiving it quickly—supporting the concept of mass customization.
For example, Dell Computer was best known for its application of the build-to-order model before slightly shifting their supply chain strategy. The company positioned itself to offer enterprise-customized products at low prices by aggressively cutting internal operating costs, instead offering every customer the opportunity to order a unique product built to their needs.
Continuous Replenishment Model
The focus of this supply chain model is to consistently replenish the inventory by notifying suppliers daily of actual sales or warehouse shipments. This model is most applicable to environments with stable demand patterns like with the distribution of prescription medications.
For example, McKesson Co. built a special distribution hub for generic pharmaceuticals and difficult to source products. The company also reduced the number of generic manufacturers it would work with and asked each to deliver a monthly order rather than weekly, which they’ve done in the past. To assist the manufacturer, McKesson provided a rolling three-month demand forecast.
Channel Assembly Model
The channel assembly model is just a slight modification to the build-to-order model. In this model, the parts of the product are gathered and assembled as the product moves through to distribution. This is normally achieved through strategic alliances with third party logistics (3PL).
For example, a computer company would have items such as the monitor shipped directly from its vendor to a third-party delivery facility such as UPS. The customer’s computer order would therefore come together only when all items were placed on a vehicle for delivery. This model may have low or zero inventories, and it is popular in the computer technology industry.