Breaking Down a Supply Chain Into Component Parts

Supply Chain: Vacuum Cleaners A supply chain is defined as "the total sequence of process steps and supplier companies involved in the production and sale of an end item. Most products have multiple supply chains: one or more for each major commodity used in the final product: e.g. sheet metal, electronics, hardware, etc." (Lean manufacturing, 2013, The Hands-On Group). When manufacturing a vacuum cleaner, the first step in the industry supply chain is that of the raw material mining and production of raw materials (such as steel).

The purpose of this is obviously the generation of the raw components that will constitute the final product. The cost of raw materials will invariably impact the cost of the final item and the quality of the materials and availability may impact the quality of the item and also the ability to be responsive to customer demand. With any supply chain, "physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain. But just as important are information flows.

Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and material up and down the supply chain" (Handfield 2011). Manufacturers must be aware of the input costs even very far down the supply chain, such as raw materials. The second step in the supply chain is the manufacturing of the component parts that make up the vacuum cleaner. This may take place on-site at the company or be outsourced to various other firms.

It would be unusual today for a product to be built entirely in-house. Being able to maximize the value of this aspect of the supply chain is essential -- by reducing costs, the company can have greater flexibility in setting the price of its final product. However, manufacturing costs in and of themselves are not always the primary cost of this phase of the supply chain: shipping costs from the manufacturer to the assembly plant can also be prohibitive.

Also, defects in manufacturing the component parts can lead to poor quality and loss of customer loyalty. "Too often, companies fail to consider the true full cost of procurement. They also tend to undervalue the loss of control that comes from procured vs. in-house make items" (Lean manufacturing, 2013, The Hands-On Group). A company must carefully weigh what can be saved by outsourcing vs. The hidden costs in doing so. The third step involves the assembly of the component parts.

Depending on the size of the operation, there may be a sub-assembly step where the item is partially put together, followed by the full assembly on-site when the product finally resembles what it will look like 'in the box' when sold. Assembly also involves packing and stocking the packaging with items such as the warranty, instructions, and other components of the sale.

This is a critical component of the supply chain: defective parts must be detected and assembly must be conducted in an efficient manner to reduce costs but with an eye upon quality. After assembly, the product is then sent to a wholesaler for distribution, who will then direct the product to the right retail outlets. These may include brick-and-mortar retail stores like Sears; primarily online retailers like Amazon; or the product may be sold via door-to-door sales. A combination of venues may be used.

The pooling the insights of the right wholesaler and the right retailers is critical for finding the right venues. The right retailer must clearly be aligned with the target consumer base. Vacuums comprise a wide price point, from luxury and commercial heavy-duty machines to cheaper budget vacuums and the likely users are characterized by very different demographics and likely venues where they will shop. Someone who is very demanding might be willing to pay a premium price from a specialty dealer vs. A college student who casually purchases.