A supply chain is a network of individuals and companies involved in creating a product and delivering it to the consumer. This network starts with producers of raw materials and ends when the finished product is delivered to an end user.
Supply chain management is crucial because an optimized supply chain results in lower costs and a more efficient production cycle. Companies strive to improve their supply chains to reduce costs and remain competitive.
Key Takeaways
- A supply chain is a network involving numerous entities from production to delivery.
- Components include producers, vendors, warehouses, transportation companies, distribution centers, and retailers.
- Functions include product development, marketing, operations, distribution, finance, and customer service.
- Modern supply chains often operate on a global scale.
- Effective supply chain management equates to lowered costs and accelerated production cycles.
Understanding a Supply Chain
A supply chain comprises every step involved in delivering a finished product or service to the customer. This includes sourcing raw materials, moving them to production, and transporting finished products to distribution centers or retail stores for consumer delivery.
Entities in the supply chain: producers, vendors, warehouses, transportation companies, distribution centers, retailers.
The supply chain starts when a business receives a customer order. Essential functions include product development, marketing, operations, finance, and customer service.
When supply chain management is effective, it reduces a company’s overall costs and boosts profitability. A disrupted link can affect the entire chain, resulting in increased expenses.
Main Supply Chain Models
Continuous Flow Model
Suitable for companies that produce consistent products in high demand without frequent redesigns. Streamlined production times and tight inventory control are critical.
Fast Chain Model
Ideal for companies capitalizing on the latest trends. It demands rapid progression from concept to consumer to outpace competitors. Fast fashion is a prime example.
Flexible Model
Best for seasonal or holiday merchandise manufacturers. Flexibility enables swift production start-up and efficient shutdown based on demand surges, requiring accurate forecasting of materials, inventory, and labor.
Best Practices in Supply Chain Management
- Support continuous improvement.
- Aim for increased velocity.
- Foster collaboration among supply chain entities.
- Embrace technologies that enhance processes.
- Implement metrics to evaluate each step’s success.
Supply Chain Management vs. Business Logistics
Supply chain management (SCM) involves overseeing all activities from raw material conversion to final product sales. Logistics is a part of SCM, focusing on the movement and storage of goods and services.
Successful logistics management ensures timely and intact deliveries, keeping costs down.
The Flow of Manufacturing Costs
Efficient control of manufacturing costs ensures each product piece is where it needs to be when needed. Reliability in delivery timings is critical, reducing idle time and storage costs.
The Importance of Reliable Suppliers
Effective SCM requires dependable suppliers who adhere to quality specifications and delivery schedules.
Example: XYZ Furniture needs durable metal handles and attachments that meet design criteria and are functionality tested.
Reliable suppliers fill orders and ship on time.
The Supply Chain’s Role in Deflation
Enhanced supply chain efficiencies curb inflation by lowering consumer costs. Globalization further optimizes supply chains, maintaining pressure on input prices.
Impact of COVID-19 on Supply Chains
The COVID-19 pandemic severely disrupted supply chains, impacting all economic sectors. Restrictions and delays led to product shortages, while sudden demand shifts resulted in goods hoarding and critical supply gaps.
Shifting Priorities
A 2020 survey of supply chain executives highlighted pandemic impacts, emphasizing visibility and digitization to improve future resilience.
Supply Chain Management
Supply Chain Management (SCM) oversees converting raw materials into final products. A centralized control approach maximizes efficiency, granting competitive advantage and enhancing product quality.
Key Steps in a Supply Chain
- Inventory and manufacturing process planning to balance supply and demand.
- Sourcing or manufacturing needed materials.
- Assembling and testing the product.
- Packaging for shipment or inventory storage.
- Transporting and delivering to distributors or consumers.
- Providing customer service for returns.
Example of a Supply Chain
A supply chain starts with raw materials sourcing—whether mining diamonds, curing leather, or producing sheet metal. These materials move through wholesalers, manufacturers, and retailers before reaching the consumer.
Related Terms: SCM, Logistics, Inflation, Deflation.
References
- The White House: Biden Administration. “Why the Pandemic Has Disrupted Supply Chains”.
- International Monetary Fund (IMF). “Supply Chains and Port Congestion Around the World”. Pages 9-13.
- National Library of Medicine. “Product Availability and Stockpiling in Times of Pandemic: Causes of Supply Chain Disruptions and Preventive Measures in Retailing”.
- S&P Global. “The Semiconductor Shortage Is – Mostly – Over for the Auto Industry”.
- Ernst & Young. “How COVID-19 Impacted Supply Chains and What Comes Next”.
