From raw materials to order fulfillment

What is a supply chain?

A supply chain is a network of individuals and companies involved in creating a product and delivering it to the consumer. Links in the chain start with the manufacturers of the raw materials and they end when the van delivers the final product to the user.

Supply chain management is a crucial process because an optimized supply chain results in lower costs and a more efficient production cycle. Companies seek to improve their supply chains so that they can reduce their costs and remain competitive.

Understanding a supply chain

A supply chain includes every step involved in getting a finished product or service to the customer. The steps may include acquiring raw materials, moving them into production, and then transporting the finished products to a distribution center or retail store where they can be delivered to consumers.

The entities involved in the supply chain include producers, suppliers, warehouses, transport companies, distribution centers and retailers.

The supply chain starts working when a business receives an order from a customer. Its essential functions include product development, marketing, operations, distribution networks, finance and customer service.

It can lower a company’s overall costs and increase its profitability when supply chain management is effective. This can affect the rest of the chain and can be costly if one link breaks.

What are the main supply chain models?

The supply chain model a company chooses will depend on how the company is structured and its specific needs.

Continuous flow model: This traditional supply chain model works well for companies that produce the same products with little variation. The products must be in high demand and require little to no redesign. This lack of fluctuation means managers can streamline production times and keep tight control over inventory. Managers must regularly replenish raw materials to prevent production bottlenecks in a continuous flow model. Fast Chain Model: This model works best for companies that sell products based on the latest trends. Businesses using this model need to get their products to market quickly to take advantage of the prevailing trend. They need to move quickly from idea to prototype to production to consumer. Fast fashion is an example of an industry that uses this supply chain model. Flexible model: Companies that produce seasonal or holiday goods often use the flexible model. They experience spikes in demand for their products, followed by long periods of little to no demand. Using the flexible model ensures that they can ramp up quickly to start production and shut down efficiently once demand subsides. Profit depends on being accurate in predicting their need for raw materials, supplies and labor.

What are best practices for supply chain management?

Successful supply chain management systems benefit from several practices:

They support continuous improvement. They strive for increased velocity. They encourage collaboration between the individual businesses in the supply chain. They are looking for new technology that improves their processes. They have metrics in place that allow employees to measure the success or failure of each step in the supply chain.

Supply chain management vs. Business Logistics Management?

The terms supply chain management (SCM) and business logistics management or simply logistics are often used interchangeably, but logistics is one link in the supply chain.

Logistics deals with the planning and control of the movement and storage of goods and services from their point of origin to their final destination.

Successful logistics management ensures that there is no delay in delivery at any point in the chain and that products and services are delivered in good condition. This helps keep the company’s costs down.

What is the flow of manufacturing costs?

Efficient supply chain systems can get every piece of the product to where it is needed when it is needed. This requires control over the flow of manufacturing costs.

The flow of manufacturing costs is most relevant to businesses that manufacture products that require many parts from multiple suppliers. A garment manufacturer may require deliveries of fabric, zippers, trim and thread to all arrive at the same time. It must be stored at the business’s expense if some inventory arrives too early and the machines sit idle waiting if some arrive late.

Trusted suppliers are key

An effective supply chain management process requires reliable suppliers who produce a product that meets the manufacturer’s specifications and delivers it on time.

Assume that XYZ Furniture manufactures high-end furniture and that a supplier provides metal handles and other attachments. The metal components must be durable so that they last for many years. They must conform to the design and quality specified by the manufacturer and they must work as intended.

A reliable supplier will fill the manufacturer’s order and ship the parts on time.

Is the supply chain causing deflation?

The increased efficiency of supply chains has played a significant role in curbing inflation. Costs decrease as efficiency in moving products from point A to point B increases. This reduces the final cost for the consumer. Deflation is often seen as a negative, but supply chain efficiency is one of the few examples in which it is a good thing.

Supply chain efficiency is becoming more optimized as globalization increases and this keeps pressure on input prices.

How has COVID-19 affected the supply chain?

One of the most serious economic problems caused by the COVID-19 pandemic has been damage to the supply chain. Its consequences affected almost every sector of the economy.

The demand for products suddenly changed. Shortages arose as consumers stockpiled essentials such as toilet paper and baby formula. Masks, cleaning cloths and hand sanitizers were suddenly in demand.

Shortages of computer chips have delayed the delivery of a wide range of products from electronics to toys and cars.

Shifting priorities

A survey by Ernst & Young of 200 senior-level supply chain managers points to three essential findings:

The pandemic has had a profoundly negative effect as cited by 72% of supply chain managers. Automotive and industrial supplies companies were the worst hit. Visibility was the top priority. Managers wanted to focus on adding technology such as sensors that gave them a better overview of their orders throughout the process. The pandemic has accelerated the transition to digitization. Most of those surveyed said that digital transformation combined with increased automation will accelerate going forward.

The Bottom Line

A supply chain is what allows you to plug in your new television or bite into that hamburger you made at home. It is a network consisting of producers and manufacturers, suppliers, warehouses, transport companies and retailers. The process starts when a product is created and it ends when you buy it. Many supply chains are global in scale.

Each step in the process is complicated by the need to create, prepare, package, ship and unpack the product at each of its successive destinations, but this can result in lower costs when done efficiently. This benefit can be passed on to consumers.