Supply Chain Definition

The various points through which these products pass on their way to customers form the supply chain network. This network includes entities, materials, information, and human resources required for the development, marketing, financing, and delivery of products to end-users. Besides physical products distribution, other activities may include data/information transmission and money transfer. It leads to cost-effective and efficient production for businesses while providing customer satisfaction.

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Key Takeaways

  • A supply chain is the orderly system of manufacturing and selling tangible and intangible commercial goods to end-users. Besides, it facilitates the transfer of data/information and cash flowCash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more.It consists of suppliers, producers, distributors, vendors, and retailers involved in developing, marketing, financing, and delivery of final products.The three supply network best practices include real-time inventory and production planning, technological advancements plus supplier, vendor, and customer relations.An efficient product distribution network results in faster product delivery, reduced cost of production and purchase, improved inventory management, increased sales, competitive advantage, and customer satisfaction.

How Does Supply Chain Work?

A supply chain process deals with the movement of raw materialsRaw MaterialsRaw materials refer to unfinished substances or unrefined natural resources used to manufacture finished goods.read more from suppliers to manufacturing units for producing the final product. From producers, the finished product reaches the distributor and then to the retailer, who then sells it to the customer. The main components of a supply network are products, facilities, vehicles, and routes that assist in production and distribution.

If the customer is happy with the product, the network becomes a pathway for money to flow from customers to manufacturers. On the other hand, if the consumer is unhappy with the product, they may request an exchange or refund from the manufacturer. Thus, the supply channel can effectively handle the reverse flow of items.

The supply network employs best practices such as real-time inventory and production planning, technological improvements such as automation, and supplier, vendorVendorA vendor refers to an individual or an entity that sells products and services to businesses or consumers. It receives payments in exchange for making items available to end-users. They constitute an integral part of the supply chain management for providing raw materials to manufacturers and finished goods to customers.read more, and customer interactions. This effective product delivery system also allows participants to track products and cash.

An efficient supply chain management (SCM) will ensure the flow of products and services from producers to consumers. Overall, it controls production planning, inventory managementInventory ManagementInventory management in business refers to managing order processing, manufacturing, storage, and selling raw materials and finished goods. It ensures the right type of goods reach the right place in the right quantity at the right time and at the right price. Thus, it maintains the product availability at warehouses, retailers, and distributors.read more, and distribution processes for a specific product. It, thus, results in improved product quality leading to increased sales and a competitive edge. Additionally, efficient transportation ensures faster delivery and reduces the market priceMarket PriceMarket price refers to the current price prevailing in the market at which goods, services, or assets are purchased or sold. The price point at which the supply of a commodity matches its demand in the market becomes its market price.read more of the product or service.

Steps In Supply Chain

Various stages involved in a supply chain network include:

  • Inventory managementSupply and demand analysisProduction planningProcurement of raw materialsProduction of the finished productProduct testing and packagingProduct delivery to the distributor, vendor, retailer, and consumerHandling product exchange or returnProviding customer service support for returned items

Supply Chain Models

Based on its operation and objective, a business can choose from three supply network models to improve production efficiency:

  • Continuous Flow Model – To produce identical products with minimal differences to meet the demand and avoid bottlenecks.Fast Chain Model – To market, distribute, and sell products with high demand for a short period or based on a trend.Flexible Model – To manufacture high-demand products during peak seasons or holidays, followed by unpredictable consumption.

Supply Chain Examples

Let us consider the following supply chain examples to have an in-depth understanding of the concept:

Example #1

Karen owns and operates a pizza parlor. She sells a variety of pizzas to satiate the appetite of the locales. However, to create the most delicious pizzas, she must rely on a supply chain network that ensures the timely delivery of essential raw materials.

As soon as she receives ingredients from the seller/supplier, she prepares orders and serves consumers at her outlet. She also ensures timely delivery for those who want their pizzas to their homes. Thus, the taste and timely delivery make Karen’s pizzas the most preferred over other outlets around.

Example #2

The supply channel is critical to the business process. The global COVID-19 pandemic, however, has disrupted this traditional product distribution system. As the situation might lead to nationalism, trade wars, and greater reliance on domestic manufacturing, businesses must restructure their supply networks to minimize disruption and revenue loss. Furthermore, it will help companies address the shortage of essential supplies and avoid international conflicts.

In this case, technological advancements could be a game-changer. Digital transformations, such as automation, data analytics, artificial intelligence (AI), and blockchain can reshape supply channels. Also, processes like risk management, inventory control, waste reduction, transparency, and fraud prevention will all benefit from this.

Importance of Supply Chain

A supply network organizes everything from supplying raw materials to manufacturing units to distributing finished items to end-users. It, thus, streamlines the entire process and keeps all SCM points connected. However, the lack of connectivity can lead to product unavailability, making consumers switch to other brands. With that said, the following are some of the advantages of having a supply chain strategy:

  • Facilitates the production and distribution of products from the point of origin to destinationAllows the transfer of goods, information, and funds along with primary and reversal physical distributionOffers competitive advantageCompetitive AdvantageCompetitive advantage refers to an advantage availed by a company that has remained successful in outdoing its competitors belonging to the same industry by designing and implementing effective strategies that allow the same in offering quality goods or services, quoting reasonable prices to its customers, maximizing the wealth of its stakeholders and so on and as a result of which the company can make more profits, build a positive brand reputation, make more sales, maximize return on assets, etc.read more and increases customer valueInterconnects departments, systems, and organizationsDecreases the impacts of inflation Helps in the inventory control and managementKeeps every point of distribution connected, and hence maintains transparencyEnsures faster delivery of products and servicesReduces excess cost, including the cost of productionCost Of ProductionProduction Cost is the total capital amount that a Company spends in producing finished goods or offering specific services. You can calculate it by adding Direct Material cost, Direct Labor Cost, & Manufacturing Overhead Cost. read more and purchaseProvides better customer service due to transparent system

This has been a Guide to Supply Chain and its Meaning. Here we discuss the supply chain models and how it works along with its importance and examples. You may also have a look at the following articles to learn more –

The term “supply chain” refers to a system involving the acquisition of raw materials for manufacturing finished goods and ends with their distribution and sales. Suppliers, producers, distributors, vendors, retailers, and consumers are all part of this system. Other activities may involve data/information transmission and money transfer in addition to physical product distribution. It includes entities, materials, information, and human resources contributing to the development, marketing, financing, and delivery of the final product to the customer.

An efficient supply network maintains the flow of products and services from producers to end-users. Furthermore, it controls inventory management, production planning, and distribution processes for a specific product. It all adds to better product quality, more sales, a competitive edge, faster delivery, and a lower product price.

The three models adopted by businesses per their operations and objectives are as follows:1. Continuous Flow Model – Make similar products with minor changes to satisfy demand and prevent bottlenecks. 2. Fast Chain Model – Promotes, distributes, and sells products in great demand for a short period or based on a short-lived trend.3. Flexible Model – Produces high-demand products during peak seasons or holidays, then deals with erratic demand.

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