Supply Chain

What Is a Supply Chain?

A supply chain is a network between a company and its suppliers to produce and
distribute a specific product to the final buyer. This network includes different
activities, people, entities, information, and resources. The supply chain also
represents the steps it takes to get the product or service from its original state to
the customer.

Companies develop supply chains so they can reduce their costs and remain
competitive in the business landscape.

Supply chain management is a crucial process because an optimized supply

chain results in lower costs and a faster production cycle.

KEY TAKEAWAYS

 A supply chain is a network between a company and its suppliers to

produce and distribute a specific product or service.
 The entities in the supply chain include producers, vendors, warehouses,
transportation companies, distribution centers, and retailers.
 The functions in a supply chain include product development, marketing,
operations, distribution, finance, and customer service.
 Supply chain management results in lower costs and a faster production
cycle.
Supply Chain
Understanding Supply Chains
A supply chain involves a series of steps involved to get a product or service to
the customer. The steps include moving and transforming raw materials into
finished products, transporting those products, and distributing them to the end-
user. The entities involved in the supply chain include producers, vendors,
warehouses, transportation companies, distribution centers, and retailers.

The elements of a supply chain include all the functions that start with receiving
an order to meeting the customer's request. These functions include product
development, marketing, operations, distribution networks, finance, and customer
service.

Supply chain management is a very important part of the business process.

There are many different links in this chain that require skill and expertise. When
supply chain management is effective, it can lower a company's overall costs and
boost profitability. If one link breaks down, it can affect the rest of the chain and
can be costly.

Supply Chain Management vs. Business Logistics Management

The terms supply chain management and business logistics management—or
simply, logistics—are often used interchangeably. Logistics, which is one link in
the supply chain, is different.

Logistics refers specifically to the part of the supply chain that deals with the
planning and control of the movement and storage of goods and services from
their point of origin to their final destination. Logistics management begins with
the raw materials and ends with the delivery of the final product.

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, in turn, helps keep the company's costs down.

How the Flow of Manufacturing Costs Works

The flow of manufacturing costs refers to the process of using materials and
labor to complete a finished product that can be sold to a customer. A supply
chain management system can reduce the cost and complexity of the
manufacturing process, particularly for a manufacturer who uses many parts.

For example, a clothing manufacturer may first move raw materials into
production, such as fabric, zippers, and other pieces used to make clothing. The
manufacturer then incurs labor costs to run machinery and perform other work
using the materials. Once the items are completed, they must be packaged and
stored until they are sold to a customer. 

Reliable Suppliers
An efficient supply chain management process requires reliable suppliers. This
means they produce a quality product that meets the manufacturer’s needs, and
the product is delivered on time.

Assume, for example, that XYZ Furniture manufactures high-end furniture, and
that a supplier provides metal handles and other attachments. The metal
components need to be durable so they can be used on the furniture for years,
and the metal parts shipped to XYZ should work as intended. The supplier must
be able to fill the manufacturer’s orders and ship metal parts to meet XYZ’s
production needs. These steps are necessary to produce a quality product that is
shipped to a customer in a timely manner.
Supply Chain and Deflation
The evolution and increased efficiencies of supply chains have played a
significant role in curbing inflation. As efficiencies in moving products from A to B
increase, the costs in doing so decrease, which lowers the final cost to the
consumer. While deflation is often regarded as a negative, supply chain
efficiencies are one of the few examples where deflation is a good thing.

As globalization continues, supply chain efficiencies become more optimized,

which keeps the pressure on input prices.

Supply Chain and COVID-19

The impact of the COVID-19 pandemic on the economy has been felt in nearly
every sector, however, supply chain strategy has been one of the hardest-hit
facets of every industry. Not only were companies' supply chains put in flux by
ever-changing restrictions at national borders, which cut off access to key
suppliers, demand for certain products also changed.

In late 2020, EY performed a survey of 200 senior-level supply chain executives.

The study pointed to three essential findings: the deep negative effect of the
pandemic felt by most respondents (72% reported a negative impact), the shifting
priorities for the supply chain industry ("increased visibility" being the top priority
for the next 12-36 months), and the fact that the pandemic has accelerated the
transition to digitization (64% of surveyed supply chain executives say digital
transformation will accelerate due to the pandemic).1

It's no doubt the pandemic has had an unprecedented impact on how businesses
think about the supply chain. However, the shock to the system may help usher
in a new era of increased communication and visibility between suppliers as well
as efficient use of technology to expedite supply chain strategies.

What Are the Steps in a Supply Chain?

The key steps in a supply chain include:

1. Planning the inventory and manufacturing processes to ensure supply and

demand are adequately balanced
2. Manufacturing or sourcing materials needed to create the final product
3. Assembling parts and testing the product
4. Packaging the product for shipment (or holding in inventory until a later
date)
5. Transporting and delivering the finished product to the distributor, retailer,
or consumer
6. Providing customer service support for returned items
What Is Supply Chain Management?
Supply chain management (SCM) refers to the oversight and control of all the
activities required for a company to convert raw materials into finished products
that are then sold to end-users. SCM provides centralized control for the
planning, design, manufacturing, inventory, and distribution phases required to
produce and sell a company's products.

A goal of supply chain management is to improve efficiency by coordinating the

efforts of the various entities in the supply chain. This can result in a company
achieving a competitive advantage over its rivals and enhancing the quality of the
products it produces, both of which can lead to increased sales and revenue.

What Are the Types of Supply Chains?

There are many different types of supply chain models available to companies
interested in implementing a strategy to improve efficiency and workflow. The
type of supply chain model a company selects will often depend on how the
company is structured and what its specific needs are. Here are a few examples:

 Continuous Flow Model: This traditional supply chain model works well

for companies that produce the same products with little variation. The
products should 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. In a continuous flow model, managers
will need to continuously replenish raw materials in order to prevent
production bottlenecks.
 Fast Chain Model: This model works best for companies that sell
products based on trends that may have a limited time appeal. Businesses
that use this model need to get their products to market quickly to take
advantage of the prevailing trend. They need to rapidly move 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 manufacture seasonal or holiday
merchandise often use the flexible model. These companies experience
surges of high demand for their products followed by long periods of little
to no demand. The flexible model ensures they are able to gear up quickly
to begin production and shut down efficiently as soon as demand tapers
off. In order to be profitable, they must be accurate in forecasting their raw
materials, inventory, and labor costs.