The Supply Chain: From Raw Materials to Order Fulfillment

What Is a Supply Chain?

A supply chain is a network of individuals and companies who are involved in creating a product
and delivering it to the consumer. Links on the chain begin with the producers of the raw materials
and end when the van delivers the finished product to the end 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
they can reduce their costs and remain competitive.

KEY TAKEAWAYS

• A supply chain is a network of companies and people that are involved in the production
and delivery of a product or service.
• The components of a supply chain include producers, vendors, warehouses, transportation
companies, distribution centers, and retailers.
• The functions of a supply chain include product development, marketing, operations,
distribution, finance, and customer service.
• Today, many supply chains are global in scale.
• Effective supply chain management results in lower costs and a faster production cycle.

Understanding a Supply Chain

A supply chain includes every step that is involved in getting a finished product or service to the
customer. The steps may include sourcing raw materials, moving them to production, then
transporting the finished products to a distribution center or retail store where they may be
delivered to the consumer.
The entities involved in the supply chain include producers, vendors, warehouses, transportation
companies, distribution centers, and retailers.

The supply chain begins operating when a business receives an order from a customer. Thus, its
essential functions include product development, marketing, operations, distribution networks,
finance, and customer service.

When supply chain management is effective, it can lower a company's overall costs and boost its
profitability. If one link breaks, it can affect the rest of the chain and can be costly.

What Are the Main Supply Chain Models?

Many types of supply chain models are available. The model a company selects will 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 regularly replenish raw materials in order to prevent
production bottlenecks.
• Fast Chain Model: This model works best for companies that sell products based on the
latest trends. 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 in 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 need for raw
materials, inventory, and labor.

What Are Supply Chain Management Best Practices?

Here are some of the best practices that are seen in successful supply chain management systems:

• They support continuous improvement.

• They aim for increased velocity.
• They encourage collaboration among the individual businesses in the supply chain.
• They seek new technologies that improve their processes.
• They have metrics in place that allow employees to measure the success or failure of each
step in the supply chain.1
What Is Supply Chain Management vs. Business Logistics Management?
The terms supply chain management (SCM) and business logistics management—or
simply, logistics—are often used interchangeably. However, logistics is really 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, in turn, helps keep the
company's costs down.

What Is the Flow of Manufacturing Costs?

Efficient supply chain systems get each piece of the product where it is needed, when it is needed.
This means controlling the flow of manufacturing costs.

The flow of manufacturing costs is most relevant to businesses that produce products that require
many different parts from many vendors. For example, a clothing manufacturer may need
deliveries of fabric, zippers, trim, and thread to arrive all at the same time. If some supplies arrive
too early, they must be stored at the business' expense. If some arrive late, the machines stand
idle while they wait.

Reliable Suppliers Are Key

An efficient supply chain management process requires reliable suppliers. This means they
produce a product that meets the manufacturer’s specifications and deliver it 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 that
they last for many years. They must meet 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.

Does the Supply Chain Cause Deflation?

The increased efficiencies of supply chains have played a significant role in curbing inflation. As
efficiencies in moving products from point A to point 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 in which it is a good thing.

As globalization increases, supply chain efficiencies become more optimized, which keeps the
pressure on input prices.
How Did COVID-19 Affect the Supply Chain?
One of the most severe economic problems caused by the COVID-19 pandemic was damage to
the supply chain. Its effects touched nearly every sector of the economy.

Supplies of products of all kinds were delayed due to ever-changing restrictions at national
borders and long backups in ports.

At the same time, demand for products changed abruptly. Shortages developed as consumers
hoarded essentials like toilet paper and baby formula. Masks, cleaning wipes, and hand sanitizers
were suddenly in demand. Shortages of computer chips delayed the delivery of a wide range of
products from electronics to toys and cars.2

Shifting Priorities

A survey in late 2020 by Ernst & Young of 200 senior-level supply chain executives pointed to
three essential findings:

The pandemic had a deep negative effect, cited by 72% of supply chain executives. Automotive
and industrial supplies companies were worse-hit.

"Visibility" is the top priority, and the word is meant literally. The executives want to focus on
adding technology such as sensors that give them a better view of their orders throughout the
process.

The pandemic accelerated the transition to digitization, with most of those surveyed saying that
digital transformation combined with increased automation will accelerate over the next few
years.3

What Is Supply Chain Management?

Supply chain management (SCM) is 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 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 an Example of a Supply Chain?

A supply chain begins with the sourcing of raw materials, whether that means mining diamonds,
curing leather, or manufacturing sheet metal.

That is the first step in the process. From there, the raw materials are hauled to a wholesaler, who
sells them in batches to manufacturers. Once delivered, the manufacturer uses the materials to
create a product, which is then delivered to a retailer. Finally, it is sold to a consumer.

That's the big picture, but note that each step in the process is complicated by the need to prepare,
package, ship, and unpack the product at each of its successive destinations.

Logistics: What It Means and How Businesses Use It

What Are Logistics?
Logistics refers to the overall process of managing how resources are acquired, stored, and
transported to their final destination. Logistics management involves identifying prospective
distributors and suppliers and determining their effectiveness and accessibility. Logistics
managers are referred to as logisticians.

"Logistics" was initially a military-based term used in reference to how military personnel
obtained, stored, and moved equipment and supplies.1 The term is now used widely in the
business sector, particularly by companies in the manufacturing sectors, to refer to how resources
are handled and moved along the supply chain.

KEY TAKEAWAYS

• Logistics is the overall process of managing how resources are acquired, stored, and
transported to their final destination.
• Poor logistics in a business can impact its bottom line.
• Logistics is now used widely in the business sector, particularly by companies in the
manufacturing sectors, to refer to how resources are handled and moved along the supply
chain.
Understanding Logistics in Management and Business
In simple terms, the goal of logistics management is to have the right amount of a resource or
input at the right time, getting it to the appropriate location in proper condition, and delivering it
to the correct internal or external customer.

For example, in the natural gas industry, logistics involves managing the pipelines, trucks, storage
facilities, and distribution centers that handle oil as it is transformed along the supply chain. An
efficient supply chain and effective logistical procedures are essential to reduce costs and to
maintain and increase efficiency. Poor logistics lead to untimely deliveries, failure to meet the
needs of clientele, and ultimately cause the business to suffer.

The concept of business logistics has been transformed since the 1960s. The increasing intricacy
of supplying companies with the materials and resources they need, along with the global
expansion of supply chains, has led to a need for specialists known as supply chain logisticians.

In the modern era, the technology boom and the complexity of logistics processes have spawned
logistics management software and specialized logistics-focused firms that expedite the
movement of resources along the supply chain.

Fast Fact
One reason large online retailers like Amazon have come to dominate the retail landscape is the
overall innovation and efficiency of their logistics along every link of the supply chain.
Manufacturing companies may choose to outsource the management of their logistics to
specialists or manage logistics internally if it is cost-effective to do so.

Special Considerations
The tasks for which a logistician is responsible vary depending on the business. Primary
responsibilities include overseeing and managing inventory by arranging for appropriate
transportation and adequate storage for the inventory.

A qualified logistician plans out the logistics process and coordinates the steps as inventory and
resources move along the supply chain.2

Specialized training in supply chain management and logistics often includes core or elective
courses, or even discrete programs of study, in business education. A business degree that
emphasizes these skills—or in some cases, a technical degree in systems analysis or database
management—is usually necessary to begin what is often a well-paid career as a logistician.3

What Is Logistics in Business?

In business, logistics is the process of transporting and storing raw materials, finished goods,
inventory, and other resources. Logistics in a business is typically made up of many components,
including customer service, demand forecasting, warehousing, material handling, inventory
control, order processing, and transportation.

Why Is Logistics Important?

Logistics is critical to a company's bottom line. It enables the movement of materials or goods,
the satisfaction of contracts, and the fulfillment of services. Effective logistics management
ensures smooth movement along the supply chain and can provide a competitive advantage.

What Jobs Are Available in the Logistics Industry?

Careers in logistics can include truck driver, customer service representative, dispatcher, freight
agent, supply chain manager, transportation analyst, procurement manager, logistician, and
operations manager, among others. A degree in logistics or business administration will be helpful
for many roles in logistics, including logistician, a career that is expected to grow much faster
than average.4

The Bottom Line

When a company optimizes its logistics, it improves efficiency along all points of the supply
chain. Understanding how to get the right resource to the right place at the right time can be a
differentiator for a business, adding value to the customer while at the same time cutting costs
and boosting the bottom line.