What Is Supply Chain & How Does it Work?

Supply chain

A supply chain represents the steps it takes to get a product or service from its original state to the customer. Simply put, it is the chain of actions that needs to take place in order to turn raw materials into finished products. Supply chains are a very important part of a company’s business, as they are required in almost all the activities the company does. How well a company manages the supply chain will have a direct impact on how successful it is in the end. Let’s take a closer look at the supply chain process.

What exactly is a supply chain?

A supply chain is the process involved in making and selling commercial goods, including every stage from the supply of materials and the manufacture of the goods, their distribution and sale, through to their delivery to the customer.

The main aim of a supply chain is to produce and distribute a specific product or service. To illustrate this, here are two of the most common types of supply chains:

Generic supply chain

This supply chain starts with the sourcing and extraction of raw materials. These raw materials are then taken by a logistics provider to a supplier, who acts as the wholesaler. The materials are then taken to a manufacturer, or perhaps to various manufacturers, who then refine and process them into a finished product. After that, the finished products are delivered to retailers, who sell the products to customers.

Ecommerce supply chain

In an eCommerce supply chain, the product order is placed, the warehouse receives the order and ensures the product is ready for delivery. The order then goes from the warehouse to the shipping company, who ensures that the parcel is delivered to the customer.

How do supply chains work?

Supply chains are the steps involved in getting a product or service to the customer. These steps can include sourcing raw materials, moving and transforming materials into finished products, transporting these products, and distributing them to the end-user. There are various entities involved in the supply chain, including producers, vendors, warehouses, transportation companies, distribution centres, and retailers.

Hence, a supply chain can also be described as a network, which includes different activities, people, entities, information, and resources.

In order to ensure an effective supply chain, it is vital to map the different steps involved and put systems in place to manage and monitor it. This is known as supply chain management.

Defining the functions and activities that go into producing goods or services from the supply of materials through to the finished goods that are delivered to the consumer is essential for creating a clear picture of the supply chain process. Once this has been defined, the supply chain management for the process can be put into practice.

Supply chain management is an umbrella term that includes product development, sourcing, production, procurement, logistics and more. A good supply chain management minimizes risk and ensures that everything runs smoothly. At the same time, an effective supply chain management can lower a company’s overall costs and speed up production, which in turn improves customer satisfaction and boosts profitability.

In recent years, companies like Amazon have redefined the way supply chains operate, particularly, in relation to speed and efficiency. Consumers are now used to a very fast turnaround when they order a product online. Can you think of any other examples of companies that demonstrate effective supply chain management? Think of your own experience as a consumer. Which companies have provided you with a quality management of your order, every step of the way, from purchase to delivery? What do you feel when a company does not fulfil in some way, by delivering later than planned, for example?

It is clear that companies with efficient supply chains are more likely to have better customer satisfaction, so the real question here is, what do businesses need to do in order to improve their supply chain management?

How can a company improve its supply chain management?

The most important factor for efficient supply chain management is mapping the different steps in the supply chain and implementing a quality supply chain management strategy, both for each individual step and for the whole process.

However, there are three main areas that will have a direct effect on improving supply chain management.

  • Real-time supply chain monitoring: implies that scenarios can be dealt with much more efficiently.
  • Technology: certain tools and software can improve processes, such as automation, data reporting and strategic planning.
  • Healthy supplier relationships: these connections require constant maintenance and a two-way communication between the buyer and the seller.

In addition, minimizing delay, optimizing the time of day that goods are moved, how long inventory is held for and monitoring the order dispatch process are also aspects that can have a positive impact on a company’s supply chain.

Ultimately, as we have seen, supply chains and supply chain management are important parts of any business. They are holistic processes that have an impact on all aspects of a company’s activity, and it is therefore essential that they are managed and monitored efficiently. They have an effect on customer loyalty, profitability and production speed, and are key to the success of any business.

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