What is a supply chain?

A supply chain is a network of all entities involved in creating and selling a product.

Supply chains extend from the delivery of raw materials from a supplier to the manufacturer who manufactures the product to the eventual delivery of the product to the end user. A supply chain typically begins with the sourcing of raw materials, followed by the refining of those materials into basic parts and components. These parts are then combined to create a product, and the product is sold to consumers. The part of the supply chain that involves getting the product from the manufacturer to the consumer is called the distribution channel.

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A supply chain includes five basic steps to create and deliver a product.

The first step is planning. During the planning phase, the manufacturer determines the number of products to be delivered to customers based on demand and supply estimates. The planning stage also considers macroeconomic variables, such as consumer spending, employment and inflation.

The next step is procurement, which involves gathering the raw materials and components needed to manufacture the final products. Raw materials must be collected, refined, transported and stored until they are needed in the manufacturing process.

Manufacturing is the step in the supply chain that involves making the product from the original materials. Manufacturing includes things like quality control, testing, and packaging.

Once a product is manufactured, it goes to the delivery stage. Finished products are transported to distribution centers and then to retailers and customers. In direct-to-consumer models, products bypass the retailer and go directly from distribution centers to the customer.

The last step in the supply chain is customer service and reverse logistics. During this process, customers who have received products may need assistance in using them or solving problems. They may also need to return defective products.

Apple Inc.’s iPhone (ticker: AAPL) is one of the most popular products of all time, and it has a global supply chain. More than 200 suppliers help Apple manufacture its flagship products. Apple’s main suppliers outside the United States include manufacturers in China, Japan and South Korea. These suppliers provide Apple with displays, cameras, batteries, semiconductors and other components needed to produce phones. Each of these suppliers has its own sources of raw materials.

After suppliers supply the components, the iPhones are then assembled in China by Taiwanese manufacturer Foxconn. iPhones are packaged and shipped to fulfillment centers around the world. These distribution centers send some iPhones directly to consumers who buy them online. Other iPhones are sent to retail stores and other distributors to be sold.

The COVID-19 pandemic has severely disrupted many supply chains, especially international supply chains. When the global economy began to reopen, different countries and businesses had unique guidelines and timelines for returning to normal operation. Complex international supply chains were only as strong as their weakest links.

More than 90% of Fortune 1000 companies have experienced supply chain disruptions as a result of the pandemic. The automotive industry and semiconductor industries have been particularly hard hit by pandemic-related supply chain disruptions. China’s aggressive COVID-19 policy has been extremely disruptive to American businesses that depend on Chinese suppliers. More than a year after many U.S. businesses returned to full capacity in 2021, China continues to maintain COVID-19-related economic restrictions and shutdowns.

There are several common supply chain models, depending on a company’s specific needs.

A continuous model is designed to facilitate consistent delivery of goods and works well when businesses have a stable supply and demand of products.

Rapid supply chain models are in place to rapidly deliver new products to customers to capitalize on transient market trends, such as the latest fashion styles.

Efficient supply chain models are best for companies looking to maximize profitability and optimize inventory management in a highly competitive environment.

Agile supply chain models focus on flexibility and responsiveness and are highly adaptable to changes in demand or customer preferences.

A custom-configured supply chain model should accommodate products that have different combinations of features based on individual customer preferences.

Finally, a flexible supply chain model should allow companies to manage peaks and troughs in product demand that can last for long periods of time.

Supply chain management is the practice of optimizing supply chain networks to minimize cost, waste, and production time. Supply chain management can include anticipating potential product shortages and increasing orders. It may also involve adjusting prices to eliminate inflated inventory; use analysis software to allocate resources; or plan projects based on sales forecasts, raw material deliveries or customer demand. If companies don’t manage their supply chains effectively, they run the risk of late deliveries, out-of-stock products, poor customer service and other issues that can damage their reputation and brand. .

Supply chain management focuses on optimizing the flow of resources and products from suppliers to customers. The main objective is to minimize material costs and ensure efficient delivery of products.

Value chain management is also about the flow of products to customers, but it focuses more on creating value in the eyes of the consumer. A profitable value chain creates a link between what customers want and value and the products produced by the company. Value chains are based on innovation, research and development, product testing, marketing, and social and economic analysis.

For a business, building and managing an efficient and reliable supply chain is key to ensuring that it maximizes its sales and profits and keeps its customers satisfied. For the average consumer, supply chains are essential to providing the products needed to maintain a high quality of life. If American businesses did not rely on cheap international suppliers and labor, the prices of many goods would be much higher.

For investors, the reliability of a company’s supply chain can have a major impact on its share price. Businesses that depend on suppliers in countries that are likely to experience geopolitical disruptions are high-risk investments.

  • Cost efficiency. Supply chains can help companies reduce costs and increase production and sales.
  • Reliability. Efficient supply chains can help companies avoid delays in the production and delivery of products.
  • Quality. Top-tier suppliers can ensure that products are made using the best materials and components available.

  • Complexity. Managing a supply chain can also be complicated and time-consuming, as companies need to track and monitor products as they move through the chain.
  • Vulnerability. A supply chain is only as strong as its weakest link, so relying on suppliers can add risk to the production process.
  • Supply issues. Miscommunication from one part of the chain to another can even lead to a costly overstock, product shortage, or production bottleneck.

FAQs

Logistics is the part of a supply chain that deals with planning, implementing and controlling the flow and storage of goods, services and information from the point of origin to the point of consumption.

Supply chain key performance indicators, or KPIs, are quantitative measures — such as fill rate, days of supply inventory, and freight bill accuracy — that allow a company to assess the efficiency of its supply chain.

Companies that depend on international suppliers may be exposed to risks related to environmental, social and governance, or ESG issues. These issues may include issues such as human rights abuses, forced labor or greenhouse gas emissions.


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