How many different supply chains are there?

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.

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 managementor simply, logisticsare 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 manufacturers 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 manufacturers orders and ship metal parts to meet XYZs 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 efficienciesbecome 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).

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.