What is a supply chain?
A supply chain involves all of the steps in the process of developing and delivering a product, from unprocessed raw materials to finished goods in the hands of the customer, and all of the factors that help make this happen, including people, technology, equipment, and modes of transportation.
What are the steps of supply chain management?
Supply chain management consists of five fundamental processes:
- Planning: Preparation and strategy are essential to ensuring the success of all subsequent supply chain processes and involve practices such as predicting customer demand and ensuring sufficient supply/inventory to meet it. Businesses should also develop plans to mitigate supply chain risk to ensure resilience in the face of unknowns.
- Procurement: The procurement process involves identifying suppliers and/or vendors who will provide the necessary raw materials, goods, and components for production. When sourcing materials, companies balance cost and quality to meet demand while satisfying customer expectations.
- Production: Once the raw materials and components have been procured, it’s time to transform them into finished goods. The manufacturing process may involve tasks such as assembling, testing, and packing.
- Distribution: The distribution process enompasses not only the delivery of finished goods to customers, but the logistical movement of goods across the entire supply chain. Parties involved in distribution may include manufacturers, importers, retailers, wholesalers, transportation companies, third-party logistics (3PL) providers, and freight brokers. Methods of delivery may include multiple types of freight, such as road, rail, ocean, and air. A transportation management system (TMS) may help increase visibility into the distribution process and the supply chain in general.
- Customer interactions: The final process involves all of the customer interactions necessary to meet consumers’ needs and fulfill their orders. Return management (known as reverse logistics) is important to maintaining strong customer relationships.
What are the benefits of supply chain management?
Supply chain management can improve customer service, decrease operating costs, and enhance the financial performance of just about every business involved in selling goods:
- Improve customer service: Supply chain management helps ensure that customers receive the correct product in the quantity that was requested. This includes making on schedule pickups and deliveries at the right location. Supply chain management also includes developing infrastructure to address customer concerns, including addressing missing, damaged, and malfunctioning products post-delivery.
- Decrease operating costs: Operating costs can spike due to a single point of vulnerability in a supply chain. Supply chain management teams can control costs by minimizing risks of vulnerabilities. They can also drive down operating costs by streamlining transportation logistics to reduce inventory expenses, preventing material shortages that could halt production, and designing networks that allow them to fulfill customers’ orders as efficiently and cost-effectively as possible.
- Enhance financial performance: Supply chain management can also improve overall financial performance. For example, minimizing operating costs for a product can increase a company’s profit margins. Streamlining the cycle of production through distribution lets companies deliver products to customers more quickly. This can improve cash flow by enabling them to invoice sooner.
On a broader scale, supply chain management can even help improve quality of life and ensure resilience in the face of disasters.
Societies with well-developed supply chain infrastructure enable the quick and inexpensive exchange of goods, boosting economic growth and the standard of living. And when disaster strikes, supply chain management ensures that basic necessities such as food, water, and medicine continue to be available and easily accessible. For example, supply chains adapted during the COVID-19 pandemic, addressing shifts in consumer demand for goods and a surge in e-commerce shopping.
Finally, supply chain management can promote sustainability by reducing the resources and energy required for production and distribution.