A supply chain is a network of individuals and companies that 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 they end when the van delivers the finished product to the 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.
What is a Supply Chain?
A supply chain is an entire system of producing and delivering a product or service, from the very beginning stage of sourcing the raw materials to the final delivery of the product or service to end-users.
The supply chain lays out all aspects of the production process, including the activities involved at each stage, information that is being communicated, natural resources that are transformed into useful materials, human resources, and other components that go into the finished product or service.
Why Should A Company Understand Its Supply Chain?
Mapping out a supply chain is one of the critical steps in performing an external analysis in a strategic planning process. The importance of clearly laying out the supply chain is that it helps a company define its own market and decide where it wants to be in the future. In developing corporate-level strategies, a company often needs to make decisions on whether to operate a single line of business or enter into other related or unrelated industries.
Each stage of a supply chain is essentially a different industry, for example, raw material extraction and manufacturing. The supply chain enables a company to understand others that are involved in each of the stages, and thereby provides some insights on the attractiveness or competitiveness in industries the company might want to enter in the future.
What Are the Main Supply Chain Models?
- 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. Managers must regularly replenish raw materials to prevent production bottlenecks in a continuous flow model.
- Fast Chain Model: This model works best for companies that sell products based on the latest trends. Businesses that use this model must get their products to market quickly to take advantage of the prevailing trend. They must 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. They experience surges in demand for their products followed by long periods of little to no demand. Using the flexible model ensures that they’re able to gear up quickly to begin production and shut down efficiently as soon as demand tapers off. Profit depends on being accurate in forecasting their need for raw materials, inventory, and labor.
FAQs
What Are Supply Chain Management Best Practices?
- 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.
Supply Chain for an e-Commerce Company?
In this example, the e-commerce company operates a website, and that website sells various products. When a customer places an order for a product, the product order is being processed by technology such as a checkout cart, an order system, or a third-party product such as Shopify. The payment processors then come in and deal with payment transactions for the order, which actually opens up a new supply chain.
The payment processors use their own systems but, in most cases, third parties such as PayPal and Stripe are employed, and they involve banks and other providers. When a product order is placed, the warehouse receives the order and ensures the product is ready for delivery. The warehousing company can be either in-house or a third-party logistics provider.
The order then goes from the warehouse to the shipping company. Once again, the shipping may be in-house or a third-party shipping company. After shipping, the package arrives at the customer’s door and the customer receives it.