What is Supply Chain: Meaning, Process, Types, Examples, Best Practices

The supply chain has become one of the most important functions for organisations to reduce their cost of operations and increase their business value. If you are thinking about what a supply chain is and how it works, then here is a comprehensive guide. In this article, we explain the meaning of supply chain, along with the different supply chain types, give examples and share some of the best practices to help you effectively manage your supply chain.

What is a Supply Chain?

A supply chain is a network that includes all the necessary activities and resources to produce goods and services and ensure that these goods and services reach the consumer. It comprises different stages, such as procurement of the raw materials, manufacturing, storage, and, ultimately, the delivery of the finished product.

Key Objectives of a Supply Chain in a Business

Now that you know what a supply chain is, let's explore the key objectives of a supply chain in more detail:

• Customer Satisfaction: The first objective of the supply chain is to ensure that customers receive the right product at the right time.
• Cost Efficiency: The second objective is to reduce expenses while maintaining service quality, which is achieved through planning carefully and optimising resources.
• Inventory Optimisation: This objective is about balancing the availability of the product and controlling the cost. This is achieved by regularly tracking the demand and streamlining the restocking process.
• Lead Time Reduction: Delivering the products faster is key to keeping consumers motivated, which is what a supply chain aims to achieve. Its objective is to enhance customer satisfaction and reduce the risk of expiry.   
• Flexibility and Responsiveness: Lastly, when there are disruptions or changes in demand, the objective of the supply chain is to meet the customer’s needs by adapting to changes quickly.

Importance of Supply Chain

Supply chains are important for any business since they represent the journey of a product from its raw material form to its final form. Apart from this, here is what makes a supply chain so important:

• Reduced Overheads: A supply chain accurately predicts demand, minimising the costs associated with storing slow-moving inventory and improving the overall efficiency of inventory management.
• Greater Quality Control: Regular audits help a supply chain ensure greater quality products, thus enhancing customer satisfaction.
• Higher Efficiency: Supply chains are important to ensure smooth operations, fewer delays, and availability of products when needed. 
• Risk Management: Risk management is super important for businesses. Supply chain data enables businesses to proactively identify risks, mitigate them, and minimise operational disruption. 
• Optimised Shipping: A supply chain includes efficient shipping methods, which help minimise delivery times and associated costs.
• Competitive Advantage: An optimised supply chain can offer better pricing, faster deliveries, and higher-quality products than competitors, thereby attracting new customers and retaining existing ones.

Components of a Supply Chain

Now, let’s explore the different components of a typical supply chain and understand how they all coordinate together:

• Producers: As part of the supply chain, producers are the manufacturers or companies responsible for creating the product or service. They source the raw materials and manufacture the final product. 
• Vendors: Vendors are actually the suppliers who provide the necessary inputs for production.
• Warehouses: Warehouses store inventory before it is shipped to consumers. Their role within a supply chain is to manage the inventory level and ensure timely deliveries.
• Transportation Companies: This is an important component of the supply chain. These companies move the finalised products from one location to another. The modes of transportation include trucks, ships, trains or planes. 
• Retailers: Finally, there are retailers as part of the supply chain. Retailers sell products to customers and operate on online platforms, physical stores, or even both, depending on their business model. 

What is the Supply Chain Process?

The supply chain process includes several steps to ensure the flow of raw materials and products is smooth. Let’s explore each step in detail: 

1. Demand Forecasting and Planning: Demand forecasting involves predicting future customer demand for products and materials. Without good demand forecasting, businesses might end up with expensive surpluses or miss opportunities.
2. Sourcing Raw Materials: In this step, the raw material or any component for the production process is acquired. The material may be sourced globally or locally based on cost considerations and availability. 
3. Refining Materials into Basic Parts: After acquiring the raw materials, the next step is to process them into basic parts or components in the business's manufacturing facility or processing plant. 
4. Combining Parts to Create a Product: Once the basic parts are ready, they are combined to create the final product. Depending on the nature of the product, this step may involve several processes, including assembly lines, machining, and fabrication. 
5. Order Fulfilment and Sales: This step involves selling the finished products. The sale occurs through retail stores, distributors, or online platforms. Here, the customers' orders are received, and the fulfilment process is initiated. 
6. Product Delivery: When everything is ready, the product is prepared for shipment and delivered to the customer using logistics for timely delivery to the desired destination. 
7. Customer Support and Return Services: The final step is providing customer support after the products are delivered. If there are any returns, exchanges or warranty claims, they are settled to ensure customer satisfaction.  

Types of Supply Chain Models

Apart from the supply chain process, let's now explore the various types of supply chain models:

• Continuous Flow Model: This model focuses on stability and efficiency, making it suitable for industries with constant demand and well-established products. The production process is optimised to maintain a continuous flow, and disruptions are minimal. 
• Agile Model: Here, the main focus is flexibility and responsiveness to unpredictable demand patterns. It applies to industries where the demand is volatile or where the products are made to order. The agile model also quickly adapts to changes and customer preferences. 
• Fast Chain Model: This model fits perfectly for industries featuring products with shorter life cycles, like electronics and fashion. Here, the focus is on speed, and production and delivery are rapid. The aim is to capitalise on fleeting market opportunities. 
• Flexible Model: This model is for industries with moderate demand or occasional peaks. It allows for the adjustment of manufacturing and distribution strategies to meet variable market conditions while maintaining operational efficiency. 
• Custom-Configured Model: This model is suitable where customisation is important. This is particularly relevant for automotive or aerospace industries, where the products are tailored to fit the individual customer’s requirements.  

Examples of Supply Chains

To better understand how products move from the manufacturing unit to the consumer, check out the supply chain examples below:

Traditional Supply Chain

The process of a traditional supply chain starts with extracting the raw material. After that, it is moved to a manufacturer, who helps refine and process them into finished products. Once the goods are ready, they are sent to retailers for sale with the help of a logistics company. The cycle gets completed when the consumer purchases the product. 

E-Commerce Supply Chain

The supply chain in e-commerce starts when the order is placed on the website. After that, the orders are processed using technology. Thereafter, using payment processors, the payment is made, and the order is moved to the warehouse for shipment. The shipment depends on the requirement, and it could be in-house, or there could be a third-party logistics provider. Finally, the product reaches the customer, and the cycle ends.  

What is Supply Chain Management, and How Does it Work?

Supply chain management, or SCM, is a process that ensures the efficient movement of goods and services from the production unit to the consumer. It includes a set of activities, starting with planning, sourcing, manufacturing, logistics, and the final delivery. The main aim is to minimise the overall cost and meet the customer's requirements. 

In the planning phase, businesses obtain and allocate resources based on demand, which involves selecting suppliers and managing relationships with them. Then comes manufacturing, where the raw materials are transformed into the final products. Thereafter, the finished products are distributed to the customers using logistics. Once this is done, the last phase of the supply chain management is managing inventory and returns.

What are the Best Practices in Supply Chain Management?

• Adopt Lean Techniques: Try to streamline your processes and adopt lean practices. This will help you eliminate waste and reduce unnecessary inventory. 
• Enhance Inventory Velocity: To prevent overstocking or shortage, enterprises must ensure that their supply matches the demand and does not exceed it. 
• Foster Collaboration: Collaboration is key. Coordinate properly with all the stakeholders to avoid delays and improve customer satisfaction. 
• Leverage Technology: Use technology such as software and analytical tools. Modern technologies such as AI and data analytics help enterprises identify discrepancies more effectively, gain cash flow visibility, and provide better insights for planning and decision-making.
• Implement Effective Metrics: Use key performance indicators (KPIs) to measure performance and identify areas for improvement. This will ensure the supply chain operates smoothly and meets its objectives.

To sum up, a supply chain is an important part of business, and it is important to understand how it works and learn about its types, examples, and components. By following best practices, you can streamline your operations, reduce costs, and effectively meet customer requirements.

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