A supply chain is a system that takes raw materials, produces something of value from them, and delivers the product to the consumer. In an era of international trade, supply chains are a vital part of the global economy.
What is a supply chain?
A supply chain consists of the steps taken to obtain raw materials, turn them into a product, and deliver the product to consumers. Until the COVID-19 pandemic caused massive supply chain disruptions in early 2020, its importance was often overlooked.
Most supply chains involve five basic steps:
- Production of a raw material.
- Manufacturing of product.
- Distribution to retailers.
- Sale to consumers.
- Customer service.
A supply chain, then, is a simple concept. But managing a supply chain involves a complex set of steps that can literally make or break a business.
Steps in a supply chain
At its heart, a supply chain aims to deliver products to consumers as efficiently as possible. It involves accurately forecasting demand, minimizing sourcing, production, distribution, and customer service costs, and ensuring that orders arrive on time and in good condition.
The first step in managing a supply chain, however, involves planning. How will an item be produced? Where will the materials come from? Should the product be purchased as a finished good, or should it be manufactured?
Sourcing is also key. Selecting the best vendor in the best location is critical. Often, the biggest cost savings in a company’s supply chain are found at the sourcing level.
Managing inventory is also crucial. If most companies learned nothing in 2020, they learned that relying on a single supplier for anything is a poor idea. Reliability, however, isn’t the only important consideration for inventory management; demand forecasts must be accurate to ensure there is neither too much nor too little inventory for customers.
Production is also tied to forecasting. Does the company have enough raw materials to manufacture its items? Equally important, is the quality of the materials good?
How will products be transported to different markets? Companies need to consider location as a key part of supply chain management. The COVID-19 pandemic prompted a number of companies to reconsider their locations, as well as the locations of vendors. Location is also important for inventory management -- how much of a product will be kept in storage, and where will it be kept?
Finally, customer service is an important element in supply chain management. Aside from just being good business, having a clearly defined process for returning faulty products is vital to ensuring customer satisfaction.
