supply chain

What is a supply chain?

A supply chain is the entire process of creating and delivering products and services including every stage starting at the supply of source materials, manufacturing of the goods through to their distribution and sale. It involves the entire network of all individuals, organizations, resources, activities and technology involved in the creation and sale of a product.

How does a supply chain work?

Supply chains consist of a number of supply chain steps. In many supply chains the first step is that companies unearth raw materials. These materials are then moved and/or transformed by producers, vendors, warehouses, transportation companies, distribution centers, and retailers. In the final step the end customer gets a delivery of a product or service.

The words "supply chain" may suggest something that is linear, since that is what most people depict a chain to be. However, thist is a bit of a traditional view. The reality is different: supply chains can be considered as complex networks. In many industries, they have evolved into so-called global supply chains.

A supply chain example

As a supply chain example, the smartphones that most of us cherish, contain rare-earth metals that can have been excavated in South America. Production and final assembly of smartphones can have taken place in Asia, and sales of smartphones happens in hundreds of countries, via multiple sales channels. Just imagine what supply chains need to be capable of to make this all come true.

Why is a supply chain important?

In current literature you may have come across terms as lean supply chain, agile supply chain and resilient supply chain. These words signal that supply chains need to be cost- and time-effective, flexible and quickly adaptable in response to disruptions.

Furthermore, for a company to be successful it needs a well-defined company strategy. That implies that for a supply chain to contribute there is need for a derived supply chain strategy as well. If, for example, a company aims to be the lowest cost provider in the market, it needs a supply chain that is totally focused on efficiency. As opposed to a company that tries to compete by being the most responsive to customer needs and wants. Then the supply chain strategy needs to be putting responsiveness first as a quality to be superior at.

How to set up a supply chain process?

Once the supply chain strategy is defined, supply chain processes need to be set up. It can be decided for instance to implement a process called Sales and Operations Planning (S&OP) that balances supply and demand at a tactical level. S&OP is considered to be the bridge between strategy and execution. Or at a more operational level, supply chain planning needs to be implemented in order to manage weekly production and supply schedules.

Finally, supply chains have become global and complex in recent decades. Therefore, there are vast amounts of market and operational data that need to be sifted through and analyzed. Nowadays companies cannot do without some form of supply chain analytics. Furthermore, companies need one or more supply chain analysts in their workforce to extract valuable information. This can help them in supply chain decision making and supply chain planning.

In summary, supply chains are very important. Without them, products and services would simply not be available, and the world would come to a sudden halt.

Want to know more?

Now you know everything about the supply chain. Do you want to learn more about the supply chain by participating in the business simulation games of Inchainge? Have a look at our business games page for more information. Do you want to know more about supply chain management? Have a look at our supply chain management page.