What is the supply chain? A comprehensive guide to SCM

By Indeed Editorial Team

Published 22 June 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Within business infrastructure, the supply chain is an essential network. It assists greatly in the production and distribution processes of sales companies. In addition, the supply chain is an important occupation and career source for many people. In this article, we seek to answer what the supply chain is, the steps it involves and the importance of supply chain process management.

What is the supply chain?

The supply chain is a network of companies, vendors and employees that exists for the core purpose of assembling, shipping and delivering goods to consumers. Simply, it's an infrastructure that includes resources, such as companies, people, activities, data and technology, that make, transport and supply the final products to consumers. Supply chains are mechanisms that reduce the overall production costs of goods.

The supply chain comprises several steps that ensure a product or service reaches the intended customer. While it mainly deals with tangible goods, a supply chain can sometimes involve digital products and other services, depending on their delivery mode. These steps can include converting raw materials into products and moving the finished products from warehouses to customers. Supply chain management (SCM) is a broad discipline within the supply chain industry that optimises a company's production process to increase overall operational efficiency.

Related: What is supply chain management? (Definition and purposes)

Supply chain models

There are various supply chain models, each with different rules and steps to benefit the companies using them. Here are some examples:

  • Agile model: This model best suits companies involved in making specialised products. The agile model primarily works in situations where the demand for a product is inconsistent.

  • Continuous flow: The continuous flow model works best for high-demand products where variations are minimal. The model relies on the stability of both demand and supply and contains scheduled processes to ensure a continuous supply of goods and flow of information.

  • Custom-configured model: This is a combination of the continuous flow and agile models. The model suits companies that want to customise their assembly and production process configuration to meet business needs.

  • Efficient chain model: This model is suitable when a company's strategy is producing full-spectrum efficiency in highly competitive markets. Companies might maximise assets, such as machinery, to maintain efficiency while reducing their production costs.

  • Fast chain: This model is the best route for trendsetting products with a short market life cycle. Here, the company may focus on promoting the continuous renewal of its portfolio.

  • Flexible model: The flexible model gives a business more freedom to select the aspects of other models that best serve it. It's best suited for companies that focus on meeting unexpected demands. Thus, the workforce may face long periods and peaks in different workloads.

Steps involved in the supply chain

The steps involved in a supply chain can vary, depending on the model to which a company subscribes. Standard steps apply to most supply chains regardless of the model in use. They can include:

  • Sourcing and extraction: This step involves companies sourcing raw materials and extracting them to produce products for their consumers. For example, this could involve mining the ore required for steel manufacture.

  • Manufacturing: This stage involves the conversion of raw materials into finished products. For example, the manufacturer could turn steel into automobile frames.

  • Assembly: The assembly step involves turning some of the parts developed in the manufacturing stage into the final product. For instance, an assembly line might put together several steel components to develop the car's frame.

  • Sales: During this stage, the sales and marketing teams introduce the products to consumers for purchase. This stage may also involve marketing to reach the desired sales markets for the business.

  • Delivery: This stage involves the process of moving finished products into consumers' possession. For example, in delivering a vehicle, the manufactured car would travel to the dealership for sale or a manufacturer might customise a car and ship it to the client. In such situations, the supply chain would include direct-to-client shipping and logistics.

Related: What is a supply and demand curve and how is it useful?

Supply chain best practices

To allow supply chain managers to adapt to the ever-growing scale and speed of the global market. The following best practices in supply chain management are valuable to help achieve efficiency:

  • Lean SCM and logistics techniques: Lean techniques increase flexibility and minimise inventory waste, resulting in reduced costs and maximum profits.

  • Increased inventory velocity: It's essential for companies to ensure that their supply isn't higher than their customers' demand. Lean management ensures that companies capitalise on distributed and quickly changing demand.

  • Collaboration: It's vital that enterprises collaborate with the other businesses in their supply chain to optimise the entire chain and the individual enterprise's success. Company–supplier relationships are important.

  • Shorten cycles: Regarding the increasing complexity of supply chains, as the chain increases in length, so do the processes. Therefore, for businesses to meet customer expectations, it helps if they focus on keeping the supply chain as short as possible.

  • Utilising supply chain technology: Companies can leverage ever-growing technology for an efficient supply chain. Technology can allow managers to integrate their supply chains and pave the way for more effective collaboration.

  • Implementation of valuable metrics: Companies could take advantage of Big Data using metrics. Well-defined metrics can allow managers to gauge the chain's efficiency more accurately.

  • Real-time supply chain planning: Real-time supply chain planning helps a company to ensure that it isn't relying on historical data during planning. Accurate data is important because overcoming planning issues could be challenging if a company uses historical data to mitigate disruptions.

What is supply chain management?

Supply chain management defines the general oversight of information, materials and finances as they move from the supplier to the manufacturer, the wholesaler and the retailer until they reach the customer.

The supply chain comprises three main flows:

  • product flow

  • finance flow

  • information flow

These flows occur across three key stages: strategy, planning and operation. Supply chain management oversees the coordination and integration of these flows within companies.

Related: What does sourcing mean and what is its role in supply?

The importance of supply chain management

Supply chain management plays a significant role in business operations. Here are some aspects of its benefit to businesses:

  • A better strategy: Once companies begin focusing on the supply chain and align it with their existing technology, they're better positioned to deal with unwavering competition in the marketplace. Synchronising core processes like technology and people within the supply chain and overall organisation is essential in achieving the success of a business.

  • Emphasis on network design: Supply chain management uses strategic modelling to encourage the deliberate arrangement of supply chain networks. This emphasis on design helps the business operate more efficiently.

  • Improved customer service: Supply chain management focuses on delivering the correct finished product to customers. At its core, a supply chain's ultimate goal is to ensure a good customer experience and the capability of handling more sales.

  • Cost relief: When a business works towards cutting costs, supply chain management can help achieve greater efficiency. A robust supply chain can decrease overall costs and increase efficiency.

  • Stronger performance by suppliers: The existence of supply chains relies on suppliers, vendors and third-party relationships. Therefore, when individuals in management roles vet their suppliers and establish solid relationships, suppliers are more likely to perform better, significantly benefiting suppliers and companies.

  • Increased emphasis on corporate responsibility: Supply chain managers commit to ensuring that the supply chain sources product parts in an ethical manner and that the waste management stage of the chain disposes of hazardous waste correctly in the manufacturing process. This way, the chain's businesses can live up to the corporate responsibility expectations of their modern customers.

  • Improved risk mitigation: Analysing granular and overall supply chain data can help bring potential risks to the fore. Risk analysis enables companies to put backup plans in place to adequately respond to any unforeseen circumstances.

  • Improved cash flow: In addition to helping companies improve their decision making, choose better partners and respond to changes in the market, supply chain management systems can also improve a company's cash flow. For instance, reliable suppliers cause fewer disruptions, increase client satisfaction, and improve cash flow, thus, allowing the company to invoice sooner.

  • Shipping optimisation: Supply chain leaders put shipping optimisation at the top of their priority list because of rising transportation costs. Selecting the most efficient shipping method for bulky and small orders helps companies deliver customer orders while cutting down on costs, which helps in boosting a company's bottom line.

The supply chain and business logistics management

Often, people use the terms logistics and supply chain management interchangeably. Business logistics (logistics) is just a link in the supply chain and has a different meaning. Supply chain logistics management refers to the section of the supply chain that involves planning and controlling the movement of goods and services from their point of origin to the consumer.

The logistics management process starts with raw materials and ends with the delivery of finished products. Good logistics management ensures minimal delays in delivery at all the points in the chain. It also ensures that the products and services reach the consumer in good condition. In turn, this keeps the company's costs in check.

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