When you fill your car up with petrol, you probably don’t think much about where it comes from – where the crude oil was drilled, how it was refined, where it was shipped from and how it arrived in the petrol station. But these are all vital components of the supply chain that got the petrol from the producer to you.
A supply chain encapsulates the process of bringing a product or service from conception to market – all the raw materials, operations, logistics and distribution of a product or service from producer and supplier through to the retailer.
Steps in a supply chain
There are multiple steps in a chain, and some will be more complex than others depending on the nature of the goods. Here are some basic steps that apply to all of them:
- Sourcing or extracting raw materials
- Basic refining
- Turning a refined product into the end product
- Sales and order fulfilment
- Getting the product to the customer
- Post-sales customer support
The amount of time it takes to go from raw materials to supplier then customer supply is known as lead time.
Supply chain management
Supply chains can be complex creatures to look after, and the processes above, from logistics to operations, all need to be documented and managed before the final product reaches the end customer. Supply chain management (SCM) is the practice of tracking and optimising the end-to-end process, ensuring it’s coordinated with suppliers and is cost-effective from the bottom up.
Supply chain managers are important throughout the product cycle. They work to meet customer expectations by ensuring all processes run smoothly, from product development and production planning through to customer service and delivery.
Effective SCM relies on supply chain leaders pulling everyone together across the supply chain network so information flows freely and businesses processes work.
There are three main flows in supply chain management:
- Information flow
- Product flow
- Finances flow
A supply chain leader may be cross-functional in all three and may need to work cross-industry too to achieve the day-to-day business objectives.
One of the long-lasting effects of Covid-19 has been the ongoing disruption of global supply chains, highlighting more than ever the need for effective supply management.
Unfortunately, small disruptions in supply can have a significant impact on the production process and wipe out any competitive advantage, particularly when there is high demand.
Despite a gradual move towards cloud-based software and e-commerce, outdated processes have also impeded efficiency for many companies, such as the use of legacy supply chain software and relationships which are not customer-centric.
The holy grail of supply chain management is ensuring there is just enough supply and demand. Too much or not enough of either can destroy your bottom line and damage customer relations.
Frequently asked questions
What is the definition of a supply chain?
A supply chain is the process of taking base materials, turning them into the finished product and supplying it to the customer.
What is supply chain management?
Effective supply chain management is the process of making sure customers get the product they want when they want them. It’s crucial to individuals, businesses and governments. Not getting your hands on the latest Nikes isn’t life or death, but not being able to procure cancer-treating medicines is.
How important is a supply chain?
An organised supply is essential to meet customer demand, manage inventory, optimise operations and deliver the product to the end-user.