What Is a Supply Chain? (With FAQs and Examples)
By Indeed Editorial Team
Published 24 August 2021
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.
The supply chain is an important network in business infrastructure that assists heavily in production and distribution for companies that sell products. An effective supply network can help companies deliver finished products to their consumers efficiently, which can help improve profit margins. Understanding how a resource chain works and what components affect the chain can help you discover ways to incorporate an efficient chain in your organisation. In this article, we explore more about what a supply chain is and why it's important and provide more information about the steps and elements of effective chains.
What is a supply chain?
The supply chain is the network of vendors, companies and employees that exists to assemble, ship and deliver goods to consumers. Also called a supply network, it's an infrastructure that includes resources like people, companies, data, activities and technology that results in final products reaching those who purchase them. A supply network consists of several steps that get a product or service to the customer. Often, a supply network refers to tangible goods, but it can sometimes refer to digital goods and other services.
Why is a supply network important?
An established resource chain is essential in business operations. It can help ensure that the company has the right materials, parts and people to create a finished product. Here are some additional reasons a supply network is important:
Enhanced business strategy: Companies can improve their strategic preparedness to handle competition in the marketplace if they focus on aligning the supply group with existing business procedures and technology.
Improved network design: Implementing an effective supply network encourages the deliberate arrangement of the company's supply network through strategic modelling.
Amplified customer service: Creating an efficient supply network can improve the overall customer experience because it can get the products to the customer faster and it can also increase supply network capabilities.
Decreased supply expenses: By reducing the time to deliver goods or services with an efficient resource chain, companies can reduce the expenses related to lengthier supply networks.
Improved supplier performance: Vendors, suppliers and third-party relationships are all relationships that a supply network relies on, so accurately vetting these relationships can help improve source chain performance.
Expanded corporate responsibility: Supply networks can also help companies find ethically sourced materials and products which improve the corporate responsibility of the company. This can also increase modern customer profit margins.
4 types of supply chains
There are several chain types that enable companies to source materials and deliver products to the market that align with their objectives and goals. Each supply network type focuses on components of the chain that can increase the efficiency or margins of the chain. Here are the four different types of supply networks that companies can implement in their organisation:
Implementing an agile supply network can increase the responsiveness, competency and flexibility of a company's supply network on a daily basis. This model utilises real-time data to leverage operations, which increases the overall efficiency of the chain. This model is effective with companies that create specialised products because it works well with inconsistent demands.
2. Continuous flow
The continuous flow model is a traditional supply model that enables companies to produce and distribute goods constantly with little to zero fluctuations. This increases the stability of the supply network because companies have the ability to continuously replenish materials and products reliably. This model is effective with well-established companies that produce and distribute the same goods with high levels of demand.
3. Efficient chain
The efficient chain model allows companies to distribute products ahead of their demand by projecting future consumer needs. This can help companies reduce transportation costs and maximise profits because needed products are already available to consumers. This model is useful for companies that operate in highly competitive markets and require a full-spectrum efficient supply network.
4. Fast chain
Companies mainly implement the fast chain to deliver finished trendy consumer items to markets. This helps companies deliver products quickly for items that have a relatively short market lifespan. This model is most effective for companies that change their products frequently and want to get the product to market before the trend is no longer relevant.
5 elements of supply chain management
For an effective chain that can support an operation to exist, several elements work together. The specific elements of a supply network can vary between chain types however, the five common elements of supply groups include:
1. Material sourcing
Many companies source raw materials in order to produce consumer products. They might also source materials from other companies to produce finished products quickly. Some examples of raw materials include wood, ore, grain, oil and coal. Many consumers focus on how companies source raw materials, and many make their purchase decisions on how ethically sourced a company produced their products.
During this stage of production, companies take raw materials or sourced products to create production parts. Manufacturing can involve several steps or just a few, but quality is an important component of the production process. In many industries, the quality of manufactured parts begins with the quality of raw materials.
This stage takes the parts created from the manufacturing stage and puts them together to create a finished product. This stage may likely create the finished product that consumers can then utilise. An example of the assembly stage is taking multiple wood products to create a finished cabinet system that consumers can then purchase.
The sales stage is when companies introduce consumers to the finished products for purchase. Some consumers may use the finished products in their services or products they then sell to others. Some companies may also advertise their finished products prior to production to ensure that they have a customer for their product.
The delivery step is how businesses get products to their consumers. Some companies have stores incorporated into their manufacturing location, while others ship their products to stores so customers can then purchase those products. Other companies may also deliver the product to the end customer, such as when a customer is buying a custom-built vehicle.
Here are a few frequently asked questions about supply networks:
How is a supply network different from business logistics management?
Many use these two terms interchangeably, however, they refer to slightly different aspects of delivering products to consumers. Business logistics management is a part of the supply network but is specifically the portion that handles planning and coordinating the movement of goods and services to their final destination. The supply network is the entirety of the production process, from raw material sourcing to consumer purchase.
How does the flow of manufacturing costs work?
The flow of manufacturing costs is the process of how much materials and labour a company uses to complete a finished product. An effective supply network can help reduce these costs because it can reduce the labour hours and complexity of the manufacturing process. This is largely useful for companies that have products with many parts or steps in their production process.
How do reliable suppliers affect the supply network?
Reliable suppliers can help improve the quality and speed of finished product production. Suppliers delivering high-quality materials can improve the overall quality of the finished product and lead to higher customer satisfaction. For example, a company producing finished wood products wants a supplier that provides them with quality lumber products that don't have defects or stains.
How does deflation help improve company profits?
Deflation, in relation to the resource chain, can help reduce costs as the supply network becomes more efficient. Companies that have a well-established chain can decrease the time taken to get the finished product to the final destination, which then lowers the ultimate cost to the consumer. As company globalisation continues, supply networks and physical distribution can become more efficient, which helps to reduce costs.
Continuous chain example
The following is an example of a continuous supply network:
Food Express is a company that produces ready-to-eat meals for consumers. Based on consumer data, the demand for their products is steady and they offer the same product types to customers. With this information, Fresh Food For You decides to implement a continuous supply network to have their meals readily available to the consumer market so consumers can purchase their items regularly.
Fast chain example
The following is an example of a fast supply network:
Fashion Co. is a fashion and design company that specialises in trendy seasonal clothing. Based on consumer data, their products are in high demand during the winter months, but in less demand during the summer months. Based on this data information, they decided to implement the fast supply network model to deliver their seasonal winter clothing to the market while demand is high.
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