What is a Supply Chain? - Definition, Models and Best Practices -- WhatIs.com (2024)

What is a Supply Chain? - Definition, Models and Best Practices -- WhatIs.com (1)


  • Ben Lutkevich,Technical Features Writer

What is a supply chain?

A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product. A supply chain encompasses everything from the delivery of source materials from the supplier to the manufacturer through to its eventual delivery to the end user. The supply chain segment involved with getting the finished product from the manufacturer to the consumer is known as thedistribution channel.

Steps in the supply chain

The fundamental steps of a supply chain in order are as follows:

  • Sourcing raw materials.
  • Refining those materials into basic parts.
  • Combining those basic parts to create a product.
  • Order fulfillment/Sales.
  • Product delivery.
  • Customer support and return services.

The amount of time it takes any one of these processes from start to completion is known as lead time. Supply chains are managed by supply chain managers, who monitor lead time and coordinate the processes in each step to maximize customer satisfaction.

Supply chains can be contrasted against value chains -- they contribute to the end product in different ways. Supply chains aim to meet customer demands. Value chains seek to add value to a product on top of its inherent value. The purpose of the value chain is to give the company a competitive advantage in the industry. Supply chain management and value chain management are two slightly different perspectives on the same basic process and work in tandem to meet two slightly different definitions of "demand."

Supply chain management

Supply chain management (SCM) is the oversight of materials, information and finances as they move in a process from supplier to manufacturer to wholesaler to retailer and then to the consumer. The three main flows of the supply chain are the product flow, the information flow and the finances flow. These occur across three main stages: strategy, planning and operation. SCM involves coordinating and integrating these flows both within and among companies.

What is a Supply Chain? - Definition, Models and Best Practices -- WhatIs.com (2)

Supply chain models

There are several common supply chain business models that supply chains fit into. The models have two main focuses: responsiveness and efficiency. Each model strives for some combination of both but approaches those goals differently. In addition, models tend to favor one over the other. Organizations can evaluate the value proposition of each in relation to their goals and constraints, and choose which suits them best.

The model types are:

  • Continuous flow model -- works best for mature industries with a degree of stability.
  • Agile model -- works best for industries with unpredictable demand and products that are made to order.
  • Fast chain model -- works best for products with a short lifecycle, such as fashion items.
  • Flexible model -- works best for industries with a level of stability and a few relatively predictable demand peaks.
  • Custom configured model -- focuses on customizing.
  • Efficient chain model -- works best for highly competitive markets in which pricing plays a large part.

The models are subject to overlap and should be designed by the supply chain manager to fit the unique supply chain.

Supply chain challenges

Modern supply chains are complex and present several common challenges. These are:

  • Potential lack of transparency. Having transparency enables stakeholders to understand the status of the supply chain.
  • Waste due to inadequate production cycle. Businesses that inaccurately gauge their supply, demand or capabilities may end up with an overstocked inventory.
  • Unsatisfied business partners and customers. The ultimate goal of SCM is to meet customer expectations. This involves managing those expectations realistically, but also providing a valuable product.
  • Lost or delayed goods. Goods that go missing at any point in the chain ultimately delay the whole process and can impact customers negatively.
  • Increasing customer expectations. New technology and businesses raise customer expectations, which can be difficult to manage, and impossible to meet if not properly managed.
  • Resiliency to sudden changes in the supply chain. External factors can cause unforeseen changes in a supply chain, so best practice is to prepare for the unexpected and be able to pivot if need be.

Supply chain best practices

Supply chain managers need to adapt to the growing speed and scale of the global marketplace. Best practices for doing this include:

  • Use lean SCM and logistics techniques. Lean increases flexibility and minimizes inventory waste.
  • Increase inventory velocity. Companies need to ensure their supply doesn't outweigh demand, and that they can capitalize on distributed, quickly changing demand. Lean is one way to do this.
  • Enterprises need to collaborate with other businesses in their supply chain to optimize the entire chain, not just one company's process. The relationship with suppliers is especially important.
  • Shorten cycles. As supply chains become more complex, they get longer, and so do processes. Businesses should aim to keep them as short as possible to meet customer expectations.
  • Use supply chain technology. Technology allows managers to integrate their supply chains and collaborate more effectively.
  • Implement useful metrics. Well-defined metrics allow managers to accurately gauge the efficiency of the chain.

The evolution and future of the supply chain

In the 1980s and 1990s, increasing globalization, outsourcing and availability of information spurred the need to integrate business processes across the entire global supply chain, which resulted in the idea of supply chain management. This marked a shift from the traditional supply chain, which just involved the basic logistic steps of production. With the integration, companies gained more visibility in steps following and preceding theirs in the chain, and each company involved in a supply chain became focused on optimizing the entire chain instead of just their local process.

As such, market competition dynamics changed as well. Instead of individual companies in competition, entire chains consisting of several enterprises would compete, as company investment in their respective chains grew. Enterprises began to outsource manufacturing and logistics processes to third-party companies.

The increase in visibility as a result of globalization and advancing technology had beneficial effects for businesses, such as improved product traceability and social responsibility efforts.

Since then, the evolution of internet businesses, the internet of things (IoT) and mobile computing have changed the way customers order products and the way businesses work. The internet enables customers to directly contact product distributers. This has consequently shortened the supply chain by removing some middlemen and encouraged collaboration.

However, internet businesses like Amazon have raised customer expectations for delivery times and convenience. Normalizing features like next-day delivery may increase order fulfillment efficiency, but also puts stress on other parts of the chain. Because orders can be made and received faster, they need to be delivered at an equally accelerated pace. This often leads to waste as companies over-order materials and then face a lower volume of orders. Machine learning, artificial intelligence and automation, among other technologies, have helped companies increase responsiveness to meet this increasing demand.

Traditional supply chains had a more localized, bottom-up approach that dictated work closer to the supplier. Amazon's backward vertical integration represents the opposite approach, in which the company started as a retailer and worked backward to become a publisher and partial owner of its distribution channel.

The COVID-19 pandemic has accelerated the diverse sourcing trend and placed an increased emphasis on inventory management and visibility. Machine learning and artificial intelligence will play an increasingly large part in diversifying supply change and improving the responsiveness and resiliency of supply chains, likely continuing after the economic shock from the pandemic has passed.

The pandemic may also cause economies to restructure their supply chains away from ultra-lean models that rely heavily on flexibility and network interconnectedness to provide product quickly.

This was last updated in June 2021

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What is a Supply Chain? - Definition, Models and Best Practices -- WhatIs.com (2024)


What is the definition of supply chain model? ›

What Is Supply Chain Modeling? Supply chain modeling represents a conscious attempt to bring order into a supply chain to achieve certain business objectives, such as lowest supply cost, on-time delivery and an ability to cope with disruption. It deals with questions such as: What to produce. Market identification.

What is the best definition of supply chain management? ›

Supply chain management is the handling of the entire production flow of a good or service to maximize quality, delivery, customer experience and profitability.

What is supply chain answer? ›

At the most fundamental level, supply chain management (SCM) is management of the flow of goods, data, and finances related to a product or service, from the procurement of raw materials to the delivery of the product at its final destination.

What is the definition of supply chain management in your own words and list its most important activities? ›

Supply chain management is the process of delivering a product from raw material to the consumer. It includes supply planning, product planning, demand planning, sales and operations planning, and supply management.

What are the four stages of supply chain model? ›

Integration, operations, purchasing and distribution are the four elements of the supply chain that work together to establish a path to competition that is both cost-effective and competitive.

What are the models of supply chain performance? ›

SCOR model for supply chain performance measurement

In the SCOR model, there are also 5 process namely plan, source, make, deliver and return. In addition, there are 3 process levels, namely the level 1 process type, level 2 process configuration, level 3 element of the SCOR process which can be seen in figure 1 [8].

What is supply chain in simple terms? ›

A supply chain is a connected system of organizations, activities, information and resources designed to source, produce and move goods from origination to a final destination—typically from a supplier to an end customer. Modern supply chains are often very complex, spanning multiple countries and involving many steps.

What is supply management in simple words? ›

Supply Management refers to the act of finding, procuring, and managing resources & suppliers critical to an organization's operations. Supply management, often known as procurement, includes purchasing physical items, information, services, and other resources required by a business to continue operating and growing.

What is the main purpose of supply chain management? ›

Supply chain management allows organizations to deliver more quickly, ensure products are available, reduce quality issues, and navigate returns with ease, ultimately improving value, both within the organization and for the customers.

What is supply chain with example? ›

It includes the handling of the entire flow of goods and services, starting from procuring the raw components from vendors to delivering the final product to customers. An example of a supply chain in the food industry includes farming, manufacturing, packaging and transporting food products.

What is supply chain major summary? ›

Supply Chain Management Major

The supply chain includes planning, procurement, manufacturing, fulfillment, inventory management, logistics, returns to suppliers, and returns from customers – all the functional areas involved in receiving and filling a customer's order with a repeatable and satisfying experience.

Who defines supply chain? ›

The term "supply chain management" was first coined by Keith Oliver in 1982.

What are the 5 basic steps of supply chain management? ›

The Top-level of this model has five different processes which are also known as components of Supply Chain Management – Plan, Source, Make, Deliver and Return.

What are the 7 supply chain functions? ›

The components of a supply chain include producers, vendors, warehouses, transportation companies, distribution centers, and retailers. The functions of a supply chain include product development, marketing, operations, distribution, finance, and customer service.

What are the key elements of supply chain management? ›

10 Basic Elements of Supply Chain Management
  • Integration.
  • Operations.
  • Purchasing.
  • Distribution.
  • Agility.
  • Innovation.
  • Performance Measurement.
  • Alignment.
Jul 8, 2022

How many types of supply chain models are there? ›

6 Types of Supply Chain Models Explained. Companies use different models to organize and manage their supply chains. Selecting the model that best suits a company's business process can help control costs and reduce risk. Each model has pros and cons, making it crucial to choose the right one.

What are the three key supply chain phases? ›

Supply Chain Management (SCM) involves the following three levels:
  • Strategic Level.
  • Tactical Level.
  • Operational Level.

What are the 6 steps in successful supply chain relationship model? ›

6 Steps to a Superb Supply Chain…
  • Step One: Quality.
  • Step Two: Visibility.
  • Step Three: Process.
  • Step Four: Communication.
  • Step Five: Responsiveness.
  • Step Six: Culture.
Oct 11, 2013

What is the best model of supply chain management? ›

The continuous flow model is one of the most traditional supply chain models. This model is ideal for commodity manufacturing and companies that produce the same goods constantly with little to no fluctuations and high demand stability. It's best-suited to mature industries.

What is the best approach to supply chain modeling? ›

Many businesses use the Flexible Model as their primary supply chain model. The Flexible Model allows businesses to keep inventory levels low, which can reduce costs and increase profits. This model is especially popular in industries where demand can change rapidly, such as the fashion industry.

Is supply chain models important why? ›

It helps retailers reduce excess inventory and lower the cost of storing products. The success of sales and marketing relies on effective supply chain models that help ensure that the right quality product is available at the right place and at the right time.

What is another term for supply chain? ›

What is another word for supply chain?
logistics networksupply network
inventory managementorder fulfillment
order processingproduct delivery
product distributionservice delivery
3 more rows

What is the difference between supply chain and logistics? ›

Supply chain management covers a wide range of activities, including planning, sourcing materials, labor and facilities management, producing and delivering those goods and services. Logistics focuses on the efficient and cost-effective delivery of goods to the customer.

What are the three most important functions in supply chain management? ›

Procurement, storing, and delivery is the functions of supply chain management. All these are now done in a coordinated manner to improve efficiency, reduce costs and improve customer experience.

What are the three benefits of supply chain? ›

Important benefits of supply chain management
  • Better collaboration with suppliers.
  • Better quality control.
  • Shipping optimisation.
  • Reduced inventory and overhead costs.
  • Improved risk mitigation.
  • Stronger cash flow.
  • A more agile business.
  • Better visibility and data analytics.
Jan 26, 2022

What is a real world example of supply chain? ›

One example of a supply chain is the production of smartphones. The supply chain for smartphones includes various components such as the screen, battery, processor, and casing, which are manufactured by different suppliers located in different parts of the world.

What are 3 examples of supply chain management? ›

Examples of supply chain activities can include designing, farming, manufacturing, packaging, or transporting.

What are examples of supply chain in daily life? ›

Examples of supply chain activities include farming, refining, design, manufacturing, packaging, and transportation.

What are the 7 C's of supply chain management? ›

We identify, based on the literature, the '7 Cs of supply chain management': Connect, Create, Customise, Coordinate, Consolidate, Collaborate and Contribute.

What are the 7 R's of supply chain management? ›

So, what are the 7 Rs? The Chartered Institute of Logistics & Transport UK (2019) defines them as: Getting the Right product, in the Right quantity, in the Right condition, at the Right place, at the Right time, to the Right customer, at the Right price.

What are the four 4 components of supply chain management? ›

Supply chains are composed of four major elements: procurement, operations, distribution, and integration.

What are the 8 supply chain processes? ›

The Supply Chain Management Process includes the building blocks of Supply Chain Management are Strategic Planning, Demand Planning, Supply Planning, Procurement, Manufacturing, Warehousing, Order Fulfillment and Transportation business processes.

What are the 6 pillars of supply chain management? ›

DU's six pillars of SCM (Design, Source, Plan, Make, Deliver, Sustain) are similar to the SCOR model but different in that it enables the supply chain system to be a key strategic element of a business model versus only being in a tactical support role.

What are the 4 main functions of SCM? ›

Five Functions of Supply Chain Management
  • Purchasing. The first function of supply chain management is purchasing. ...
  • Operations. ...
  • Logistics. ...
  • Resource Management. ...
  • Information Workflow.
Feb 4, 2021

What is the most important part of a supply chain? ›

Transportation Of Goods

The supply chain refers to the movement of goods from the raw material supplier to the customer. If goods must move, there must be a carrier. Transportation is a critical element in supply chains. Without this component, a supply chain will cease to exist.

What is an example of a supply chain model? ›

PepsiCo is a well-known example of a continuous supply chain model. The company's family of drinks and foods maintains a large customer base with little to no variety in demand no matter the season or market conditions.

What is supply chain in healthcare? ›

The healthcare supply chain is an extensive network of systems, components, and processes that collectively work to ensure medicines and other healthcare supplies are manufactured, distributed, and provided to patients.

How do you create a supply chain model? ›

7 easy steps to set up your supply chain correctly
  1. Choose Your Inventory Assortment. This is where your genius as a founder comes in. ...
  2. Forecast Demand. ...
  3. Size Your Inventory Buys. ...
  4. Track Your Purchase Orders. ...
  5. Track Your Inventory. ...
  6. Understand Your Inventory Position. ...
  7. Fulfill Your Orders. ...
  8. Staying sane.

Why is the supply chain model important? ›

Why Is Supply Chain Management Important? Modern supply chains help improve living standards by enabling consumers to buy essential products at lower costs. This is because an effective supply chain streamlines the process of getting products to market, and ultimately to consumers.

What is a simple example of supply chain? ›

Supply chain management is the practice of coordinating the various activities necessary to produce and deliver goods and services to a business's customers. Examples of supply chain activities can include designing, farming, manufacturing, packaging, or transporting.

What are the 3 types of supply chain? ›

Supply Chain Management (SCM) involves the following three levels:
  • Strategic Level.
  • Tactical Level.
  • Operational Level.

What are the 5 parts of supply chain? ›

The Top-level of this model has five different processes which are also known as components of Supply Chain Management – Plan, Source, Make, Deliver and Return.

What are the five in supply chain? ›

Five supply chain drivers, Production, Inventory, Location, Transportation, and Information, influence the performance of the supply chain. Companies can develop and manage these drivers to emphasize the ideal balance between responsiveness and efficiency, depending on your business and financial requirements.

What are the 7 supply chain management? ›

While supply chain is a very broad career field, it has 7 primary functional areas: Purchasing, Manufacturing, Inventory Management, Demand Planning, Warehousing, Transportation, and Customer Service.

What is supply chain flow chart? ›

Supply chain management workflows, or flow charts, show the detailed and specific actions required to achieve end to end product delivery.

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