Supply Chain, How does it Work and Examples in Business?
Supply Chain is the entire system of production and delivery of a product or service, from the initial stage of sourcing raw materials to the final delivery of the product or service to the end user. The Supply Chain describes all aspects of the production process, including the activities involved at each stage, the information communicated, the natural resources transformed into useful materials, human resources, and other components that become the finished product or service.
Supply Chain is a network that connects manufacturers, suppliers, vendors, and end buyers. The network includes all processes, people, entities, information, and resources.
We can also define Supply Chain as the series of steps involved in delivering a product or service to the end consumer. This series of steps can involve collecting raw materials from suppliers, converting them into finished goods, distributing them to vendors, and selling them to the end consumer.
Entities involved in the Supply Chain include manufacturers of goods, vendors, warehouses where manufactured goods are stored, transportation companies that ensure that goods get to vendors, suppliers, retailers, and customers.
To ensure goods reach from the manufacturer to the customer, the Supply Chain needs to be managed. Supply Chain Management is the process that does the work for a company.
How Supply Chain Works
The main task of the Supply Chain Manager is to centrally control the Supply Chain and also connect all processes from production, delivery, and ultimately, product distribution.
SCM works on the core idea that almost every product released in the market is the result of the efforts of various organizations that make up the Supply Chain. Although SCM has been around since the beginning, companies have only recently taken notice and considered it a value-add to their operations.
There are five basic components of a traditional SCM system:
1. Planning
The Supply Chain Management process starts with planning on how to fulfill customer demand for a product or service. Once the order is received, the SCM plans ahead.
It also involves determining metrics to measure the efficiency of the Supply Chain, its effectiveness, and whether it is able to deliver value to customers while meeting company objectives.
2. Source
Once the planning phase is complete, it’s time to select the suppliers who will provide the raw materials, goods, or services needed to make the product. Suppliers are an important component of the supply chain.
In the sourcing phase, processes are established to monitor and manage supplier relationships. This includes creating contracts that govern new suppliers as well as maintaining existing relationships.
Strategic sourcing is a term used among SCM that means overseeing the process of ordering, receiving, inventory management, and authorizing payment of invoices for suppliers.
3. Manufacturing
After the accumulation of raw materials needed to make a product, the manufacturing process takes place.
SCM are required to check all the steps involved in manufacturing a product. This includes reviewing and receiving raw materials, manufacturing, quality testing, and finally packaging.
Coordinating manufacturing processes allows businesses to evaluate quality, production output, and employee productivity. This helps in ensuring that overall standards are upheld.
Modern technologies play a key role in the manufacturing industry such as IoT in manufacturing.
4. Send to Customers
Once a product is manufactured, it is imperative that it reaches the end consumer. SCM ensures product delivery and that is achieved through logistics.
SCM coordinate customer orders, schedule shipments, deliver loads, invoice and receive payments.
Generally, the shipping process involves a fleet of vehicles from tankers carrying products manufactured overseas to a fleet of trucks and parcel services handling long-distance deliveries.
As such, some organizations outsource delivery to other organizations that specialize in home delivery and special handling.
5. Product Returns
The responsibilities of SCM don’t end after product delivery. They need to create a network that supports product returns.
Returns may mean scrapping or remanufacturing defective products or may mean returning products to the warehouse. The network must be flexible and responsible to support customer needs.
Enabling is an additional component of a Supply Chain Management (SCM) system. It means taking support from various departments of the organization to monitor the process remains in compliance with all regulations.
Possible processes include finance, HR, IT facilities, portfolio management, product design, sales, and quality assurance.
Differences between Logistics and Supply Chain
SCM outlines the strategies and activities that go into planning, procuring, producing and delivering goods, and handling returns. Logistics focuses on the right product being in the right place at the right time, and how to get it there.
Key Differences Between Supply Chain Management and Logistics
As should be clear at this point, SCM and logistics definitely intersect, but they differ in terms of their scope and focus.
Key Differences Between Supply Chain Management and Logistics
| Logistics | Supply Chain |
| Logistics is one of the activities in supply chain management. | SCM covers a wide range of activities, including planning, material sourcing, labor and facilities management, production and delivery of those goods and services. |
| Logistics focuses on the efficient and cost-effective delivery of goods to customers. | SCM targets higher operational performance that will give the business a competitive edge. |
| Logistics started with the military. Many say Alexander the Great, born 356 BC, was a master of logistics. | The modern practice of SCM began in the 20th century. Ford Motor Company’s production line perfected the concept. Many logistics experts credit Keith Oliver with coining the term in the early 1980s. |
| Logistics centers on the movement and transportation of goods within a company. | SCM oversees the development of raw materials into finished goods that move from producer to producer. Those goods are distributed to retailers or directly to consumers. |
Example of Supply Chain Implementation in Business
For many businesses, one of the most complicated processes to try and succeed is SCM. These are six Supply Chain examples that demonstrate the efficiency and effectiveness of Supply Chain when managed correctly.
Amazon
For an efficient supply chain, Amazon is the first company that comes to mind.
Amazon is one of the largest internet-based retailers in the world, with headquarters in Seattle Washington, Amazon also currently operates from thirty other country-specific sites. However, Amazon has a global reach thanks to Amazon Global Selling.
Amazon has an incredible supply chain that ships over 10 million different products, and operates a marketplace system as well. Their Supply Chain method utilizes the lowest possible inventory levels yet delivers at an incredible speed. In some cases of Amazon Prime, deliveries can be made by customers in less than two hours.
With a high level of efficiency and a completely customer-driven shopping experience, that’s what many eCommerce businesses strive for. In the future, Amazon continues to strive for customer satisfaction by developing Prime Air, a drone delivery system to deliver packages to customers within just thirty minutes of ordering.
Coca-Cola
There are very few places in the world where Coca-Cola is not available.
Keeping every aspect in-house, The Coca-Cola Company products, markets and distributes their products worldwide. Despite being a globally recognized brand, Coca-Cola is not just a broad distribution strategy. Each market area is segmented to allow Coca-Cola to focus their appeal and marketing. Beverage flavors and concentrations change, as do product sizes and presentation. In fact, 95% of the beverage is made in the country it is sold to maximize efficiency.
Operating in more than 200 countries, the logo is recognized by 94% of the world’s population; Coca-Cola is an excellent example of how Supply Chain does not only focus on logistics, but also includes marketing, branding, and advertising.
Zara
International clothing brand Zara is renowned for its cutting-edge fashion but tends not to be recognized as one of the best Supply Chain examples due to its green credentials and commitment to waste management. Their waste management strategy encompasses many aspects of the Supply Chain helping to minimize the impact on the environment while being as efficient and effective as possible.
In logistics, their vehicles use biodiesel while in production they focus on organic cotton and other eco-friendly fabrics. The main commitment is through production methods, where their innovative technology allows them to cut, measure and handle materials as efficiently as possible to minimize wastage. With operations in 88 countries, their impressive environmental commitment to their supply chain is brand proof and a perfect fit for eco-conscious fashion buyers.
Supply Chain becomes a very important production system for the business itself. Well, if you want to do a management system for your fleet, you can use Fleet Management Systems from TransTRACK. Make managing your fleet operations easier by switching to the right Fleet Management Systems!
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