Supply Chain Definition & Meaning

A supply chain is a network between an organization and its suppliers to deliver goods and/or services to the final customer. This network consists of activities, people, entities, information, and resources that focus on the activities required to convert raw materials or elements into finished products or services. Typical steps within a supply chain include:

  1. Sourcing raw materials
  2. Refining or manufacturing materials into basic parts
  3. Assembling basic parts into finished products
  4. Selling finished product to final customers
  5. Distributing finished products
  6. Returning products to the manufacturer for refund or recycling

Companies develop a supply chain to reduce costs, stay competitive, and build a faster production cycle, which is imperative for consumers who want goods and services quickly. Important entities involved in a supply chain include:

  • Producers
  • Vendors
  • Warehouses
  • Transportation companies
  • Distribution centers
  • Retailers

Supply chain management

Supply chain management (SCM) is an umbrella term that encompasses product development, sourcing, production, procurement, and logistics in relation to supply chain operations. SCM does not involve only the movement of a physical product—such as a microchip—through the chain, but also any data that goes along with the product—such as order status information, payment schedules, and ownership titles—and the actual entities that handle the product from stage to stage of the supply chain.

There are essentially three goals of SCM: reduce inventory, increase the speed of transactions with real-time data exchange, and increase revenue by satisfying customer demands more efficiently.

Supply chain management software (SCMS) is a software application used for executing supply chain transactions, managing supplier relationships, and controlling related business processes. This software provides a real-time analytical system that manages the flow of product and information throughout the entirety of the supply chain. SCMS is often integrated into Enterprise Resource Planning software.

Supply chain methods

There are multiple supply chain methods organizations can choose to implement depending on business need. A few common supply chain methods include:

  • Transaction Cost Analysis (TCA): The TCA model determines whether materials or products were priced well (or not) when purchased and sold. Organizations can use this information to make better decisions for stocking warehouses.
  • Channel Coordination: Most commonly applied to inventory management and ordering, channel coordination looks beyond individual channels and coordinates multiple channels to reduce costs and time.
  • Network Perspective: If working with a third party logistics provider, network perspective allows a network of businesses to create a common supply chain.

 

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Abby Dykes
Abby Dykes
Abby Dykes is a newly-graduated writer and editor for websites such as TechnologyAdvice.com, Webopedia.com, and Project-Management.com. When she’s not writing about technology, she enjoys giving too many treats to her dog and coaching part-time at her local gym.

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