DEFINITION: The phrase “supply chain” refers to the network of individuals and businesses engaged in the physical production of a commodity and its transportation to consumers.
The nodes in this chain begin with the miners or other producers of raw materials and end as the completed product reaches the consumer (which may be a business), via a retail outlet, the US mail, or a private delivery service.
Supply chain management plays a central role in modern commerce. Businesses strive to optimize the efficiency of their supply chains, because doing so reduces expenses and improves competitiveness.
ETYMOLOGY: It appearsthat the British logistician and business consultant Keith Oliver coined the terms “supply chain” and “supply chain management.” He first used these phrases in a public forum in an interview he did for the Financial Times on June 4, 1982.[1]
The English noun “supply” is attested from the fifteenth century. The associated verb derives, via Middle English supplien, from Middle French soupleier and, ultimately, from Latin suppleo, supplēre, meaning “to fill up,” “to make complete.”
The English noun “chain” is attested from the fourteenth century. It derives, via Middle English cheyne and Middle French chaiene, from Latin catena, all with the same meaning.
USAGE: A supply chain encompasses all the stages essential for delivering a finished product or service to the customer.
These stages encompass everything from extracting and refining raw materials, to transporting raw materials to production facilities, to conveying completed products to distribution centers or retail outlets or public or private delivery services for eventual distribution to the end consumer.
Thus, supply chains may consist of such entities as producers, suppliers, factories, storage facilities, transportation enterprises, distribution hubs, and brick-and-mortar or online retail establishments.
Sometimes, the concept of “supply chain” is given an even wider interpretation, encompassing all of the above-mentioned activities and entities, plus such additional activities as research and development, product design, financing, marketing, and customer service.
Supply chain management—that is, the effort to optimize supply chains for efficiency—has the potential to reduce a company’s overall expenses, thereby enhancing its profitability.
The considerable importance of supply chains may be brought home by emphasizing the following fact: The failure, or temporary disruption, of a single link within a supply chain may have cascading effects on the entire production process, leading to avoidable excess costs.
There are numerous different forms of supply chain models. A given company’s choice of model will depend upon its organizational framework and particular requirements.
The following are some common examples:
Continuous Flow Model: Suited for enterprises manufacturing largely uniform products, which enjoy substantial demand and require little or no alterations. The absence of significant fluctuations permits efficient production scheduling and exacting inventory management. Under this model, managers must continually replenish raw materials to avoid production bottlenecks.
Fast Chain Model: Suitable for enterprises capitalizing on current trends. In order to effectively leverage prevailing trends, companies employing this model must move quickly from concept to prototype, to production, and, ultimately, to distribution to the consumer. A prime example of an industry making use of this type of supply chain model is the fast fashion sector.
Flexible Model: Companies that manufacture seasonal or holiday merchandise often use the model. Such companies experience periodic surges in demand for their products, followed by long fallow periods of little to no demand. This model ensures that companies will be able to begin production quickly when the time is right and—equally importantly—to shut down production efficiently when demand falls off. Thus, for companies involved in seasonal businesses, profitability depends upon the ability to accurately forecast raw material, inventory, and labor needs.
Note
1. Arnold Kransdorff, “High Stock Levels—Not the Answer to Volatile Demand,” Financial Times, June 4, 1982.