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What is a Supply Chain? Meaning and Key Steps
inventory management

What is a supply chain? Meaning and key steps

Every product has a series of steps to get from raw materials to parts to a finished product, and finally to the customers’ hands. This flow of goods and services from their original source to the customer is called the supply chain. 

In this article, we’re walking through everything you need to know about the supply chain – what it is, key steps in the process and how to avoid common issues to optimise your business.

Supply chain definition

A supply chain refers to all resources, activities, people and processes involved in turning raw materials into final products and making them available to your customers. 

The basic sequence of events that products and services move through is as follows:

Raw Materials -> Supplier -> Manufacturer -> Distributor -> Retailer -> Consumer

Depending on the type of business you run, you might be involved in every stage of the supply chain or just the beginning, middle or end. 

Even if you’re only directly involved in part of your supply chain, it pays to have a handle on the whole network of processes that goes into producing your business’ products or services. 

Supply chain example

Let’s imagine Joanna runs a business producing handmade candles. Her supply chain might look like this:

First, she buys her materials from suppliers, including:

  • Wax, wicks, jars, fragrances and colours
  • Branded packaging material
  • Equipment for production

Second, she makes the candles in a small shared workshop space. 

Third, she stores her candle inventory in her garage, which she has set up with shelves and labelled boxes. 

Finally, she transports finished candles to local market stalls and boutiques to be sold to customers.

What is supply chain management?

Supply chain management is the process of overseeing the flow of goods and services as they move from their starting point all the way to finished products. 

Effective supply chain management can speed up the delivery and supply of goods, as well as lead to other major benefits such as:

  • Cutting costs: Removing inefficiencies from your supply chain means paying less money to store products, finding the most competitively priced suppliers and streamlining your ordering process.
  • Optimising your inventory: Understanding exactly how long it takes to move from raw materials to a finished product enables you to hold optimal amounts of inventory.
  • Improving customer satisfaction: Increasing speed of production means finished products end up in customers’ hands faster.
  • Maximising efficiency: Good supply chain management allows you to spot bottlenecks in the production process, and fix them early on.
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Key steps in the supply chain management process

There are five main steps involved in supply chain management:

1. Resource planning

This step involves planning all the resources needed to produce a business’ product or service within a reasonable timeframe. At this stage, establishing metrics for production times and costs can be useful for tracking whether the supply chain is efficient and delivers value.

2. Sourcing

Next is to choose suppliers and establish processes to manage supplier relationships and processes such as ordering, receiving, managing inventory and supplier payments.

3. Manufacturing/preparation

This involves organising all the activities required to manufacture or prepare the product for sale, test for quality and package for shipping. 

4. Delivery and logistics

After products are prepared for sale, the next step is to plan and coordinate customer orders, deliveries, dispatch schedules, customer invoices and payments.

5. Returns

The final step is to work out a process to take back unwanted, defective or incorrect products. Also called ‘reverse logistics’, this step is important for ensuring good customer service from start to finish.

Supply chain issues (and how to avoid them)

Some of the most common supply chain issues businesses face include:

  • Rising cost of materials
  • Availability of materials
  • Delivery delays
  • Labour shortages
  • Changing customer needs/expectations

Although almost any business can face these challenges, there are several strategies you can use to optimise your supply chain and help avoid common pitfalls:

  • Build relationships with multiple suppliers: Having more than one supplier at your disposal helps you avoid material shortages and delivery delays.

  • Keep track of your lead time: Customers want to know when they can expect to receive a product, and you can only give them an accurate response if you have a good understanding of your typical lead time – the time between an order being made and the customer receiving it.

  • Find multiple delivery partners: Logistics labour shortages can have negative consequences on the customer experience. Diversifying your delivery options will help ensure customers receive their products on time.

  • Stay on top of your inventory: With a smart approach to inventory management, you’ll always know how much stock you have on hand and how much you need to meet customer demand.

QuickBooks helps you effectively manage your inventory, so you always know what you have and what you need before you even need it. Find out more about QuickBooks inventory management software and start a free trial today.