What Is a Supply Chain?
A supply chain is a network of people, activities, entities, information, and resources that is used to produce a specific product or service for a company. Supply chain management is critical because an optimized supply chain reduces a company’s costs and helps the company stay competitive in the business landscape. You need to know the basics of supply chain solutions in order to compete in 2022.
Understanding Supply Chains
The supply chain is composed of different entities that are involved in the distribution of goods and services. This network includes different activities, people, entities, information, and resources.
The supply chain also represents the steps it takes to get the product or service from its original state to the customer. Some of these entities include:
Manufacturer (the company that produces the product)
Retailer (the person who sells the product) Distributor (a company that supplies the retailer with the product)
Supplier (a company that provides the manufacturer with the raw material)
Trader (a person who buys and sells goods) These entities interact with each other to produce, distribute, and sell products and services.
Supply Chain Management vs. Business Logistics Management
Supply chain management is the process of monitoring, coordinating, and controlling the flow of goods and services from the moment it is produced until it reaches the hands of the final customer. This process requires companies to understand their markets, their customers, their competitors, their suppliers, and their own operations. On the other hand, business logistics management is the process of managing all the different activities involved in moving a company’s products and services from the point of origin to the point of consumption.
This process includes activities such as planning, organizing, directing, controlling, and evaluating all aspects of the movement of materials from place to place. The difference between supply chain management and business logistic management is that supply chain management is concerned with the flow of products and services from production to the market, while business logistic management is focused on the physical flow of goods and services within a company.
Supply Chain and Deflation
In the past few decades, the U.S. economy has experienced two severe periods of deflation. These periods were caused by the 1973 oil crisis and the Great Recession of 2008. During these periods, the prices of commodities such as oil, copper, and wheat decreased significantly. As a result, many businesses had to reduce their prices to remain competitive.
However, when businesses decrease their prices, it creates a problem for companies that are part of a supply chain. If the companies in the supply chain also decrease their prices, they will lose money because they will be selling at less than the cost of production. On the other hand, if the companies in the supply chain do not decrease their prices, they will lose the business of the retailers who are trying to protect themselves from declining consumer purchasing power.
Therefore, it is important for companies that are part of a supply chain to maintain stable prices. This is true whether the company is a manufacturer, a wholesaler, a retailer, or any other type of entity that is part of a supply chain. Maintaining stable prices is crucial during periods of deflation because it prevents disruptions in the supply chain and protects the businesses from the financial losses that can occur. Supply Chain and Inflation In recent years, there has been an increase in the amount of inflation in the U.S. economy.
Supply Chain Management for Small Business
Small businesses often find themselves as part of a supply chain because they are one of the many companies that sell to large companies. For example, a small company that manufactures widgets might sell its widgets to a large company that uses those widgets in the production of automobiles. Therefore, it is important for small businesses to understand how to manage their supply chains effectively because they could be part of a larger supply chain with many other small businesses. Managing a supply chain can be very difficult for a small business.
The biggest problem is that the owner/operator of the business usually does not have the time or the money to do everything needed to ensure that the supply chain is running efficiently. For example, the owner/operator might not have the money to pay for a commercial invoice printer so he has to write out his invoices by hand. He might not have the time or the money to pay for a freight forwarder to arrange for the shipping of his goods so he has to use a freight carrier that delivers the goods to his customers. And he might not have the money to purchase enough product to satisfy his customers so he has to go into debt to keep his business afloat.
These are all problems that are common for small businesses that are trying to do a good job of managing their supply chains. The owner/operator of a small business also usually does not have the expertise needed to run a profitable supply chain.