What is a Supply Chain?

By: GUY CHANDLER


posted on: October 21st, 2016

 
Have you ever visited your local market and wondered how the food and tools you see are made and transported to the market? Or have you ever wondered to whom your produce is eventually sold and how it got to them? If you have, then you have imagined what is known as a supply chain. But what does a supply chain actually look like and why is it important?

A SUPPLY CHAIN IS A SYSTEM OF TRANSFORMATION

Put simply, a supply chain is the system of people, organisations and activities involved in transforming raw materials and resources into a product that can be sold to the customer. Some products, such as staple foods like cassava, only require a few people, organisations and activities to deliver the product to the customer. The supply chain of cassava is therefore, relatively quite simple. The supply chain for a computer for example, which requires metals, plastics, glass and many people with different skills, has a much more complicated supply chain.

(This article will now provide an example using cassava but if you wish to substitute a staple food or product more familiar to you into this example, the same basic process will apply)

HOW DOES THE SUPPLY CHAIN WORK?

For example, a farmer grows cassava. The farmer then sells this cassava to a local collector who in turn sells the cassava to a number of shop owners. The shop owners then sell the cassava to their customers. We can see then, that the supply chain of cassava consists of a number of different people, organisations and activities that work together to deliver cassava to the customer.

WHY IS UNDERSTANDING OF THE SUPPLY CHAIN IMPORTANT?

Using the example of cassava, imagine you are a farmer, local collector or shop owner and you want to increase your profits. Everyone involved in your supply chain agrees that good quality cassava brings more profit. The farmer therefore works hard and improves his farming techniques. However, due to poor communication between the actors in your supply chain, when the farmer has harvested his cassava, the local collector is a week late to buy the cassava. The collector then has difficulty contacting and distributing the cassava to shop owners and due to the long wait, the shop owners are forced to buy poor quality cassava from the collector. The shop owners try to sell their cassava to their customers but rival stores, which have a supply chain with better communication and transport, are selling cassava of a higher quality. These rival stores therefore attract more customers, making more money. This money travels back down your rivals’ superior supply chains, allowing them to invest more money in their businesses. The rival farmer buys better equipment, the rival collector buys faster trucks and the rival shop owners expand. Meanwhile, due to your poor communication and logistics, the members of your supply chain begin to lose money.

IN SUMMARY

Understanding the supply chain of your business and how to streamline and improve this chain, are crucial to running a profitable business. Without knowing all the steps involved, your hard work could be undermined if you do not communicate effectively with the other members of your supply chain.

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