A supply chain is a connected system of organizations, activities, information and resources designed to source, produce and move goods from origination to a final destination—typically from a supplier to an end customer. Modern supply chains are often very complex, spanning multiple countries and involving many steps.
The Key Steps in a Supply Chain
At their most basic, the key steps in a supply chain include:
- Original sourcing or extraction of raw materials
- Refining or manufacturing materials into basic parts
- Assembling basic parts into finished products
- Selling finished products to end users
- Delivering finished products to end users or consumers
Between each of these steps, several activities need to take place, including:
- Documentation, contracts and other information that define expectations throughout the supply chain
- Physical movement of goods from one location or organization to another
- Storage of goods until they are needed
- Stock and inventory tracking and management
- Demand and supply management
- Tracking and authentication of goods
- Onward logistics and distribution of goods to the end customer
The act of creating, managing, tracking and optimizing a supply chain is known as supply chain management (SCM). SCM activities are carried out by a team of specialist supply chain managers.
Effective supply chain management relies on everyone involved in the supply chain network providing timely, accurate and consistent information to identify issues and streamline the process.
Common Challenges in the Supply Chain
The global, complex and multi-step nature of modern supply chains creates several challenges for supply chain managers.
Lack of Transparency in the Supply Chain
Legacy supply chains are often opaque and difficult to understand. This makes it hard to track and plan for how goods are moving through the supply chain. Without transparency, optimization and effective demand management are almost impossible. This issue is heightened by fragmented, legacy software and systems that do not allow for the consistent capture, reporting and transferal of information.
Goods That Are Lost or Delayed
An effective supply chain depends on streamlining the movement and processing of goods. Without proper tracking, authenticating the sending, receiving and location of goods is a big challenge. This creates unnecessary delays and holdups, damaging upstream and downstream operations throughout the supply chain.
Increased Waste and Insufficient Planning
Small reductions in supply chain efficiency can have a significant overall impact on productivity and profitability. Without proper status updates and reporting, supply chains will waste effort, resources and time. This makes it difficult to manage expectations and plans.
Poor Relationships and Unhappy Consumers
Supply chains need to be as fast as possible to meet the demands of modern consumers. A complex, legacy supply chain often relies on goodwill and established norms to work well. When these areas are challenged by increased demand or outside disruption, relationships can suffer, together with the quality and timeliness of supplying products.
How the Supply Chain Is Evolving and Digitizing
Technological innovation and an increased focus on SCM are driving changes that will benefit all supply chain stakeholders.
- Internet of Things (IoT) devices that will monitor, track and report on the location of goods, wherever they are
- Blockchain technology that creates a public, distributed and secure ledger for greater transparency and easy access to information
- Common software that all stakeholders can use to update important supply chain information
- Real-time visibility of inventory and stock levels
- Automation of common supply chain activities to reduce errors and rework and enhance productivity
- Deep reporting and analysis to identify bottlenecks, streamline SCM steps and reduce waste
- Machine learning and artificial intelligence that uses algorithms to gain insight into your supply chain and provide recommendations for efficiency improvements
Proper transparency means all stakeholders can understand what is happening in the supply chain at all times.
The Future of Supply Chain Digital Transformation
If supply chain managers want to transform their supply chains, SCM software must focus on the “network effect.” The more stakeholders who use SCM software and platforms, the easier it is to drive information transparency, tracking of goods and optimization. As the supply chain becomes more fragmented, digital transformation and bringing stakeholders onto a common SCM platform provides significant benefits.
Combining this with evolving SCM technology will provide the greatest opportunities for businesses to understand the supply chain, reduce their costs and increase the speed, quality and flow of goods.