What is supply chain?

The supply chain is a series or chain of activities or processes within the supply network to deliver a product or service from single or multiple sources to the end user.

We will look at how your shirt gets to the retail shelf and ultimately to you as the end user.

Figure 1. Typical supply chain of a shirt.

The figure above shows that it took several steps to move one material to the next until a shirt becomes available in the retail shelf for the customer to buy. Simply put, a shirt travels from different levels of processes and players within the supply chain network.

Supplier tier 2 has its supply chain so as tier 1, the manufacturer and so on. Each of them manages its activities adding value to the creation of a shirt. That illustration unlocks basic understanding about the supply chain, and I hope that you are interested to move on to the next topic to learn more.

Process view of the supply chain

Learning the process stages of the supply chain will help you better understand the sequence of activities in fulfilling customer need for a product. Every stage has its supply chain and collectively work together to satisfy customer demand. The synchronization of all stages forms a supply chain network needed to ensure an uninterrupted flow of product, information, and money.

process view of the supply chain

Figure 2. Process view of supply chain.
Source: Adapted from Chopra, S., Meindl, P., Kalra, D.V. (2016). Supply chain management: Strategy, planning, and operation. New York, NY: Pearson Education, Inc

In figure 2, the pull and push systems in the supply chain process view are presented. These systems determine as to when to respond to customer order with minimal supply chain cost. Processes in a pull system are executed when a customer order arrives at the retailer. The retailer then fulfills the order based on actual demand.

In basic terms, a customer pulls inventory from the retailer’s shelf. While the push system does the opposite. Processes are executed in response to forecast and speculation based on demand signal. Push system enables the supplier to push inventory closer to the customer to compensate for demand variability.

Pull system is suited for make-to-order or engineer-to-order products because customers are willing to wait to get the goods. The company may not have to stock inventory because it responds to actual demand rather than the forecast.

Pull system is usually applied to lean operations. On the contrary, the push system works well with make-to-stock products because the manufacturer needs to maintain the required service level in response to demand fluctuation.

The service level is achieved through on-hand inventory as it protects customers from experiencing stockouts. While inventory is necessary, it must be optimized within the desired service level. Push system is appropriate for mass manufacturing where demand is uncertain.

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