Supply chain – definitions, components, and types

Supply chain – definitions, components, and types
Before a product reaches its buyer, it has a long way to go. It consists of many stages and processes, collectively referred to as the supply chain. The quality of its management determines, among other things, the efficiency of the flow of goods, the amount of costs incurred, or the speed of response to change. Do you already know what a supply chain is? Learn more about its components and types.

Supply chain – definition

What does the term supply chain mean? It refers to all the activities and processes that a product goes through from the time it is created until it is purchased by the customer and even beyond. It all starts at the design stage. The product is then manufactured, transported to suppliers, and from there it goes to buyers.

The supply chain consists of many activities, including planning, sourcing, raw material procurement, production, warehousing, transportation, after-sales service, and waste management. Effective control is critical at every stage. By managing your supply chain with an advanced and functional SAP system, you can increase the efficiency of your business processes, reduce costs, and gain a competitive edge.

Supply chain – diagram

The efficient flow of information between each link in the supply chain is essential to its proper functioning. Modern software simplifies the management of data and the centralization of its sources, making it easier to track information and eliminating the barriers caused by a lack of up-to-date knowledge.

In the case of SAP S/4HANA, the use of an in-memory database concentrates all of the company’s data in one system and makes it available to users in real time. Based on the SAP Fiori user interface, the software is available as a mobile application for phones, tablets, and computers, and features an intuitive notification system that allows employees to stay on top of information and dynamic changes throughout the supply chain.

What are the different components of a supply chain? The outline should include primarily:

  • planning
  • procurement
  • production
  • delivery

The planning phase includes in-depth analyses of risks and current market trends, resource management, and the establishment of performance metrics for the processes that make up the supply chain. It is a search for answers to consumers’ needs in terms of the products and services they choose. Procurement, on the other hand, involves selecting the raw materials needed to make a product and efficiently managing supplies. The production stage of the supply chain is about ensuring the quality of products and finding ways to increase efficiency while reducing costs. The final stage in the outline is delivery, which includes distributing goods, coordinating customer orders, picking, shipping, and managing returns and waste.

Types of supply chains – breakdown by links

Based on the number and type of links in a supply chain, the following types are distinguished:

  • simple
  • extended
  • internal
  • comprehensive

What do these names mean? A simple supply chain is one in which the only links are the supplier, the customer, and the company. An extended model, in turn, also includes second-, third-, and subsequent tier suppliers and downstream customers. An internal supply chain encompasses all the activities and processes within a company that are necessary to fulfill an order. On the other hand, when a model is described as comprehensive, it means that it takes into account the use of logistics, finance, IT, and other companies, in addition to the links mentioned above.

Types of supply chains – breakdown by goals

An alternative division of supply chains was based on the goals pursued. It includes the following models:

  • integrated supply chain
  • traditional supply chain
  • green supply chain
  • value chain

An integrated supply chain is one in which all the links are working to achieve the same goal – serving the customer. In a traditional model, the main goal is to reduce costs and increase process efficiency. A green supply chain is also called sustainable. The goal is to care for the environment and take an eco-friendly approach at every stage of the flow of goods and services. When it comes to green supply chains in organizations, SAP has proven to help companies grow sustainably while successfully conquering new markets and responding to increasingly individualized customer needs. The latest version, SAP S/4HANA, is available in a cloud-based version that consumes less energy than traditional local IT infrastructure. Another useful tool in this regard is SAP PaPM, which provides functions for generating advanced reports and accurately monitoring a company’s CO2 emissions.

What are the characteristics of a value chain? In this model, the efforts of all links are focused on creating value for both customers and the company.

Cold supply chain and other models

The models listed above are not the only ones out there. In the literature we can come across other terms to describe supply chains. For example, a cold supply chain applies to all processes involved in the production and distribution of products that require low temperatures, such as pharmaceuticals and vaccines. An international supply chain is also called global. We talk about it when the links include foreign entities and international logistics flows are included in the processes.

The subject of supply chains is extremely broad. However, it is worth recognizing that their effective management is the key to market success and smooth operation of the company. The use of modern technology in the form of an advanced SAP system leads to process automation, increased efficiency of operations, and improved cooperation between links. It also helps to better anticipate current conditions and reduce transportation time. Numerous factors influence production and logistics processes in any company. Manage them all with a modern ERP system from SAP.

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