What is supply chain? Definition And Types

An appropriate strategy allows for more efficient coordination of the work of individual units in order to meet the needs of customers in the best possible way. Without a doubt, it is worth taking care of an effective supply chain in every company. In this guide, we explain what a supply chain is, what it consists of and how it can be effectively managed.

Definition

The supply chain is a process that covers the comprehensive process of order fulfillment, starting from the production of the product to its delivery to the customer. Thus, it constitutes a network of connections from the source of goods to the final recipient, which consists of various suppliers and companies supplying subsequent links.

The supply chain includes the planning, implementation and control of all activities related to the flow of goods (purchase of raw materials, production, storage, distribution, transport, handling orders and returns, waste disposal). A properly functioning supply chain is possible only if the flow of information between its participants is ensured.

Supply chain diagram

Stage 1: Planning

The first stage involves planning and managing the resources necessary to meet the needs of consumers for a given product or service. A supply chain must be established and metrics defined to control the efficiency, effectiveness and value of the entire process. This is an extremely important stage on which the risk in the supply chain largely depends.

Stage 2: Procurement and production

Procurement includes the selection of entities supplying the goods necessary to create the product. Ordering, receiving and managing deliveries is key. The production process, on the other hand, requires taking steps related to quality testing or packaging for shipping.

Step 3: Deliveries and Returns

Logistics focuses on the coordination of customer orders, warehousing, delivery planning, order picking, and shipments to consumers. Product returns and disposal should also be considered as part of this process.

Types of supply chains

There are many models of supply chains in the literature. Implementing the right strategy gives you the opportunity to improve efficiency and workflow. Depending on the number and links of the supply chain, the following types are distinguished:

• internal supply chain - includes all functions and processes in the company that are necessary to fulfill the customer's order,
• simple supply chain - includes the company, the recipient and the supplier,
• extended supply chain - it is expanded with additional suppliers of the second and further tier and with subsequent recipients (i.e. recipients of recipients),
• comprehensive supply chain - it consists of similar links as above, but there are also companies providing logistics, IT, financial services, etc.

In addition to the above typology, the supply chain is also often divided according to the goals pursued:

• Traditional supply chain - the primary goal is to minimize costs and maximize efficiency. In this model, the company focuses on increasing revenues or reducing costs and maximizing economic benefits.
• Value chain - this concept assumes that all activities carried out by the company should contribute to the creation of added value for customers and added value for the company. The value chain represents the process of "adding" customer value to goods, which begins at the stage of sourcing raw materials, their processing and production.
• Green supply chain (sustainable supply chain) - also covers the entire product life cycle, including sales, waste disposal, planning, after-sales services. Such a chain includes all elements of activity that determine the company's value for the environment. Its primary goal is environmental responsibility, from the extraction of the raw material obtained for production, to the disposal of waste (based on the concept of green production and green operations). The most important is the idea of pro-ecological activity. Participants in the green supply chain, similarly to the participants in the traditional and value chain, also strive to maximize profits, but they do so by using less natural resources, energy, etc.
• Integrated supply chain - a concept based on the assumption that all links in the chain have common goals, which are, among others, added value for the final customer. In this chain, each link strives to achieve a common goal.