What is Supply Chain?

Supply chains have been with us for most of human history — like, deep BCE, early agriculture days.

Even after thousands of years, they still manage to dominate headlines. Minor disruptions can take down massive global economies – sowing discord and uncertainty on a level only natural disasters and large-scale conflicts can compete with.

So, clearly, supply chains are a pretty big deal.

The more effectively a company can manage its supply chain, the stronger and more competitive it becomes. Supply chain management is the key to protecting your reputation, profits, and longevity. It builds resilience, agility, and future-readiness.

It enables you to meet customer expectations and anticipate changing needs. It helps employees do their best work and makes it easier to retain your best people for the long haul.

For these reasons (among countless others), it’s worth going back to basics and examining the supply chain itself.

In this piece, we’ll first define “supply chains” in basic terms, then paint a picture of supply chains. We’ll also look at how supply chains are evolving in response to advancing technology and changing conditions.

A supply chain is a network of companies, individuals, activities, information, and resources that work together to source, produce, and deliver goods from their origin to the final customer. This journey involves extracting raw materials, manufacturing products, and transporting finished goods to consumers. Each step in the chain represents a different industry and phase in the product’s lifecycle. The supply chain ends when the product reaches the customer, though it may include returns and recycling processes.

As an example, here’s what a “typical” coffee supply chain might look like:

Source: Free Editable Supply Chain Diagram Examples | EdrawMax Online

How Do They Work?

While supply chains might seem straightforward in theory, the gulf between concept and reality is actually quite staggering.

Within any given supply chain you’ve got a business, its customers, its suppliers. Then, you’ve got the suppliers’ suppliers (and their suppliers), logistics providers, middlemen, retailers, wholesalers, and so on.

There’s also the army of people involved in extracting, producing, and gathering the raw materials needed to make each product/service. And, on top of that, there are all the other partners, providers, and stakeholders with some level of skin in the game.

For example, consider your supplier network. Chances are, you get your inventory from a variety of suppliers.

You might use some for specific raw materials (i.e.: flavors, dyes, sustainable building materials) or components (i.e.: sensors, microchips) you can’t get elsewhere. Often, these types of materials are critical to your core value proposition. Meaning, you’ll need to make sure you have alternate suppliers in case there’s a disruption.

You might also purchase commodity items — office supplies, hardware, common ingredients like flour or eggs, whatever — from a single supplier to consolidate shipments and take advantage of discounts. In this case, it’s easy to find alternate suppliers. But — you’ll need to build relationships with them, negotiate favorable terms, and evaluate product quality and vendor performance.

Even within the bounds of this very abstract example, you’re already looking at a complex network, composed of many groups with competing (and overlapping) interests.

Drill down into just one of those groups and you’ll see many different relationships. All of them built on their own set of terms and preferences, with different processes and activities for managing them.

Always Evolving

Supply chains serve the same purpose they always have: turning raw materials into sellable goods and delivering them to consumers. It’s just that the mechanisms re: how and where that transformation happens and what players are involved is always changing.

Historically, supply chains followed a linear sequence, where the output of each step was typically used as the input for the next one.

Easy example: a manufacturer can’t start production until they receive all raw materials from suppliers. So, often, companies would opt for a more localized approach to sourcing — suppliers were selected more for their close proximity than things like price or quality. Shorter wait times meant manufacturers could get moving on production, then pass the baton to the next link in the chain.

Unfortunately, the old approach isn’t particularly efficient or resilient. If a problem arises at any given step, the entire supply chain is disrupted — and no one moves forward until that problem is solved.

Traditional supply chains also weren’t that great at keeping up with customer expectations. Because they focused primarily on sourcing, production, and distribution, business leaders lacked the insights and flexibility needed to respond to change in near real-time.

In a 2012 article in The Globalist economist Sanjeev Sanyal explains how long-distance trade evolved alongside transportation technology (worth checking out if you’re interested in the history of supply chains).

Ancient routes like the Spice Route and Silk Road followed a linear path to bring high-value items to their final destination. Because of the high costs, most of the production and consumption of those goods happened locally. Traders brought raw materials to local potters and weavers, and those artisans produced their wares based on what individual consumers wanted.

By the 18th century, shipping technology had advanced enough to enable the first true global supply chain. Slaves were imported from West Africa to the Caribbean to plant and harvest sugarcane, then turn it into molasses. That molasses was sent to New England to make rum, then sold to locals for consumption.

Obviously, this is one of the biggest black marks on human history, But – it marked a turning point for supply chains – and supply chain management. While still linear, supply chain operations evolved into something more global – with sourcing and production happening in different places and all of these various pieces coming together at the end to make and deliver the final product.

In the 1920s, pallets revolutionized warehouse storage, making it easier to consolidate goods and optimize limited space. Later, Henry Ford made mass production and just-in-time inventory a reality — thanks, in large part, to his obsession with control and deep mistrust of suppliers.

While Ford’s stockpiling habits weren’t exactly healthy, he built relationships with countless suppliers, ensuring there would always be enough materials and parts to keep producing – even in the face of shortage or disruption.

Then came barcodes, logistics providers, the very first ERPs. And, later, the internet. Clearly, there’s enough material here to fill countless podcasts, think pieces, and historical nonfiction books.

But – our point is, the supply chain is always evolving to meet the moment.

These days, companies are shifting toward digital channels like e-commerce, social platforms, and burgeoning metaverse environments. They’re embracing new, data-driven business models and considering the human and environmental impact of their actions.

Final Thoughts

Understanding the supply chain is the first step toward effective supply chain management.

Supply chains, like everything else, have gotten crazy complicated in recent years. Even seasoned supply chain pros might struggle to grasp all the intricacies, complexities, and data challenges that define supply chains – in their current form.

Velosio offers industry-specific solutions, services, and hands-on guidance to help small and mid-size distributors navigate their biggest supply chain challenges.

Our experts help clients transform supply chain operations by leveraging the cloud, AI, and other next-gen tech – as well as establish the strategies and processes that support them.

What is a Supply Chain, Anyway?