Understanding Supply Chain and How to Effectively Implement it in Business

Supply chain is the journey of raw materials, resources, components, and goods before they are assembled into a product and sold to consumers.

If the supply chain journey is disrupted, it will also affect the product sales process. For example, when there is inflation in one of the raw materials, it will have an impact on the increase in the selling price of a product.

Like the trade tariff war imposed by the United States against China, it will increase the prices of goods in America. Because goods sold in America must have a share of raw materials from China.

Even with Trump's new policy, analysts predict that the price of the iPhone will increase by 30 to 40 percent. Because there are some raw materials for making the iPhone that are produced in China.

Therefore, this supply chain is very important for business. Businesses need to implement supply chains effectively so that they do not have a negative impact on sales.

What is meant by Supply Chain?

A supply chain is a network of organizations, people, activities, information, and resources involved in making and distributing products from raw material suppliers to end consumers. This includes processes ranging from production, processing, storage, to distribution of goods.

Simply put, a supply chain is a system that connects various elements in a business to ensure that products or services can reach consumers at low cost, fast time, and good quality.

Who is Involved in the Supply Chain Process?

The supply chain process does not only involve one party, it can even be cross-geographical. Who is involved in the supply chain process? Here is the list:

• Suppliers, suppliers provide the raw materials needed to produce goods or services.
• Manufacturers, transform raw materials into finished products.
• Vendors, who sell and buy raw materials.
• Distributors or logistics services, who send finished products to stores, warehouses, or directly to consumers.
• Supply chain managers, who ensure that operational processes run smoothly from planning, sourcing raw materials, manufacturing processes, and shipping to consumers.
• Retailers, who sell products online or in physical stores
• Customers, who receive the final product or service. They can be individuals or other companies.

Why is Supply Chain Important?

Supply chain is the lifeblood of a business. Without a supply chain, a business will be overwhelmed in receiving and sending goods to consumers.

Here are some of the benefits of supply chain for business:

Increasing Cost Efficiency

Good supply chain management supports companies to reduce costs, be it raw material costs, production costs, to shipping costs. This increases profitability and competitiveness.

Products Delivered at the Right Time

With an effective supply chain system, goods can reach consumers on time. This is important to maintain customer satisfaction.

Improving Product Quality

Good supply chain management ensures that products that reach consumers meet high quality standards.

Better Stock Control

With proper monitoring, we can avoid excess or shortage of stock. This helps to ensure that production continues to run smoothly and meets market demand.

Flexibility in Responding to Market Demand

When there are changes in customer needs or market conditions, an efficient supply chain allows companies to adapt quickly.

Improving Customer Service

Products delivered quickly, on time, and in good condition improve the customer experience, which ultimately builds loyalty and increases sales.

What Are the Risks to the Supply Chain?

McKinsey classifies supply chain shocks into four different types based on their impact, response time, and frequency:

Unexpected Disasters

Extraordinary events that are unpredictable and cause losses of up to trillions of dollars. Examples include extreme terrorism and systemic cyberattacks.

Foreseeable Disasters

Shocks with similar impacts to unexpected disasters, but with larger patterns and probabilities of occurrence that can guide overall preparation. Examples include financial crises and global military conflicts.

Unexpected Disruptions

Events that are serious and costly but on a smaller scale than disasters. Examples include data breaches, product recalls, and industrial accidents.

Foreseeable Disruptions

Some disruptions can be detected before they occur. Examples include the China-US trade dispute and the UK’s exit from the European Union.

Organizations often focus on managing the disruptions they face most often. The COVID-19 pandemic is a reminder that while extreme disruptions are rare, organizations still need to consider them when making long-term decisions and strategies.

For most organizations, this means expanding the focus of supply chain managers from cost, capital utilization, service, and quality to three critical new priorities: resilience, agility, and sustainability.

By increasing the focus on resilience and agility, companies can be better prepared to face and manage unexpected or anticipated shocks, thereby maintaining operational continuity in uncertain conditions.

3 Steps to Increase Supply Chain Resilience in Business

McKinsey continues to emphasize the importance of resilience and agility in the supply chain process so that it can continue to survive in the long term.

Based on McKinsey's explanation, here are three ways to increase supply chain resilience:

Integrate and Simplify Operations

This action involves several key steps, including:

• Create a command center to consolidate the organization's response to disruptions.
• Simulate and plan for extreme supply and demand disruptions.
• Reevaluate just-in-time inventory strategies to ensure sufficient availability of goods in unexpected situations.

Achieving Structural Resilience

Achieving long-term resilience involves:

• Building digital twins of critical parts of the supply chain, allowing for simulation and scenario testing.
• Creating and testing “what if” scenarios to understand the impact of various potential disruptions.
• Enhancing data sharing with suppliers to ensure more transparent and responsive information flows.
• Considering ring-fencing some supply chain teams to ensure operational continuity.

Firefighting

This involves short-term steps to identify gaps in the supply chain that have previously been overlooked.

While this does not build long-term resilience, this tactic is useful in the face of temporary disruptions and should be followed by more complex, long-term reforms to strengthen overall resilience.

These three steps can help companies build supply chains that are more resilient to disruptions and better prepared to adapt to future changes.

Building Supply Chain Resilience with prasmul-eli

With the increasingly unpredictable disruptions after COVID-19, geopolitical wars, trade tariff wars, and political dynamics, it will affect the supply chain journey process.

Therefore, building resilience and agility is an important key to adapting in this time of disruption.

Invite your team to build supply chain resilience by participating in supply chain management training from prasmul-eli.

Let's build business sustainability with a smooth supply chain!