What is Supply Chain? Roles, components and operation
In today’s globalized context, the supply chain plays a core role in ensuring that all activities, from sourcing raw materials to getting the final product to consumers, take place efficiently and seamlessly. Made up of a complex network of individuals and businesses involved in the production and distribution process, the supply chain not only determines production productivity but also directly affects customer satisfaction. Understanding and optimizing each link in the supply chain is the key to helping businesses increase their competitiveness, ensure stability and sustainable development in a volatile market. Let’s explore more deeply the concept of “what is a supply chain” with RX Tradex, learn its role, core components, and how it works in the article below.
1. What is Supply Chain?
A supply chain (also known as a supply chain) is a system that links various organizations, people, activities, information, and resources, including all activities related to the production and distribution of products from raw materials to the end consumer.
The supply chain consists of many stages such as material procurement, production, warehousing, transportation, and distribution. Companies and organizations involved in the supply chain all play a critical role in optimizing operations and costs, and ensuring product quality and stability.
2. Popular types of supply chains today
Supply chain models are becoming increasingly diverse and complex due to the development of technology and the trend of globalization. To maintain competitiveness and optimize operations, businesses need to choose a suitable and flexible supply chain model to meet the needs of the market and customers. Here are some popular supply chain models today:
2.1. Continuous Flow Supply Chain
This model focuses on maintaining a continuous and steady flow of goods or services throughout the supply chain. The goal is to minimize waiting times and production costs. This model is especially suitable for businesses that produce items with stable and long-term demand, where process optimization and waste reduction are top priorities.
2.2. Quick Response Supply Chain
Responsive supply chains are designed to respond to market demands quickly and efficiently. This model is suitable for businesses that produce trending products or products with strong fluctuations in demand. By maintaining flexibility and the ability to adapt quickly, businesses can take advantage of new market opportunities and meet customer needs in the shortest amount of time.
2.3. Flexible Supply Chain
This model is ideal for businesses operating in industries with unstable demand, or large seasonal fluctuations. The characteristic of a flexible supply chain is the ability to quickly adjust production volumes to suit actual needs, thereby minimizing waste and optimizing the use of resources. Businesses can easily start or suspend production to meet unexpected needs.
2.4. Agile Supply Chain
The Agile supply chain model emphasizes flexibility and the ability to adapt quickly to changes in the supply chain. This allows businesses to react promptly to sudden changes in the market, ensuring that they remain competitive in a volatile business environment. The Agile model is often applied by businesses operating in industries with a high level of competition and high requirements for product diversity.
2.5. Customize Supply Chain
This is a model that allows businesses to customize the right supply chain processes to meet the specific requirements of customers. Manufacturers in the automotive industry often apply this model to produce vehicles to order, thereby providing unique and high-value products to customers. This model requires close collaboration between departments in the business to optimize processes and respond to customer needs accurately and efficiently.
3. Components in the supply chain
The supply chain consists of many important components, each of which plays an integral role in ensuring the continuous flow of products from production to the end consumer. Key components in the supply chain include:
3.1. Raw material suppliers
Raw material suppliers are those who are responsible for supplying raw materials, materials, spare parts, or components necessary for the production process. They can be mining companies, farms, component factories, or basic service providers. The relationship between raw material suppliers and manufacturers is fundamental to the operation of the entire supply chain, as any disruption in the supply of raw materials can affect the entire production process.
3.2. Manufacturer
The manufacturer is the component responsible for converting raw materials into finished or semi-finished products. These can be manufacturing plants, assembly companies, or processing facilities. Manufacturers often have close relationships with suppliers of raw materials, ensuring that the production process is continuous and efficient. Close coordination between suppliers and manufacturers helps to minimize risks and optimize the performance of the supply chain.
3.3. Distributors
The distributor acts as a bridge between the manufacturer and the market. They are responsible for purchasing products from the manufacturer and redistributing them to retailers or directly to consumers. Distribution companies, dealers, or storage centers are good examples of this role. Distributors are not only responsible for ensuring that products are circulated efficiently, but they are also tasked with managing inventory, optimizing shipping processes, and handling market requirements.
3.4. Retailers
The retailer is the last unit in the supply chain before the product reaches the consumer. They are responsible for direct contact with customers and delivering the final product. Retailers can be brick-and-mortar stores such as supermarkets, convenience stores, or e-commerce platforms. The role of the retailer is very important in responding to the tastes and needs of customers, thereby adjusting the business strategy accordingly.
3.5. Consumers
Consumers are the last component in the supply chain, the people who use the product or service. Consumer satisfaction is the ultimate goal of every component of the supply chain, from ingredient suppliers to retailers.
Additional components in the supply chain:
- Logistics service provider: Ensure that the transportation, storage, and distribution of products take place efficiently. They provide services related to transportation, warehousing, forwarding, packaging, and insurance, helping to maintain the smoothness of the supply chain.
- Financial service providers: Providing financial services that support the supply chain such as payments, credit, insurance, and other financial solutions. They play a critical role in ensuring smooth cash flow, supporting transactions, and managing financial risk in the supply chain.
4. The role of the supply chain
The supply chain plays an extremely important role in the business of an organization or production system, not only ensuring the continuous supply of resources, materials, and services, but also cost optimization, quality assurance, risk management,… and enhancing interaction between on-chain partners. The role of the supply chain can be mentioned as:
4.1. Ensuring Continuous Supply
The supply chain is key to ensuring that resources, materials, and products are always provided adequately and at the right time to meet customer needs. This ensures that businesses always have enough goods to maintain continuous production and business activities, thereby meeting market requirements in a timely manner.
4.2. Cost Optimization
A well-organized supply chain will help businesses minimize costs through effective management of production, transportation, and storage processes. By optimizing stages in the supply chain, such as shortening shipping times and distances, and selecting suppliers at reasonable costs, businesses can significantly reduce operating costs while ensuring product quality.
4.3. Quality assurance
The supply chain helps establish and maintain strict quality control processes, from production to when products reach consumers. By adhering to quality standards and regulations, the supply chain ensures that the final product not only meets but also exceeds customer expectations for quality, thereby strengthening the reputation and brand of the business.
4.4. Risk management
In the context of globalization, supply chains often include many suppliers and partners from all over the world. This helps businesses mitigate risks through distributing supplies, avoiding dependence on a single supplier or a specific region. If a part of the supply chain goes wrong, businesses can quickly adjust and switch to other sources of supply, ensuring uninterrupted operations.
The integration of technology and information systems in the supply chain also allows businesses to track the status of transportation, storage, and production in real-time. This helps to detect potential problems early and take timely preventive or remedial measures, minimizing possible risks.
4.5. Enhance interaction and cooperation
The supply chain is not only a logistics system, but also the foundation for cooperation between relevant partners. Through the sharing of information, plans, and data, supply chain parties can work closely together, optimize workflows, and improve the operational efficiency of the entire system. This interaction and collaboration helps to ensure that all stakeholders are working towards the same goal, creating greater value for all members of the supply chain.
These roles make the supply chain an indispensable factor in building and maintaining the sustainable success of businesses in today’s fiercely competitive market.
5. Supply Chain Diagram
Modern supply chain diagrams are often based on the SCOR (Supply Chain Operations Reference) international supply chain model. It is a standardized document framework that is widely used globally to manage and optimize operations in the supply chain. According to the SCOR model, the international supply chain is divided into four main parts as follows:
5.1. Plan
Planning is the beginning and foundation of supply chain management. At this stage, businesses must develop an overall strategy and make a detailed plan for supply chain activities. This includes forecasting demand, planning production, and identifying options for shipping, storing, and distributing products. A good plan will help businesses coordinate resources effectively, minimize waste, and maximize operational efficiency.
5.2. Supply (Source)
Supply is the step that involves the management and selection of supplies in the global supply chain. Businesses need to find, select, and negotiate with suppliers to ensure stability and high quality for supply. Maintaining good relationships with suppliers, as well as assessing and managing risks from international sources, is critical to ensuring continuity in production and distribution.
5.3. Make
The production stage focuses on turning raw materials into finished products at factories or production centers. The main activities in this step include production process management, quality control, and operation of machinery, equipment, materials, and human resources. Ensuring high performance in production and keeping product quality stable is a decisive factor for maintaining competitive advantage and customer satisfaction.
5.4. Deliver
Shipping is the final stage of the supply chain, which involves managing transportation activities and distributing products to customers across the globe. These activities include storage, packaging, shipping, and customer service management. Optimizing the shipping and distribution process not only helps to ensure that products reach customers on time, but also minimizes costs and improves customer service, creating a competitive advantage in the international market.
6. How to operate an efficient supply chain?
A connected and optimized supply chain from start to finish can be a decisive factor in helping businesses thrive and improve their competitiveness in the market. To operate the supply chain effectively, businesses need to manage the supply chain optimally to add value to the entire cycle. Here are some methods that businesses can refer to to build a complete supply chain and operate smoothly:
6.1. Real-time Supply Chain Planning
Real-time supply chain planning is an important factor in ensuring that businesses don’t rely solely on historical data when making strategic decisions. Real-time planning helps businesses quickly respond to unforeseen situations, thereby minimizing the risk of disruption in the supply chain. By using real-time data, businesses can predict and handle issues that arise more efficiently and in a timely manner.
6.2. Identify and apply technology to improve processes
Integrating technology and automation into end-to-end cross-functional processes can help businesses significantly improve operational efficiency and reduce costs. Automation not only helps increase visibility in the supply chain, but it also helps businesses solve challenges related to data management and strategic planning. Choosing the right software technologies and solutions can improve the data reporting process and assist businesses in making strategic decisions quickly and accurately.
6.3. Maintain strong relationships with suppliers
A strong relationship with suppliers is an important factor in maintaining the stability and efficiency of the supply chain. Building and maintaining strong connections, with constant two-way communication between buyers and sellers, is necessary to ensure the long-term success of these relationships. Businesses need to establish a clear and optimized communication platform to resolve any conflicts that may arise, thereby maintaining a healthy cooperative relationship with suppliers.
7. Supply chain and the 4.0 technology revolution
Supply chain and the 4.0 Technology Revolution are closely linked, as today’s advanced technologies are integrated into production and supply chain operations, creating a new turning point in the industry. Industry 4.0, or the Fourth Industrial Revolution, is a concept that reflects the application of modern technologies such as artificial intelligence (AI), machine learning, Internet of Things (IoT), automation, and sensors to the production, maintenance, and distribution of products/services. It can be said that the 4.0 Technology Revolution is the foundation that promotes the evolution of modern supply chains.
In the context of Industry 4.0, the way businesses apply technology to the supply chain has completely changed compared to before. For example, in the field of maintenance, if in the past, businesses only repaired machines when they malfunctioned, today, thanks to smart technology, we can predict problems before they occur. This helps businesses take preventive measures, ensuring that the supply chain operates continuously and without interruption. Supply chain management is now not only focused on improving efficiency and minimizing costs, but also on using technology to create smarter systems.
In the past, the main goal of supply chain management was to increase efficiency and cut costs. While these goals are still important, today, the focus has shifted to putting the customer at the center of every decision in the supply chain. Customer satisfaction and loyalty now depend on a business’s ability to meet their expectations quickly and accurately. From raw material sourcing, production, logistics, to trade management and order processing, all must be synchronized to ensure products reach customers in the most reasonable time.
The supply chain of the future will focus entirely on meeting demand and providing the best customer experience. No longer operating in a linear model, the supply chain will be managed as a flexible network, in which everything from sourcing, trade policies, to transportation methods must be adjusted in accordance with consumer needs.
Advanced technologies will play an increasingly important role in improving transparency, connectivity, and optimizing global supply chains. The entire process of supply chain planning and management will become smarter, it is imperative to meet the needs of consumers in a comprehensive and flexible way.
8. Conclusion
Today’s supply chain is not merely a chain of successive activities, but a complex ecosystem that requires close alignment and continuous optimization. Understanding the components, roles and operating mechanisms of the supply chain is a key factor for Vietnamese businesses to seize opportunities and improve their competitiveness in the context of globalization. As an attractive destination for foreign investors, Vietnam opens up a lot of potential for businesses to participate deeply in the global supply chain. To make the most of this opportunity, it is essential to stay up-to-date with the latest trends and apply advanced technology solutions to supply chain management. Therefore, participating in the Vietnam Manufacturing Expo will be an opportunity to help businesses access breakthrough solutions, thereby improving operational efficiency and increasing competitive advantages.
