THE IMPORTANCE OF SUPPLY CHAINS

The acquisition of reasonably priced materials can make or break a company. In our modern world, industries and consumers are expecting goods to be delivered faster and cheaper than ever seen before. Industries must also ensure sufficient product is being delivered or created to match demand or run the risk of empty or leftover inventory. Meeting these constraints is highly dependant on the effectiveness of a company’s supply chain.

In simple terms, a supply chain is the activities required by organizations in order to acquire and/or deliver goods. These activities usually include the transformation of raw materials into an end product for a customer, and the transportation in-between. Without an effective supply chain, a company runs the risk of reducing customers or losing an advantage over other competitors.

Supply chains are an essential part of the business structure and drive the economy. Understanding the following key aspects of what a supply chain is and how it operates is crucial for any business.

Not all supply chains are operated by the same organization. In fact, the majority of supply chains involve many parties with different corporate interests. Therefore, companies may not be aware of other participants within the supply chain.

For example, a raw resource company that extracts iron ore and refines it to steel may sell it to an industry that makes robotics parts and electronics overseas. From there, the robot manufacturer would produce and assemble the robots to sell as full robotic cell assemblies to another industry that would use the robots on an assembly line (and the supply chain would continue from there). The ore refining company would have no insight on the business to which the robotic cell industry sold since it is on the other end of the supply chain. However, both are dependant on each other. If either company were to remove itself from the supply network (by going out of business or leaving the trade network), both companies would suffer.

That being said, any company would ideally seek to maximize its profits. If a company was to increase the price of its materials at the beginning of the supply chain, it would ultimately affect all other participating companies down the line, leaving the company or consumer at the end with an excessive cost. This could result in the ‘end’ company or consumer seeking another supplier and therefore disrupting the current supply chain. Organizations must work in cohesion by offering fair prices in order to construct an effective supply chain and not lose consumers. Doing so will increase the profitability of all organizations involved.

In order to maintain a steady supply chain, resources must be frequently available. When prices go up, delays become long, and when it is hard to get the required resources, industries will be unable to meet orders or schedules by their consumers. This will disrupt all players further down the supply chain and can greatly affect profitability since customers will look elsewhere to receive their goods. It is a smart strategy to have a plan to find another supplier before the previous is unable to provide the required recourses.

Despite the several layers of companies involved within a supply chain, it only operates effectively if there is customer behavior at the end of the chain (customer demand). Supply chain processes should be co-ordinated to focus on a customer’s needs. If no customers are purchasing goods from an ‘end’ company, the supplier will see fewer profits due to decreased demand, and vice versa.

Being the main contributor to supply chain disruption, unexpected events should be properly prepared for. These events can be classified into two categories: internal and external. Internal events usually entail anything which the supply chain companies are responsible for. This involves things like product recalls, transportation disasters, cost escalation, etc. External events involve occurrences that aren’t controlled by the supply chain company like border restrictions, natural disasters, importing taxes, etc.

For example, in recent events from the COVID-19 pandemic, many supply chains have been disrupted or halted due to the closing of borders and increased importing protocols. The global economy was greatly affected by the shutdown of businesses and we are still recovering. This is a prime example of an external unexpected event: a global pathogen.

In both cases of unexpected events (and decreased supply), keeping an inventory can prove quite useful. By having an excess of materials or products, any company which is experiencing slowdowns due to unexpected events can still fulfill its procedures. In severe terms, an inventory can also give a company enough time to find another material supplier. Many retail and industrial businesses own and manage storage facilities (warehouses) for these scenarios if they arise.

In the case where products can not be delivered or when the prices of the products go up, exploring a second-hand market is always an option. This gives the consumer company time to create a complete order when the delivering company fails to meet expectations. For example, a car manufacturing company that ordered a number of industrial robots only received a fraction. In order to stay on schedule, second-hand robots may need to be purchased. By knowing your supply chains, scoping out when second-hand purchasing is needed will be an easy task.

Therefore, performing due diligence with the supply of resources, internal/external events, company diversity, and the demand within or affecting the supply chain will allow for it to perform smoothly. That concludes this week’s post, if you have any questions about supply chains and their meaningfulness within an industry or if you have any other questions, please feel free to visit our contact page: https://diy-robotics.com/contact/

References

• Coupa. “5 Scary External Factors for Supply Chains.” Coupa, 31 Oct. 2020, https://www.coupa.com/blog/supply-chain/5-scary-external-factors-for-supply-chains
• “What Is Supply Chain Management and Why Is It Important?” Indeed Career Guide, https://www.indeed.com/career-advice/career-development/what-is-supply-chain-management-and-why-is-it-important.