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Supply Chain

What is a Supply Chain?

A supply chain is a system of interconnected activities and organizations involved in the production and distribution of a product. In the modern era, supply chains can range from locally sourced and sold products to international networks.

Just like efficient production methods and smart manufacturing, an intelligent and efficient supply chain can reduce company expenditures a great deal. However, since the system is one interlinked chain, any problems experienced by one link in the chain will have readily apparent effects on the rest of the supply chain.

Key players within the supply chain are raw material extractors, manufacturers, logistics companies, retailers, warehouses, and distribution centers.

Key Takeaways

  • The supply chain is a system of interconnected companies and actions that see a product or service's complete production and delivery.

  • A typical supply chain consists of 5 basic steps or links: Extraction, Refinement, Assembly, Sale, & Delivery

  • Supply chain activities and procedures can be broken into two large categories: Internal & External

  • Any problems experienced by one link in the chain will have readily apparent effects on the rest of the supply chain.

What is the Difference Between Logistics and the Supply Chain?


If you are unsure of the answer to this question, then you are in the majority.

Often supply chain management is thought to be synonymous with logistics. However, logistics is only a part of the various actions and organizations that comprise the entire supply chain.

Admittedly, logistics is a huge part of the supply chain, contributing to the common misconception that the two are the same.

Logistics refers to how goods and services are moved between organizations and individuals in the supply chain. More specifically, this crucial action is responsible for how companies plan, control, move, and store within the chain.

On the other hand, the supply chain refers to the entire process of how base materials are transformed into a final product and how customers buy and receive said product.

While supply chains will vary between industries and companies, a supply chain can be understood through 5 basic steps (links in the chain).

Five Steps of the Supply Chain

  1. Extraction: Raw materials are sourced and gathered.
  2. Refinement: Materials are refined into base components.
  3. Assembly: Base components are assembled to make the finished product.
  4. Sale: Selling the finished product. sales can happen at any point in the supply chain.
  5. Delivery: The final product is delivered to a retailer or directly to the consumer.

We can observe these 5 steps in practice with any product. For example, let’s consider the slightly esoteric bioplastic cooking utensils made from banana peels.

  1. Extraction: Banana peels are sourced from municipalities, restaurants, and waste disposal companies.
  2. Refinement: The banana peels are milled and refined into fine flour.
  3. Assembly: the banana peel flour is mixed with NaOH and a plasticizer. The compound is then poured into molds of cooking utensils, cured, and dried.
  4. Sales: the utensils are then sold to distributors
  5. Delivery: the utensils arrive at distributors and are sold to customers

While the five steps provide an adequate picture of the supply chain, it is in some ways incomplete. Most supply chains are in fact much more complicated and a lot of work goes in between each step. These include:

  • The physical movement of goods between multiple internal and external organizations
  • Storage and tracking of inventory
  • Quality inspections of goods
  • Demand and supply management such as push and pull manufacturing
  • Documentation of processes, requirements, and expectations

Internal and External Supply Chains

Many supply chains consist of both external and internal activities that manage how materials are received and how complete parts and final products are sent out.

External Supply Chain

This is a network of organizations and individuals that partner together to supply customers with a desired product or service.

For example, companies like Apple.Inc sources computer chips from a company named TSMC (Taiwan Semiconductor Manufacturing Company). Despite Apple’s exacting standards on all their products, they don’t actually make all the components that go into their computers. In reality, they manage a complex supply chain that enables them to supply their product to consumers.

The term external supply chain can also refer to coordinating and managing relationships between the companies involved. Since external supply chains can span multiple organizations, countries, and continents with varying laws and interests, the external supply chain needs intelligent planning and thorough coordination.

Internal Supply Chain

An internal supply chain refers to the interconnected activities that occur within a company. Often internal supply chains will manage actions like purchasing, production, sales, quality, and distribution.

For example, when Apple.Inc receives a shipment of computer chips from TSMC, there is a detailed inspection and verification process that occurs. Similarly, the internal supply chain will also be responsible for ensuring that all finalized products are ready for shipment and distribution to customers.

Lightbulb Pro Tip

Pro Tip

Did you know that digital work instructions help bolster both the internal and external supply chains? Standardize procedures and inspections internally while sharing these procedures between departments, locations, suppliers, and partners.

The Digital Supply Chain

Despite the supply chain comprising plenty of physical movements and productions, technology and digital tools are making a large impact.

Modern manufacturers and distribution companies can gain advanced insight and greater control of their supply chains by using the following tools.


  • IoT (Internet of Things) devices track, monitor, and report the position of entire shipments and even individual items.
  • Organizations can create automated protocols or use a dedicated rule engine that streamlines supply chain activities such as ordering parts automatically when inventory is low.
  • In-depth reports and analyses help users identify bottlenecks, inefficiencies, and waste.
  • Take this a step further by utilizing machine learning AI, and digital twin technology to gain further insights into your supply chain and suggestions for efficiency enhancements.
  • VKS work instruction software communicates material and part usage with inventory systems to track stock levels in real time.
  • With either one comprehensive SCM (supply chain management) software or multiple systems communicating via API, all organizations and individuals can access and update key supply chain data when they need.
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