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Supply Chain: History, Characteristics, Processes

 A supply chain  is a system of people, organizations, activities, resources, and information involved in moving a product or service from a supplier to the customer.

It is a network created between a company and its suppliers to produce and distribute a specific product. In theory, a supply chain seeks to match demand with supply and do so with minimal inventory.

Supply chain management is a critical process, because if a supply chain is optimized it generates a faster production cycle and lower costs.

Supply chain management includes both planning and management of all activities related to sourcing and procurement, conversion. Likewise, it promotes the coordination of processes and activities between marketing, sales, product design, finance and information systems.

It also involves collaboration and coordination with chain partners. These can be customers, suppliers, intermediaries, and external service providers.

It is an integrative role with primary responsibility for linking key business functions and business processes within and between companies in a cohesive, high-performance business model.

Main goal

The primary goal of supply chain management is to meet customer demand through the most efficient use of resources, including distribution capacity, inventory, and manpower.

The basic idea behind supply chain management is for companies and corporations to get involved in a supply chain by exchanging information about market fluctuations and production capacities.

If all relevant information for any company is accessible, each company in the supply chain will have the ability to help optimize the entire chain, rather than suboptimize it based on local interest.

This will lead to better planning in global production and distribution, which can reduce costs and offer a more attractive end product, generating better sales and better overall results for the companies involved. This is a form of vertical integration.



The beginning of operations research, as well as industrial engineering, began with logistics.

Frederick Taylor , the founder of industrial engineering, who wrote The Principles of Scientific Management  in 1911, focused on improving the manual loading process in his work.

Operations research with analytical value began during World War II . He was looking for operational military logistics solutions in the 1940s.

The firsts years

The mechanization of pallet lifting platforms was the focus of logistics research around 1940 and 1950 to obtain greater storage and distribution space.

The concept of unit load and the use of pallets became popular, extending in 1950 to transport management, through the use of intermodal containers, joining ships, trains and trucks to transport them. This set the stage for supply chain globalization .

In 1963, the National Council for Physical Distribution Management became the leader of the field, conducting much research and training, particularly due to the advent of computer science in the 1960s-70s and the resulting paradigm shift.

Coming of age

In the 1980s the term "supply chain management" was developed to express the need to integrate key business processes, from the end user to the original suppliers.

A key logistics trend in the 1980s was its reputation for being absolutely crucial to corporate profits.

In 1985, the National Council of Administration of Physical Distribution became the Council of Logistics Administration to reflect the evolution of the discipline.

Technological revolution

In the 1990s, enterprise resource planning systems were created during the logistics boom. They came after the success of the material requirements planning systems of the 1970s and 1980s.

The ERP software identified the planning and integration needs of the logistics components. Globalized manufacturing, as well as the growth of manufacturing in China in the mid-1990s, popularized the term "supply chain."


Proactive use of data

With the flood of information on the Internet and its applications, data has proven to be an important aspect of supply chains.

Supply chain managers can use the data to identify inefficiencies, create solution proposals, and implement those solutions. They can also be applied to create verifiable forecasts for needs in inventory.

Inventory optimization

Having too much, or too little, of a given item is detrimental to a supply chain. Inventory optimization is based on accurate forecasts of required items.

A thorough assessment and quick identification of sudden changes in the market are also required. This would affect manufacturing, shipping, and other aspects of the supply chain process.


As the global economy becomes more interconnected with new emerging markets, the number of corporate players within the supply chain increases. How will more orders be fulfilled at the current rate? This is where flexibility will become important.

Flexibility refers to the ability of the supply chain to adapt to changes within the market, political climates and other events, which would otherwise affect it.

Fast compliance

The widespread increase in connectivity has taught consumers to believe in the power of their voice and demand instant gratification.

Instant shipping has not yet been invented, but the alternative remains of ensuring that orders are processed error-free, quickly and using the fastest method of transportation.

Supply chains must combine various transportation methods to gain a competitive advantage and give consumers complex details of shipping and tracking their products.

Compliance and visibility

Compliance implies compliance with local and national laws applicable to entities in the supply chain.

End-to-end visibility can eliminate all potential problems by allowing others to see the supply chain. This amounts to a form of self-assessment and monitoring of supply chain processes, leading to increased compliance.


Supply chain activities involve the transformation of natural resources, raw materials and components into a finished product, to be delivered to the end customer.

A typical supply chain begins with human extraction of the raw material.

It then includes multiple production links (eg, building, assembling, and merging components) before moving to multiple layers of dwindling storage facilities and increasingly remote geographic locations, finally reaching the consumer.

Therefore, many of the exchanges found in the supply chain are between different companies seeking to maximize their revenue within their sphere of interest. However, they may have little or no knowledge or interest in the remaining players within the supply chain.

Operations Reference Model

The Supply Chain Operations Reference model (ROCS) is a process reference model developed and endorsed by the Supply Chain Council as a standard diagnostic tool for the entire industry in supply chain management.

The use of the model includes analyzing the current state of a company's processes and objectives, quantifying operational performance, and comparing the company's performance with benchmark data.

The ROCS model can be used to describe supply chains that are very simple or very complex. It is based on six different management processes:


Processes that balance supply and aggregate demand to develop a course of action that is best suited to sourcing, production, and delivery requirements.


Processes to acquire goods and services in order to satisfy planned or actual demand.


Processes that transform the product to a finished state to meet planned or actual demand.


Processes that provide finished goods and services to meet planned or actual demand. They generally include order management, transportation management, and distribution management.


Processes associated with the return or receipt of products returned for any reason. These processes extend to customer service, post-delivery.


Processes associated with the management of the supply chain. These processes include managing: business rules, performance, data, resources, facilities, contracts, supply chain network management, compliance management, and risk management.


The four elements of supply chain management must work cohesively for the benefit of all. It's not just end customers who reap the rewards; the same employees also collect them.


It could be considered the brain and heart of the supply chain. Overseeing the integration of the supply chain means coordinating communications between the rest of the chain. Thus, effective and timely results can be produced.

Often this means exploring new software or other technological means to foster communication between departments. Those in charge of integration are responsible for making sure things happen on time and on budget, without sacrificing quality.


This link in the supply chain coordinates the details of the day-to-day operations of the business. Plan the company's bottom line to make sure everything works well and benefits are maximized.

Operations monitors the company's inventory. Use business forecasts to predict what supplies will be needed, when, and by whom. Also find ways to predict the effectiveness of products, marketing approaches, and end-user results.

Generally speaking, all the company's production is supervised by the operations area.


This department obtains the materials or other goods necessary to generate the company's products. Purchasing builds relationships with suppliers and also identifies the qualities and quantities of items required.

It is very important for those who buy to keep an eye on the budget, that things are profitable for the company. Likewise, comply with high quality standards.


How do the business products end up where they should? The distribution coordinates that. The logistics of communications between retailers, customers or wholesalers is the responsibility of the distribution department in the supply chain.

These groups must be attentive to shipments and know not only what is needed internally to produce the products, but also that the products reach the end customer on time and in good condition.

Real examples

The "Supply Chains to Admire" analysis is an improvement and performance study conducted by research firm Supply Chain Insights.

To be on this list, companies must outperform their peer group on indicators, while making improvements.

This is difficult to achieve. As a result, only the 26 companies shown in the figure are on the 2015 list. The study was based on an analysis of performance from 2006 to 2014.

Top performing supply chains will often have a Supply Chain Index value in the middle of their peer group.

Companies that underperform their peer group can make a greater leap in supply chain improvement than higher-performing companies that have already made significant improvements.

As a result, your Supply Chain Index scores may be higher than those of a better performing company. Better performing supply chains balance improvement with stronger performance.

Superior performance is difficult to maintain. As a result, only eight of the companies that were studied were on the list for two consecutive years. They are Audi, Cisco Systems, Eastman Chemical, EMC, General Mills, AB Inbev, Intel, and Nike.

Deflation and efficiency

The greater efficiency and evolution of supply chains play an important role in reducing inflation.

As efficiencies increase when shipping products from A to B, transportation costs decrease. This will result in a lower final cost for the clientele.

Although deflation is often viewed as negative, one of the few examples where deflation is good is efficiencies in the supply chain.

As globalization continues, supply chain efficiencies are increasingly being optimized. This will help keep product prices down.

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