Definition: A supply chain consists of the flow of goods, services, or information from the original supplier to the to end user or customer across organizations and industries. In other words, it’s the list of steps and processes involved in creating, producing, and delivering products to customers no matter how many businesses participated in the activities.
What Does Supply Chain Mean?
The supply chain is a crucial concept in cost accounting because production managers must understand all the steps required to create a product or service and deliver it to customers. Since businesses rarely operate independently, most chains involve multiple organizations and companies.
Managers must understand their needs and develop relationships with vendors to ensure that raw materials are supplied to the business in a timely fashion at a reasonable price. This process of analyzing and interpreting the organizational needs is typically called supply chain management.
Let’s take a look at what a supply chain looks like for a typical manufacturer.
Example
The Hersey Company manufacturers many different kinds of candies, but let’s take a look at how they create and distribute their classic candy called the Hersey kiss. First, chocolate, sugar, and other supplies deliver ingredients to the Hersey factory to start the production process.
Second, while the factory receives the ingredients and begins to process them down into the kiss shape, a third party delivers the aluminum and other materials needed to create the wrappers and packaging for the products.
Third, the factory processes the packaging and wraps the chocolate candies to get them ready for shipment to customers.
Fourth, the shipping company delivers the boxes of candies to retailers throughout the world.
Lastly, the end customer can purchase the excellent products for consumption.
So let’s review. The Hersey Company chain consists of ingredient vendors, the candy factory, packaging material vendors, the packaging plant, distribution companies, and retailers. A supply chain manager’s job is to integrate all of these vendors and steps into one seamless production system that meets the goals of the company.
