What is Supply?


What Is Supply?

The definition of supply is the quantity of product or service a business has to offer to its client at a particular point in time. For a physical, brick and mortar store this means the inventory a business holds on their premises and within warehouses that it can sell to customers. For a dropshipper, supply is the amount of product a supplier can guarantee to a merchant.

What Is Supply Management?

Supply management can be described as the ability to research, source and maintain the resources necessary to run a business efficiently. It takes into account management of the suppliers of any raw materials, and the purchasing and upkeep of products or machinery needed to create products. For supply management to be successful the business needs to understand it’s audience, marketplace, and industry trends, to know when to order more stock, allow more time for delivery of raw materials, or to replace machinery that has depreciated beyond reasonable repair.

What Is Supply and Demand?

As one of the most widely taught topics in economics today, supply and demand is the theory behind how the market can allocate resources according to the needs of the many in the most efficient way. Strictly speaking, demand here means the current needs of the marketplace and supply means the ability to meet these demands. The theory of supply and demand comes into play when marketplaces show their willingness to pay more for one product over another another. For instance, if consumers are willing to pay twice as much for a jam doughnut over a ring doughnut, even if the raw materials are very similar and it costs the same to make both, sellers are willing to charge a higher price and stock more of the most popular product on their shelves.

Examples of Supply and Demand

A classic supply and demand example happens at Christmas for lots of companies across the world. During the year demand is steady for many types of toys. Prices are consistent as supply can match or exceed demand. But at Christmas demand multiplies tenfold, making it hard for supply to keep up with the needs of the marketplace. This leads to prices rising as limited stock and increased demand makes products more sought after. After Christmas day however prices go back to normal or even under the original price to compete with sales at that time of the year. Prices drop as demand defaults back to its previous levels before the Christmas rush started.

Another supply and demand example is in agriculture where if a crop is plentiful in harvest the retailers may buy more stock from the source, but pay farmers less and charge the customer less per kg in order to get rid of excess supply. The opposite is the case when a crop has had a bad harvest as demand outweighs supply so prices much increase.

What is Supply Chain Management?

Supply Chain Management is the efficient running of supply management in order to maximize the value for the customer and the company. This means that the management of raw materials, the delivery of products to retailers or customers, the purchasing of machinery, and all activities to do with Supply Chain Management have been analyzed to ensure that all are the most cost-effective option for the company.

The Importance of Supply Chain Management

Supply Chain Management is hugely important to every company, especially if they manufacture or store their own stock. It can help companies to remain profitable when competitors are struggling to break even. The main importance of Supply Chain Management to businesses revolves around decreasing costs and creating reliable workflows within and outside of the company.

  • Decreasing Costs: There are many different sides to Supply Chain Management. From the production management side, supply chain looks after sourcing suppliers for production or delivery of materials. This role needs to ensure not only that they find the best prices in the marketplace but also the most reliable suppliers available. This is to ensure that materials get delivered on-time and in good condition, thus companies can continue to operate at maximum levels in order to meet the demands of their industry. This role might not necessarily opt for the cheapest materials in the market but Supply Chain Management decreases costs overall by ensuring that the company can reach its objectives continuously with minimal disruption to service.

  • Reliable Workflows: On the services side, Supply Chain Management is making sure that customers receive their purchases within an acceptable time and in the condition they expect it to be in. This means that courier services must be vetting and monitored to ensure that high standards are maintained and that the cost of the service equates to the true value of it. If, for instance, a courier delivered parcels on time for three months and then began to deliver parcels on average two days later than promised, with the proper feedback channels and workflows in place, the supply chain department will know these things are happening and be able to rectify the situation before things get out of hand. The business must review all workflows regularly to make sure they are running in the most efficient way possible.

Supply Chain Management Best Practices

  1. Implement Technology: If a company doesn’t utilize technology and software at the minute, now is the time to. If a company is working with an out of date system that hinders rather than helps, now is the time to find a new software supplier. Businesses should take the time to shop around, try a trial or two, and find the best option for their business needs. With a large number of supply chain software in the marketplace, the right technology is out there for every company.

  2. Maintain Great Supplier Relationships: Suppliers are so important to the success of a business that it is too costly to have a bad relationship with them. Businesses should spend time talking with them. Never assume they can do something — ask them and always ensure prompt payment to keep them happy.

  3. Total Cost Over Price: A great Supply Chain Management department looks at the total cost over the cost of purchasing from a supplier. If the supplier can provide the right quantity of raw materials, in the least amount of days at a slightly high cost than the closest competitors who cannot supply quantity or within a timeline then the total cost of the most efficient supplier outweighs the slight price increase. Of course, quality and other considerations also matter, but companies must ensure they are getting the best deal for their needs when shopping for suppliers.

  4. Optimize Inventory: Doing a regular stocktake of everything in a company’s stores is a great way to optimize inventory and protect against over-ordering stock that is already plentiful in the company. Factor in trends and forecasts to make sure the busy and quiet periods are both catered for. Stock optimization is effective in cutting costs and can result in identifying a surplus of storage leading to a lessening need for warehousing, therefore decreasing fixed assets and the cost incurred through them.

  5. Review and Track: Data is an ever developing area in all elements of a business and Supply Chain Management is included in this. Setting KPIs that track the success of the supply chain process helps ensure the department is achieving its goals and also striving to be better. A well-performing Supply Chain Management department not only hits their targets but sets bigger and better targets every year aiming to work more closely with suppliers to achieve these.

  6. Be Socially Responsible: Companies need to look at different ways they can help their local communities and those in need across the world. Coffee retailers who source coffee beans from local farmers in production areas are leading the way in this area as they are ensuring that those who harvest the crop get as much of the money as possible from the sale. Another company who strive to be socially responsible is Ben & Jerry’s — who commits to have all of the ingredients in its ice-cream products certified by FLO-CERT as environmentally sound and being harvested in a sustainable manner.

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