Supply Chain Management - Towards Profitability

Supply chain management; it sounds important but what is it? That's a good question and one all successful entrepreneurs must have an answer for. Simply put, it is the process by which a business moves its product to market.

You've got a great idea for a product; and you find the funding to make your idea a reality. You've even created a marketing campaign to introduce your product to the world. So that's it then. Your work is done and you can sit back and watch the profits roll in right? Well not quite. Your product won't be a success until you can get it to the consumer at a price that makes sense. This is where supply chain management becomes essential to your products success.


It all starts with your suppliers. To make the best widget, at the most profitable price, you need an adequate supply of components to be available at a price that fits within your budget. The suppliers provide you with the raw materials which you in turn use to create the world's greatest widget.

A business could, if it so chose, become its own raw materials supplier. In most cases, this would be cost prohibitive. Mining for raw materials is normally a labour intensive, expensive proposition.

For example, in order to make a tablet computer (finished product) you need crude oil to produce plastic granulate, which in turn is used to create the plastic body of the tablet. However, as a maker of tablet computers you have no need for the vast amounts of crude oil which would need to be extracted in order for such a venture to be profitable. Besides, as a maker of tablet computers you have no interest in getting into such an industry. This is why we have suppliers. They can provide you with the raw materials required for your finished product. As long as they can do so at a price that makes sense, everybody wins.

Production Process

This is where you come in. You've found a good group of suppliers to provide you with all the raw materials you need to make your widget at a price that's reasonable. So now you have the funding in place to develop your product and you have the supply of raw materials needed to make your product a reality.

The next step is to put your production plan in motion. You develop an assembly process and you are producing widgets at a rapid rate. Everything seems fantastic! Now the profits have to start piling up! Not yet. You still have to get your finished product to market. Where your market is in relation to your production facilities, will have a lot to do with how you get it there.


For a lot of entrepreneurs this is where they get lost. How on earth do I get my product to market? There are many ways of doing this and, as mentioned above, this will depend on where your market is. The methods available include: ocean, air, rail, and road.

If, for example, my market is in Asia and my business is located in North America, I will have to use either ocean or air shipping as part of my supply chain. If however, my primary market is within North America, I will rely on rail, road, or air. How I decide which method is right for me will depend on numerous factors, not least of which will be cost and time sensitivity.

If my customer requires me to expedite shipment, I might be required to consider shipping via air even though the costs involved may be much higher. These increased costs will be passed on to the consumer in the form of higher prices. If however, my customer is not in a hurry for the shipment, they may be willing to accept longer wait times for the product in return for a reduction in price. In this instance I may choose to ship over the road. This method of transportation is generally cheaper than transporting by air.

Rail shipments may be even cheaper, especially when dealing in bulk goods. Companies in the rail business can take advantage of economies of scale. Rail cars travel on predetermined tracks, decreasing friction and increasing environmental efficiency. As a result, one locomotive can haul a large amount of rail cars. If your customer is not in a hurry, there may be great cost savings for both parties when shipping by this method. However, this method is inflexible and may not provide service direct to your customers' door.

Shipping over the road is the most common shipping system. This method can provide relatively rapid transport of goods to market, and is flexible enough to reach most destinations directly. Some companies maintain their own fleet, but most companies find it more cost effective to hire haulage companies to provide this service for them. It is cheaper than air and, while slightly more expensive than rail, it provides a good compromise when both speed and time are factors in the decision process.

In reality you may have to use a combination of shipping methods to move your product to market. These costs to you must be included in the cost of your product if your company is to remain viable. Returning to our original comments, supply chain management clearly is of the utmost importance to the success of any business. Understanding this process is not easy, but the entrepreneur must have a basic grasp of the process. Once you do, you'll be well on your way to profitability!

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