Any company that makes or handles physical goods or materials has some kind of supply chain. Effective supply chain management and planning starts with understanding the role it plays in your organization. For most, that will come down to five core functions, starting with the acquisition of raw materials and going through the delivery of the finished product to end users. Let’s take a closer look at the core functions of the supply chain and how to ensure their successful management in any business.
Overview of supply chain functions
The supply chain encompasses everything involved in the manufacturing of goods and the transportation and distribution of them to customers. It starts with suppliers who provide the raw materials. From there, it moves to the manufacturing companies that make products from those materials. Finally, it includes the storage of finished products, their transportation to retailers, and their distribution to consumers.
Supply chain operations are consistent across organizations and sectors, but how those functions are described varies. Depending on who is discussing them, they may identify between four and seven distinct functions of supply chains. Generally, though, most organizations can think of their supply chain as involving five key processes:
- Sourcing, purchasing, and procurement of raw materials
- Manufacturing and production operations
- Logistics and transportation of materials and goods
- Inventory management and warehousing activities
- Distribution, order fulfillment, and customer service
Let’s take a closer look at these core functions, the professionals who manage them, and the main objectives and challenges included in each.
1. Sourcing and purchasing
Before a business can make a product to sell to customers, they first need to acquire the raw material, parts, and other resources that will go into its production. This comprises the first stage of the supply chain, also known as the organization’s upstream supply chain.
The specific tasks involved with procurement of supplies and materials can vary. Normally, it will begin with demand planning to assess the amount and type of materials that need to be purchased. Timeline and budget are other factors that need to be considered when deciding which materials to purchase. From there, a company chooses and communicates with their chosen supplier and coordinates the delivery of materials to the plant or factory where goods are manufactured.
Objectives and challenges of sourcing and purchasing
The primary objective of purchasing is to choose materials and suppliers that will allow a company to meet customer demand at the best value. This often means striking a balance between quality and costs, a formula that often shifts as the company increases its manufacturing capacity.
Effective forecasting is often one of the biggest challenges companies face with purchasing. Buy too few materials and you won’t meet your full sales capacity and potential. Buy too many and you’ll spend more to store those raw materials, or may end up with waste if those materials are perishable and you don’t use them before they expire. It’s a balancing act that companies must consider and plan carefully in order to maximize profit and minimize costs.
Key roles in sourcing and purchasing
Purchaser
Average salary: $50,000 per year
Typical education: Bachelor’s degree in logistics or business administration
Typical experience: 3+ years
Also known as a purchasing officer or purchasing agent, purchasers communicate directly with suppliers to obtain the raw materials a company needs to produce its goods. Key skills for this role include communication, negotiation, and interpersonal skills like relationship building. They also need to have a firm grasp of concepts like demand forecasting and budgeting, as well as an understanding of the products the company makes, in order to strike the best balance between quality and cost.
Purchasing manager
Average salary: $81,000 per year
Typical education: Bachelor’s degree in finance, logistics, or business administration
Typical experience: 5+ years
The purchasing manager oversees the entire procurement process from end to end. This includes developing the buying strategy, choosing and managing suppliers, and coordinating with the organization’s internal teams to determine their supply needs. To excel in this role, purchasing managers need to have in-depth knowledge of the inventory and product, as well as skills like supply chain management and people management. Other key skills include communication, negotiation, critical thinking, strategic planning, and organization.
2. Manufacturing and operations
This stage of the supply chain is where the materials acquired by the purchasing team are turned into sellable finished products. The specifics of this process will depend on the type of goods you manufacture, and may involve multiple steps to first fabricate individual components that are then assembled into finished goods. These products may be sold directly to consumers or sent down the supply chain to other manufacturers who integrate them into more complex products.
Manufacturing can encompass all types of good production. In a small business, this could mean individual artisans hand-crafting goods from start to finish. Other times it’s a highly automated process involving assembly lines and machinery in an industrial production environment. Regardless of the approach, though, successful manufacturing requires the coordination of labor into a smooth workflow, allowing the company to fulfill their orders and meet consumer demands.
Objectives and challenges of manufacturing
Like with purchasing, supply chain planning and forecasting are crucial for the successful transformation of materials into goods. The ultimate objective of the operations stage is to maintain a steady flow of finished goods into the market. The goal isn’t always to maximize the production capabilities, but rather to align the movement of units with anticipated consumer activity.
The main challenge organizations face in the manufacturing stage of the supply chain is maintaining the efficiency and smooth operation of the end-to-end process. This requires close coordination with both upstream and downstream departments, including resource management, inventory management, logistics, and customer satisfaction. Businesses in manufacturing need effective production planning in order to avoid delays and disruptions. They also need to be responsive to changes in customer needs, whether that means making improvements or changes to the product itself or adjusting their operations management strategies to increase or decrease production.
Key roles in manufacturing and operations
Production planner
Average salary: $60,000 per year
Typical education: Bachelor’s degree in supply chain management or accounting
Typical experience: 1+ year
Production planners are responsible for forecasting consumption of a product and development of production schedules to meet that demand. They oversee the inventory and resource management, and coordinate with other supply chain activities like warehousing, sales, and logistics departments. Key skills include analytical problem solving, organization, and math, particularly statistics.
Production manager or plant manager
Average salary: $79,000 per year
Typical education: Bachelor’s degree in business administration or supply chain management
Typical experience: 5+ years
Production managers are responsible for the coordination and oversight of the entire production team. This often starts with workforce and operations planning, which includes scheduling workers, estimating costs, preparing budgets, and collaborating with both upstream and downstream departments to set production requirements. To be successful, production managers need to have strong communication, leadership, and decision-making skills, as well as a thorough knowledge of the production process and the health and safety regulations governing the workplace.
QA analyst
Average salary: $66,000 per year
Typical education: Bachelor’s degree in engineering, business, or supply chain management
Typical experience: 1+ year
QA stands for quality assurance and that’s a good summation of what these professionals do. A QA analyst ensures that the goods produced meet customer standards and expectations. They often do this through systematic testing of the product, though they also often work in collaboration with customer satisfaction teams to gather and act on feedback from consumers. They must have skills in analytics and problem-solving, as well as effective communication skills and a well-developed attention to detail.
3. Logistics and transportation
Logistics can be roughly defined as the coordination of a complex operation that involves multiple people, supplies, or facilities. In a supply chain context, this exists on both the upstream and the downstream side of the process. It includes the transportation of raw materials to manufacturing facilities, tracking of inventory stored in warehouses, and shipping of finished products to retailers or consumers.
Effective logistics management helps to maintain a smooth end-to-end supply chain with minimal disruptions or delays. Because they are needed at every stage of the supply chain, logistics professionals often take the most high-level view of a business’ operations and facilitate communication between the various departments involved in procurement, operations, and sales.
Objectives and challenges of logistics
The primary goal of logistics providers is to ensure every stage in the supply chain gets what they need, when they need it. They ensure resources arrive at production plants on the correct schedule to support their production timeline. On the other side, they coordinate the transportation of goods to customers, whether they’re being sold directly to end users or delivered to intermediaries like a warehouse or retailer.
In today’s supply chains, one of the biggest challenges at the logistics stage is choosing the right method of transportation. This is especially true for businesses with a global supply chain who will often need to use a combination of air, water, and overland shipping. Each of these methods will have its own typical costs and timelines that must be coordinated to maintain a smooth end-to-end process. As transportation costs increase or there are disruptions to the supply chain, logistics professionals need to find creative workarounds that will allow them to meet both production demands and organization budgets.
Key roles in logistics and transportation
Logistics analyst
Average salary: $64,000 per year
Typical education: Bachelor’s degree in logistics or supply chain management
Typical experience: 0-1 year
Analyst is commonly an entry-level position, though this shouldn’t be taken to mean it’s less important or complex than other logistics roles. These professionals gather data about the organization’s supply chain and perform analysis to identify bottlenecks, waste, inefficiencies, and other issues. Since they often work as part of a team, logistics analysts need strong collaboration and communication skills. They also should have a firm grasp of supply chain analytics, as well as computer and math skills.
Logistics engineer
Average salary: $79,000 per year
Typical education: Bachelor’s degree in logistics or business management
Typical experience: 3+ years
Logistics engineers have a similar job description to analysts but often at a higher level. The main difference is that while analysts simply identify issues, engineers are the ones who develop and implement solutions. They often work in conjunction with or manage a team of logistics analysts, in addition to managing their own projects. Key skills include an in-depth understanding of supply chain analytics, as well as common software and tools used to monitor and evaluate supply chain performance and concepts like network modeling, transportation optimization, cost containment, and capacity enhancement.
Logistics manager
Average salary: $114,000 per year
Typical education: Bachelor’s degree in business administration, logistics, or supply chain management
Typical experience: 3+ years
A logistics manager oversees all activities and team members involved in the movement of items to and from the business. This often includes planning and scheduling the transportation of materials and products, communicating with suppliers and distributors, and coordinating in-house or third-party transportation teams. They also oversee and analyze the end-to-end process to identify areas for improvement and make adjustments accordingly to minimize risks and costs. To excel in this role, professionals need strong analytical, problem solving, and project management skills, as well as the ability to lead and communicate with others effectively.
4. Inventory management and warehousing
Physical inventory is often among the most significant assets of a manufacturing company, and the ability to manage it effectively and efficiently is critical to avoid delays, waste, and other issues that can add costs and lower revenue.
At its core, warehousing describes the physical storage of goods and materials and the administrative processes involved with it. This can be more involved than that straightforward description might lead you to believe, however, especially in an increasingly globalized economy where a company may want to make their products available to customers anywhere in the world.
Objectives and challenges of inventory management
The main objective of warehousing and inventory management is two-fold. The first key function of these systems is to keep track of how much of each item the company currently has, which helps managers in other areas of the supply chain to plan production and determine how many new items they’ll need to meet the forecasted demand. The secondary function of warehousing is to ensure products are in the right place at the right time when customers want to buy them, particularly for companies who have a global reach.
Maintaining accurate inventory information across multiple warehouses or storage facilities is often one of the biggest challenges for companies at this stage of the supply chain. It’s also often a challenge to identify and maintain ideal inventory levels. Too much inventory can drive its storage and management costs higher than they need to be, but too little can leave you unable to fulfill customer orders on schedule. Accurate forecast planning, combined with effective inventory tracking and management systems, is the best way to overcome these challenges.
Key roles in inventory management
Inventory clerk
Average salary: $41,000 per year
Typical education: High school diploma
Typical experience: 2+ years
Clerks are the ones who keep track of warehoused inventory and ensure the numbers in the system match what’s on the shelves. In modern warehouses, this is often done using warehouse management software, and successful clerks should be familiar with these systems and typical inventory tracking methods used in their industry. Attention to detail is the most crucial skill for this role, along with strong math and analytical skills.
Inspector
Average salary: $51,000 per year
Typical education: High school diploma
Typical experience: 3+ years
Inspectors maintain the quality of delivered products by inspecting them before they leave the warehouse. They also often help to maintain the warehouse’s systems and procedures by monitoring other employees like clerks and handlers to ensure they’re following safety regulations and other established best practices. This means warehouse inspectors need to have in-depth knowledge of those regulations, as well as strong attention to detail and skills in math and communication.
Warehouse manager
Average salary: $62,000 per year
Typical education: Bachelor’s degree in supply chain management, logistics, or business
Typical experience: 5+ years
Warehouse managers oversee all the employees and activities in the facility, from receiving new products to tracking them on the shelves and working with sales personnel to ensure orders are filled correctly. Because they manage both the space and the workers, warehouse managers need a combination of leadership, communication, problem solving, and decision-making skills. They also need to have a firm understanding of both the company’s product and sales schedule and general warehouse management procedures and best practices.
5. Fulfillment and customer service
The final stage of a supply chain is the delivery of finished goods to their end user. While it’s usually the last link in the chain, though, customer demand and satisfaction affects every stage that comes before it, from which materials are purchased to make products to how they’re produced, stored, and transported.
This is often the only function of the supply chain that customers directly interact with. This makes it crucial that professionals in the fulfillment function are excellent communicators, able to convey information between the company and its customers accurately and effectively.
Objectives and challenges of customer service
The ultimate goal of this supply chain function is ensuring customers get what they ordered when they need it. Ideally, this process will be seamless and painless from the customer perspective. Achieving that doesn’t just start with the customer service function, but instead relies on smooth operation throughout the supply chain. If there are issues in the production, transportation, or warehousing stage, those need to be communicated to the service team promptly to prevent delivery delays and unhappy customers.
Since the flow of information is so critical to this function, it makes sense that it’s also the primary challenge. Effective customer service relies on transparent, fast, and accurate communication between the various departments and areas of the company. If that breaks down, it can lead to issues throughout the business, from resource acquisition and management through the production, transportation, and warehousing of products.
Key roles in fulfillment and customer service
Import/export analyst
Average salary: $61,000 per year
Typical education: Bachelor’s degree in business or logistics
Typical experience: 2+ years
Import/export analysts oversee the international exchange of goods both to and from a company. This can include preparing and maintaining records on the company’s imports and exports, planning and tracking the delivery of international shipments, and resolving any customer complaints or other issues that arise during the process. This requires strong problem solving and communication skills, along with in-depth knowledge of their industry and international business regulations.
Customer service manager
Average salary: $62,000 per year
Typical education: Bachelor’s degree in business administration or marketing
Typical experience: 5+ years
The customer service manager’s primary role is to ensure customers are engaged and satisfied throughout their interactions with the company. To do this, they often oversee a team of customer service representatives, putting effective leadership and communication among the top skills for success in this role. They also develop the company’s overall customer service strategy and procedures and are the ones called in whenever there are customer issues. Skills in creative problem solving and knowledge of industry best practices will be useful in fulfilling those aspects of the job.
Maintaining the performance of your supply chain
Supply chains have become increasingly complex as globalization increases and the methods used to gather resources, produce goods, and transport products to customers have become more involved. Understanding the core functions of the supply chain is crucial to maximize the efficiency of it within your organization and ensure you’re prepared to meet customer needs as they continue to change in the future.