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June 26, 2020

What is a supply chain and why does it matter?

Children run on a road near their homes..

A supply chain is the route that a product takes, from raw material to consumer. That sounds simple, but supply chains have the power to transform the world.

It is almost certain that you are a part of dozens, if not hundreds, of supply chains. While you might not spend a lot of time thinking about this fact, all these supply chains impact your life in various ways. It’s easy to take for granted the benefits of supply chains until one of them breaks down and you’re left without an essential product – toilet paper, for example.

So what is a supply chain, exactly?

In simple terms, a supply chain is the route that a product takes, from raw material to consumer. Let’s use a cup of coffee as an example. Coffee beans are farmed in places such as Brazil, Columbia, Guatemala, and Costa Rica. A farm in, say, Guatemala grows coffee beans. This is the beginning of the chain. From there, the beans are sold to a manufacturer, who will roast the beans. Those roasted beans are in turn sold or distributed to a coffee shop, where they will be brewed and served as part of your morning coffee.

That’s a simplified version that doesn’t account for the many additional stops those beans will take on their journey from farm to cup, but it should be enough to conceptualize what a supply chain is. Even with this simple and apt description, however, it might still be difficult to imagine the impact this has on the day-to-day life of the average person. Supply chains have the power to transform the world.

Every supply chain is a network

A supply chain is the network of lines that connect producers, vendors, warehouses, transportation companies, distribution centers, retailers, and, ultimately, end users. But let’s ignore the end user for a second and simply marvel at the amount of business connections that need to happen for any supply chain to function.

A parts manufacturer, for example, needs to be able to source all the necessary raw materials to make a part. Some parts are complex and require dozens of materials, each of which comes from a different source.

Next in line you have the manufacturer of a product made from these parts. The part mentioned in the previous paragraph is only one piece of the puzzle. The manufacturer must not only source that one part, but all the additional parts needed for the final product.

Then you’ve got retailers, who are sourcing their products from various manufacturers. Beyond that, there are several packaging facilities, warehouses and so on where a product might spend time.

When you look at a microwave oven that you bought at Target, you’re looking at something that only exists because of countless people working together.

Every supply chain is a community

The previous point focuses mostly on the middle portions of the supply chains, but the networking aspect reaches from one end (the consumer) all the way to the other end (a farmer, miner, etc.) Ultimately, a supply chain is what connects a coffee drinker in the United States with a farmer in Guatemala, or a smartphone user with miners in Africa.

Because of supply chains, the world is a more connected place. Just like how the internet has connected us via information, supply chains have been connecting us for much longer, using tangible products made from raw materials.

That much is maybe obvious, but let’s take this just one step further: The decisions you make as a consumer affect people you don’t know in other countries. Buying a product made from ore mined under inhumane conditions ends up reinforcing those conditions and feeding a cycle of terrible abuse. Buying a beverage that uses ingredients farmed using child labor prevents those children from ever having normal lives.

That previous paragraph might be a little depressing, but there’s an upside: You have power to change the world for people living in terrible conditions. It’s a small amount of power, sure, but the collective power of consumers adds up quickly. It only takes a few people making responsible decisions to inspire others to act more responsibly. Thus begins a chain reaction that brings about positive change across the world.

Supply chains transform the world into a network of communities and empower us to impact communities in places we’ve never set foot.

Every supply chain is a flow

Raw materials are made into components, which are combined to assemble products, which are then distributed to retailers and eventually sold to consumers. For all of this to work, products, components, and raw materials are constantly traveling from place to place. In some cases, a raw material might circle the globe multiple times before it ends up in the hands of the end user.

All of this creates a flow: a perpetually moving network of streams and tributaries. That flow might seem automatic to an unassuming end user, but in reality it’s anything but. It’s astonishing to think about just how many people and how much innovation is required to keep this process in motion.

And that flow isn’t exclusive to products – information must flow as well. Products and parts need to be monitored if they’re not going to be lost in transport. Retailers need to plan how much of any given product they need, and manufacturers need to plan how to meet those demands. These entities must be in constant communication about these factors, because if they don’t align, the flow becomes either a trickle or an overwhelming deluge. Changes in the flow must be monitored and reacted to in real time.

A supply chain is only as strong at its weakest link

At any point in the supply chain, an error will cause the whole thing to begin breaking down. If a parts manufacturer is producing defective components, the final products won’t work. If delivery trucks aren’t reaching their destination, consumers don’t get their products.

Obviously, clarity and transparency are vital to the process. We’re living in an imperfect world where things occasionally fail. When something goes wrong, it can take some detective work to determine the cause. When the process is transparent from beginning to end, it becomes much faster and simpler to identify problems and solve them before any delays occur. We simply can’t afford to let our supply chains run blindly.

Conclusion

A supply chain is the bloodstream of the manufacturing industry. On top of that, it’s a network of companies and a community of human beings. When it’s working properly – with transparency and clear communication – it empowers everyday people to impact communities around the world. That change can be positive or negative, but if we’re mindful about the impact our actions have on the world, we can amplify the positive and mitigate the negative.

BanQu creates blockchain solutions for some of the modern world's biggest challenges, such as supply chain transparency and identity platforms for impoverished populations. We believe that with blockchain's bright future, world poverty can become a thing of the past.