How to Describe the Three Segments of a Supply Chain

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Examining your business' supply chain can lead to cost savings and higher profits
Examining your business' supply chain can lead to cost savings and higher profits (Image: Jupiterimages/Creatas/Getty Images)

Businesses must be mindful of overall costs when making products and services because production costs, relative to the price consumers are willing to pay, determine profit margin. A supply chain describes the movement of production inputs, such as raw materials, through to assembly plants, factories or warehouses, and ultimately on to the end consumer. A tightly managed supply chain can help businesses cut costs of production thereby increasing profits. There are three segments of the supply chain to examine when your aim is cost efficiency: upstream, internal and downstream.

Negotiate with the external suppliers you are dealing with. If you think a better deal can be found elsewhere, move your business to a different company within the upstream segment of the supply chain. "Upstream" refers to the supply of raw materials or other inputs your company needs for the manufacturing process.

Examine the internal supply chain (or manufacturing process) within your business to see if it can be streamlined. That is, see if the procedures and processes used to transform inputs from upstream can be improved to save the company money. For instance, a team-based assembly method may prove to be more efficient in the long run over an assembly line. Or an increased focus on quality control might increase the number of saleable units available for distribution.

Choose the best method of distribution to your customers. The distribution of your product via delivery vehicles, warehouses, retail stores and the like comprises the downstream segment of the supply chain. Be aware of new developments downstream; online sales, for instance, have saved small businesses a lot of money since they no longer have to pay warehousing fees.

Tips & Warnings

  • Ask colleagues, employees and other business owners what their recommendations are for making the supply chain more efficient.

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