Key Takeaways

• The Supply Chain covers everything from sourcing raw materials and manufacturing to storage and delivery to customers. It does not refer to transportation alone.
• Supply Chain Management (SCM) is the planning and management of the flow of goods, information, and resources among the parties in a supply chain.
• The five key processes businesses should manage are Planning & Sourcing, Manufacturing, Inventory & Warehousing, Distribution & Logistics, and Returns.
• An unplanned Supply Chain can lead to Stockouts, Overstock, longer Lead Times, and higher Logistics costs.
• Logistics is part of Supply Chain Management; the two terms are not interchangeable.

What Is a Supply Chain?

A Supply Chain is a network of activities, people, companies, and resources involved in moving a product from raw materials to the end user.

A simple example of a product’s journey is:

Supplier → Manufacturer → Warehouse → Distributor → Retailer → Customer

In real businesses, however, Supply Chains can be much more complex. One Supplier may have its own Suppliers, a factory may purchase raw materials from multiple countries, and Finished Goods may be distributed to several Warehouses before reaching the Customer.

Therefore, a Supply Chain does not refer only to trucks or Warehouses. It includes all the processes that make it possible for:

Raw Materials → To Become Products → To Be Ready for Sale → To Reach Customers

What Is Supply Chain Management (SCM)?

Supply Chain Management (SCM) is the management of activities across the Supply Chain so that they work together efficiently.

The things that need to be managed are not limited to goods. They also include:

• Material Flow
• Information Flow
• Cash Flow
• Inventory
• Supplier
• Production
• Warehouse
• Transportation
• Customer Demand

The goal is to enable a business to deliver:

The Right Product → The Right Quantity → The Right Place → The Right Time → At a Controllable Cost

If each department works independently without sharing information, Supply Chain problems can arise easily. For example, Sales may sell more than the factory can produce, or Procurement may order more raw materials than Demand requires, leaving excess Stock.

What Is the Difference Between Supply Chain and Logistics?

The two terms are related, but they are not the same.

Supply Chain Management has a broader scope and covers:

• Supplier
• Procurement
• Production
• Inventory
• Warehouse
• Distribution
• Logistics
• Customer
• Returns

Logistics, by contrast, focuses mainly on moving and storing goods, including:

• Transportation
• Warehousing
• Packing
• Freight
• Customs
• Distribution

A simple way to remember the relationship is:

Logistics is part of the Supply Chain.

For example, for a company importing raw materials from China:

Selecting a Supplier and deciding how much to order are Supply Chain activities.

Moving the goods from a factory in China, shipping them by sea, completing Customs Clearance, and bringing them to a Warehouse in Thailand are Logistics activities.

Who Is Involved in a Supply Chain?

The parties involved vary by business, but generally may include:

• Raw Material Supplier
• Manufacturer
• Importer
• Exporter
• Freight Forwarder
• Customs Broker
• Warehouse
• Distributor
• Wholesaler
• Retailer
• Marketplace
• Logistics Provider
• Customer

For products imported from overseas, other parties may also be involved, such as:

• Overseas Supplier
• Shipping Line
• Airline
• Port
• Airport
• Customs
• Government Agency

The more parties involved, the more important information exchange between each point becomes.

What Are Upstream, Internal, and Downstream Supply Chains?

A Supply Chain can be divided into three broad stages.

1. Upstream Supply Chain

This covers activities before production or before goods enter the business.

Examples include:

• Finding Suppliers
• Sourcing
• Procurement
• Purchasing Raw Materials
• Importing Raw Materials
• Supplier Management
• Inbound Logistics

For example, a furniture factory in Thailand may import Hardware from China and purchase timber from a domestic Supplier.

Both activities are part of the Upstream Supply Chain.

2. Internal Supply Chain

This covers processes within an organization, from receiving raw materials to producing goods ready for sale.

Examples include:

• Receiving
• Raw Material Storage
• Production
• Assembly
• Quality Control
• Finished Goods
• Inventory Management

The efficiency of this stage directly affects:

• Production Lead Time
• Capacity
• Waste
• Quality
• Cost

3. Downstream Supply Chain

This covers processes after goods are finished, through to delivery to customers.

Examples include:

• Warehouse
• Order Processing
• Packing
• Distribution
• Transportation
• Export
• Delivery
• Retail
• Customer

For an Export business, the Downstream Supply Chain may extend to Distributors or Customers in other countries.

Five Key Supply Chain Management Processes

Although each business designs its SCM processes differently, the main activities can be divided into five parts for easier understanding.

1. Planning & Sourcing – Planning and Sourcing Materials

The Supply Chain begins before the product physically exists.

A business needs to plan:

• What it will sell
• How much it expects to sell
• How much raw material it will need
• When to order from Suppliers
• What the Lead Time will be
• How much Safety Stock it should hold

The business then moves into Sourcing and Procurement.

Supplier selection should not be based on Unit Price alone. Other factors include:

• Quality
• Capacity
• Lead Time
• MOQ
• Payment Term
• Location
• Reliability
• Regulation
• Transportation Cost

For example, Supplier A offers a price that is 5% lower but has a Lead Time of 60 days.

Supplier B is slightly more expensive but can deliver in 20 days.

The business should consider Total Supply Chain Cost rather than looking only at the purchase price.

Is the Cheapest Supplier Always the Best?

Not necessarily.

A low-priced Supplier may increase other costs, such as:

• Higher Freight
• Higher MOQ
• Longer Lead Time
• Inconsistent Quality
• Late Deliveries
• The need to hold more Safety Stock

Businesses should evaluate Total Cost of Ownership and the impact on the entire Supply Chain.

2. Manufacturing – Production

Once raw materials are ready, they enter production or product preparation.

Activities may include:

• Production Planning
• Material Requirement
• Scheduling
• Assembly
• Quality Control
• Packaging
• Finished Goods

One challenge is aligning production with Demand.

Overproduction can lead to Overstock.

Underproduction can lead to Stockouts.

Therefore, information should be connected across:

Sales Forecast → Production Plan → Procurement Plan

so that the plans remain aligned.

Why Is Capacity Planning Important?

Even if Demand is high, a factory cannot deliver on schedule if it cannot produce enough.

Capacity Planning should therefore consider:

• Machine Capacity
• Labor
• Production Time
• Bottleneck
• Maintenance
• Raw Material Availability

Businesses should plan ahead, especially during Campaigns or periods of Seasonal Demand.

3. Inventory & Warehousing – Managing Stock and Warehouses

After production, goods need to be stored before distribution.

Inventory Management should answer questions such as:

• How much Stock should be held?
• Which SKUs sell quickly?
• Which SKUs sell slowly?
• When should items be reordered?
• Which Lot should be dispatched first?
• Which Warehouse should hold each product?

If Stock is too low, a Stockout may occur.

If Stock is too high, the business may face:

• Holding Cost
• Storage Cost
• Dead Stock
• Expired Stock
• Cash Flow tied up in Inventory

The goal is to find a balance between:

Service Level and Inventory Cost

How Are FIFO and FEFO Related to the Supply Chain?

Warehousing is part of SCM and requires appropriate Stock Rotation for each product type.

For example:

• General goods may use FIFO.
• Food and medicines with expiry dates may use FEFO.

A good system should track:

• SKU
• Lot
• Batch
• Received Date
• Expiry Date
• Quantity
• Location

This helps prevent old or nearly expired Stock from remaining in the Warehouse.

Suggested Internal Link: What Are FIFO, LIFO, and FEFO? Principles for Picking Goods and Managing Inventory

4. Distribution & Logistics – Distributing and Transporting Goods

When a Customer places an order, the goods must be taken out of the Warehouse and delivered to the Destination.

The process may include:

• Order Processing
• Picking
• Packing
• Shipping
• Transportation
• Customs Clearance
• Delivery

For an International Supply Chain, the business must also decide which mode is suitable:

• Air Freight
• Sea Freight
• Road Freight
• Courier
• Multimodal Transport

The choice should take into account:

• Cost
• Lead Time
• Volume
• Weight
• Product
• Destination
• Urgency

The decision should not be based on Freight Rate alone.

Example: Air Freight vs. Sea Freight in a Supply Chain

Suppose a business imports products from China.

Regular stock can be shipped by Sea Freight to manage costs.

However, if Stock in Thailand is about to run out, part of the order may be sent by Air Freight to replenish Stock sooner.

A strategy could therefore be:

Regular Stock → Sea Freight

Urgent Replenishment → Air Freight

Although Air Freight costs more, it can reduce Lost Sales caused by Stockouts.

This is a Supply Chain decision, not simply a comparison of Freight Costs.

5. Returns & Reverse Logistics – Managing Returned Goods

The Supply Chain does not end when Delivery is completed.

Goods may be returned by Customers for reasons such as:

• Damaged goods
• Incorrect items delivered
• Returns
• Recalls
• Warranty claims
• Repairs
• Recycling

The reverse flow of goods or materials is called Reverse Logistics.

Businesses need to plan:

• Where returns will be received
• Who is responsible for Freight
• How goods will be inspected
• Whether they can be resold
• Whether they should be repaired or destroyed
• How refunds will be handled

For International Shipments, returns can be more complex because Customs and taxes may also be involved.

Why Is Demand Forecasting Important to the Supply Chain?

Demand Forecasting is the process of estimating future demand for products.

Information that can be considered includes:

• Historical Sales
• Seasonality
• Promotion
• Marketing Campaign
• Market Trend
• Customer Order
• Economic Condition

A Forecast will never be 100% accurate.

The goal is not to predict every sale perfectly, but to reduce forecasting errors enough to improve planning for:

• Procurement
• Production
• Inventory
• Transportation

What Is the Bullwhip Effect?

The Bullwhip Effect occurs when a small change in Customer Demand becomes increasingly amplified as it moves upstream to Distributors, Manufacturers, and Suppliers.

For example:

Actual sales increase by 10%.

The Retailer fears a Stockout and increases its order by 20%.

The Distributor sees the increase and orders 30% more from the factory.

The factory then increases its Raw Material orders by 40%.

When Demand returns to normal, every party ends up with excess Stock.

Possible causes include:

• Inconsistent Forecasts
• Excessive Buffer Ordering
• Promotions
• Large Order Batches
• Information Delays
• Panic Buying

Sharing Demand Data across the Supply Chain can help reduce this problem.

What Is Lead Time, and Why Should It Be Reduced?

Lead Time is the time required from the start of a process until it is completed.

A Supply Chain can have several types of Lead Time, including:

• Supplier Lead Time
• Production Lead Time
• Transportation Lead Time
• Customs Lead Time
• Order Fulfillment Lead Time

For example:

Supplier Production = 20 days
Sea Freight = 15 days
Customs + Delivery = 3 days

Estimated Total Lead Time = 38 days

If a business places an order when it has only 20 days of Stock remaining, a Stockout may occur before the next shipment arrives.

What Is Safety Stock?

Safety Stock is reserve inventory held to cover uncertainty, such as:

• Demand higher than expected
• Supplier delays
• Freight delays
• Customs delays
• Production problems

However, excessive Safety Stock increases Inventory Cost.

Businesses should not simply follow the approach:

“If we are afraid of running out, let’s order a lot more.”

Instead, Safety Stock should be calculated based on Demand and Lead Time Variation.

What Is the Reorder Point?

The Reorder Point is the Stock level at which a business should begin ordering more goods.

The basic concept is:

Demand During Lead Time + Safety Stock

For example:

Average usage = 10 units per day
Supplier Lead Time = 20 days
Safety Stock = 50 units

Demand During Lead Time =

10 × 20 = 200 units

Reorder Point =

200 + 50 = 250 units

Under these assumptions, the business should start reordering when Stock falls to approximately 250 units.

In practice, Demand Variation and Supplier Performance should also be considered.

How Can Supply Chain Management Reduce Costs?

Reducing SCM costs does not mean choosing the cheapest Supplier or Freight option every time.

The aim should be to reduce costs that do not create Value, such as:

• Overstock
• Dead Stock
• Urgent Freight
• Empty Runs
• Waiting Time
• Rework
• Damage
• Storage
• Duplicate Processes
• Stockouts
• Expedited Shipping

For example, if inaccurate Forecasting causes Stockouts and forces a business to use Air Freight every month, the problem may not be that “Air Freight is expensive.”

The underlying issue may be Demand Planning and Inventory Planning.

Addressing the root cause can save more than negotiating Freight Rates alone.

What Is Supply Chain Visibility?

Supply Chain Visibility is the ability to see status information across the Supply Chain.

Examples include:

• How far along a Supplier is in production
• When a Purchase Order will be ready
• Whether a shipment has departed
• Where a Container is located
• Whether Customs Clearance is complete
• How much Stock is available in the Warehouse
• Which Orders are out for Delivery

The faster and more accurate the information, the more effectively a business can act before a problem affects the Customer.

How Is GPS Tracking Related to Supply Chain Visibility?

GPS Tracking can be one source of data for Transportation Visibility.

It can provide information such as:

• Vehicle Position
• Route
• Movement
• Estimated Arrival

However, GPS alone does not show the entire Supply Chain.

It must be combined with information from:

• Order
• Warehouse
• Shipment
• Customs
• Supplier

Suggested Internal Link: Six Benefits of GPS Tracking for Logistics Businesses: How to Manage Transport Vehicles

What Technologies Are Used in the Supply Chain?

Businesses can use several types of systems and technologies, including:

• ERP
• WMS
• TMS
• Order Management System
• Procurement System
• Barcode
• RFID
• GPS Tracking
• EDI
• API
• Business Intelligence

However, Technology cannot fix an unclear Supply Chain Process on its own.

A better starting point is:

Define the Process → Define the Data → Define the KPIs → Select the Technology

Rather than buying Software first and then figuring out what to do with it.

What Is the Difference Between ERP, WMS, and TMS?

ERP – Enterprise Resource Planning

Manages business information at an overall level, such as:

• Finance
• Purchasing
• Sales
• Inventory
• Production

WMS – Warehouse Management System

Focuses on Warehouse Operations, such as:

• Receiving
• Putaway
• Location
• Picking
• Packing
• Inventory

TMS – Transportation Management System

Focuses on transportation, such as:

• Route
• Vehicle
• Carrier
• Shipment
• Freight
• Delivery

These three systems can exchange information to improve Supply Chain Visibility.

What Are the Key Supply Chain KPIs?

No single set of KPIs suits every business, but examples include:

• On-time Delivery
• Order Accuracy
• Inventory Turnover
• Stockout Rate
• Forecast Accuracy
• Supplier On-time Delivery
• Lead Time
• Fill Rate
• Transportation Cost
• Warehouse Cost
• Damage Rate
• Return Rate

Choose KPIs that reflect the business’s actual problems or goals.

Is On-time Delivery Alone Enough?

No.

A truck can arrive on time but deliver the wrong quantity.

An order can also be complete and on time but cost too much relative to the Margin.

Performance should therefore be measured across several dimensions, such as:

Time + Accuracy + Quality + Cost

One concept used in Logistics is OTIF – On Time In Full, which measures both on-time delivery and delivery of the complete order.

What Are the Risks in a Supply Chain?

Supply Chains can be affected by many factors, including:

• Supplier Shutdowns
• Raw Material Shortages
• Port Congestion
• Freight Delays
• Natural Disasters
• Geopolitical Risk
• Strikes
• Regulatory Changes
• Currency Risk
• Cybersecurity
• Customs Issues

Businesses should not design a Supply Chain based only on the lowest cost. They should also consider Resilience.

What Are the Risks of Using a Single Supplier?

Using a single Supplier can offer advantages, such as:

• Easier Management
• Higher Volume
• Greater Negotiating Power

However, if that Supplier stops production, the business may have no Alternative Source.

Some companies therefore use:

• Dual Sourcing
• Multiple Suppliers
• Backup Suppliers

for critical materials.

These options must still be balanced against Cost and Quality Control.

What Additional Issues Should Be Considered in an International Supply Chain?

When a Supply Chain crosses borders, complexity increases because of:

• Customs
• HS Code
• Import Duty
• VAT
• FTA
• Certificate of Origin
• Import Permit
• Export Permit
• Incoterms
• Currency
• Shipping Schedule

Procurement should therefore consider more than the Supplier’s Product Cost.

It should calculate Landed Cost to understand the actual cost when the goods reach their destination.

What Is Landed Cost?

Landed Cost is the total cost incurred to bring goods to a specified destination.

It may include:

• Product Cost
• Packing
• Inland Transport
• Export Clearance
• Freight
• Insurance
• Import Duty
• VAT, as calculated under the applicable rules
• Customs Clearance
• Destination Transport

For example, Supplier A may sell goods at a lower price than Supplier B.

However, Supplier A may be farther from the Port and have higher Freight Costs.

After calculating Landed Cost, Supplier B may turn out to be the more cost-effective choice.

Suggested Internal Link: What Is Customs Value (CIF)? Four Steps to Calculate Import Duties

How Does an FTA Affect the Supply Chain?

An FTA can affect Sourcing Decisions because goods of different origins may be subject to different Import Duty rates.

For example, a Thai company is choosing between Suppliers in two countries.

The product prices are similar, but one Supplier’s goods qualify for an FTA while the other’s do not.

Once Tariffs are included in Landed Cost, the preferred option may change.

Procurement and Customs Planning should therefore work together.

Suggested Internal Link: What Are Form A, Form D, and Form E? How to Claim Import–Export Tariff Preferences

How Do Incoterms Affect Supply Chain Planning?

Incoterms define certain responsibilities between the Buyer and Seller, such as:

• Delivery Point
• Transportation Responsibility
• Risk Transfer
• Export / Import Formalities under the applicable rule

Under one term, the Seller may arrange the Main Freight.

Under another, the Buyer may need to arrange Freight independently.

This affects:

• Cost Control
• Visibility
• Booking
• Lead Time

Incoterms should be clearly specified in the Purchase Order.

Why Must Sales, Procurement, and Logistics Work Together?

A Supply Chain cannot perform well if each department optimizes only for its own goals.

For example:

Sales wants high Stock levels to avoid Stockouts.

Finance wants to reduce Inventory.

Procurement wants to order large Lots to obtain a lower Unit Price.

Warehouse wants to reduce storage space.

Logistics wants to Consolidate Shipments to lower Freight Costs.

These goals can conflict.

SCM must therefore focus on the overall business outcome, not just the costs of an individual department.

Example of a Supply Chain for Products Imported from China

Suppose a Thai company imports Electronic Accessories from China.

The flow may be:

Demand Forecast

↓

Purchase Order

↓

Supplier Production

↓

Quality Check

↓

Packing

↓

Pickup

↓

Export Customs China

↓

International Freight

↓

Import Customs Thailand

↓

Warehouse

↓

Order Processing

↓

Delivery to Customer

If the Supplier’s production is delayed by five days, the impact may continue through to:

• Vessel Cut-off
• ETD
• ETA
• Stock Level
• Customer Delivery

This is why the Supply Chain must be managed End-to-End.

Example of an Export Supply Chain

A Thai company manufactures food and exports it to a Distributor overseas.

The flow may be:

Raw Material → Production → QC → Packing → Export Documents → Customs → Freight → Import Customs → Distributor Warehouse → Retail

Additional planning may be required for:

• Shelf Life
• Label
• Food Regulation
• Remaining Shelf Life
• Temperature requirements, depending on the product
• Shipping Lead Time

If the Freight option is too slow, even if it is cheaper, the Remaining Shelf Life may be insufficient for the Retailer.

Checklist for Businesses Looking to Improve Their Supply Chain

Consider the following questions:

• What is the Supplier Lead Time?
• What percentage of deliveries arrive on time from the Supplier?
• How accurate is the Demand Forecast?
• Which SKUs frequently experience Stockouts?
• Which SKUs are Dead Stock?
• Is Safety Stock calculated or guessed?
• What is the Inventory Turnover?
• Does the Warehouse have Picking Errors?
• What is the Transportation Cost per Order?
• Is Urgent Freight used frequently?
• What causes Customs Delays?
• Do Customers receive goods on time?
• Is the Return Rate high?
• Do all departments use the same data?

The answers can help identify the Supply Chain’s Bottlenecks.

Frequently Asked Questions About Supply Chain Management (FAQ)

What Is a Supply Chain?

A Supply Chain is a network of activities covering raw material sourcing, production, storage, transportation, and distribution until goods reach the Customer.

What Is Supply Chain Management?

SCM is the planning and management of goods, information, and resources throughout the Supply Chain to ensure sufficient Stock, timely delivery, and appropriate cost control.

Are Logistics and Supply Chain the Same?

They are not exactly the same. Logistics is part of the Supply Chain and focuses on transportation, storage, and the movement of goods, while SCM covers the process from Supplier to Customer.

What Are the Five Main SCM Processes?

For ease of understanding, they can be divided into Planning & Sourcing, Manufacturing, Inventory & Warehousing, Distribution & Logistics, and Returns / Reverse Logistics.

Do SMEs Need Supply Chain Management?

Yes, at a level appropriate to the business. Even without a dedicated SCM team, SMEs need to manage Suppliers, Stock, Lead Time, Logistics, and Demand. Without these processes, they may experience Stockouts or have too much cash tied up in Inventory.

Does a Good Supply Chain Need High Stock Levels?

Not necessarily. The goal is to maintain Stock at a level appropriate for Demand and Lead Time. Excessive Stock increases costs and ties up Cash Flow, while insufficient Stock increases the risk of Stockouts.

Logistics and Supply Chain Services with CPL INTER

CPL INTER provides Logistics services for import and export businesses, including international freight by air, sea, and road, as well as Warehousing, Packing, Shipping Documents, and Customs Clearance according to the scope of each shipment.

Businesses planning an International Supply Chain should prepare information about the products, shipment volume, Origin–Destination, frequency, Lead Time, Incoterms, and storage requirements. This information helps identify transportation options and Logistics Processes suited to the business’s costs and needs.

Tel: 02-519-4426 / 091-519-4426
LINE: @cplinter

Written by: CPL Inter Logistics Operations Team, specialists in international freight and customs clearance, with more than 15 years of experience and an ISO 9001:2015-certified quality management system.