The goal of a manufacturing supply chain is to ensure that a company produces the right products at the right time and place to meet customer demand — and does so cost-effectively. This is no easy feat, because customer preferences change extremely fast these days and supply lines can be unexpectedly disrupted even faster. So, a supply chain must be highly flexible, able to pivot quickly in response to changes in demand or supply conditions. But building flexibility into supply chains is often at odds with efficiency and, therefore, comes at a cost. To reconcile the opposing needs of efficiency and flexibility, top-tier manufacturing supply chain managers use technology to gain better visibility and control over the entire process.
What Is a Manufacturing Supply Chain?
The typical manufacturing supply chain contains a complex web of interconnected processes, often performed in parallel by different vendors in dispersed geographic locations. It begins with the design of a product and ends with the product in customers’ hands. Along the way, planners forecast how much of the product customers will buy, a procurement team sources necessary raw materials and components in the right amounts and a factory processes those materials into finished products that are warehoused until customer shipment. Inventory management is important in a supply chain because it tracks the materials needed for production — and then tracks the finished goods — in real time, providing invaluable data that helps the entire process run smoothly.
- Supply chains form the backbone of manufacturing businesses, encompassing product design to finished goods and beyond.
- Flexibility is key to managing the supply chain, which is susceptible to fluctuations from multiple sources on both the demand and supply sides.
- Technology smooths the progressive march of manufacturing supply chains, with advances ever emerging to improve efficiency and cost effectiveness.
Manufacturing Supply Chain Explained
It’s helpful to think of a manufacturing supply chain as a relay race. The baton, in this case, is the product. The race begins with demand forecasting, which predicts the likely need for the product. That provides volume information to the procurement team, which sources the necessary materials, in the right amounts, to manufacture the product. Once obtained, the materials enter production, transforming from raw goods into finished products. Quality checks ensure that products are up to snuff before continuing on their way. From there, the product/baton is handed off to a warehouse for storage until future customer orders come in, then perhaps the baton passes to a plane, train or truck that brings the product to a retail outlet or directly to the customer.
Because of its role in coordinating the sequence of manufacturing supply chain processes, inventory management makes sure the baton isn’t dropped along the way. It keeps track of goods at each stage, preventing shortages and excesses and ensuring that each process has the parts it needs when that step is ready to kick off.
12 Steps in the Supply Chain Manufacturing Process
Manufacturing supply chains are intricately woven webs, no two of which are identical. But there tends to be a common progression that a product follows through a supply chain from start to finish. Some of the 12 steps described here overlap, and each one feeds into one or more of the others (even the so-called final step generates feedback that can loop back to improve multiple prior steps). Overall, they illustrate a logical progression, with notes along the way where there is overlap and/or nonlinearity in the flow.
1. Planning and Demand Forecasting
This first step in the manufacturing supply chain process has multiple planning elements that are all vital to the smooth and cost-efficient operation of many subsequent steps. These include:
- Product design and engineering, in which designers and engineers collaborate to develop the product from a concept to a detailed blueprint that dictates the materials, processes and equipment needed for its manufacture.
- Production engineering, in which engineers devise efficient and cost-effective methods of producing the product featured in that “blueprint.” This includes activities such as selecting the right machinery, specifying the raw materials and/or components that will be needed to build the product, determining the optimal layout of the production floor and establishing the best workflow.
- Production planning is where demand forecasting begins coming into play. Forecasts help manufacturing planners decide how much of which products to produce and when and how to produce them.
- Production scheduling is where detailed timelines are determined for each stage of the production process. Good production scheduling achieves timely delivery of raw materials/components, optimizes work and workflow in the manufacturing plant and allocates the right amounts of necessary resources (materials, machinery, people) so that the company maintains a steady flow in the production line.
Given these elements, it’s easy to see that accurate demand forecasting is indispensable to a manufacturing supply chain. Demand forecasts inform company budgeting decisions about everything from how much raw material to buy to investments in factory expansion, assembly line hires and manufacturing equipment. Without good demand forecasts, fast-growing companies may not have enough budget to accommodate their growth potential. Using advanced forecasting tools, regularly updating forecasts as new data becomes available and meticulously collecting needed data (and verifying that it’s clean and correctly formatted) are important practices that position companies to make better-informed decisions later in the process.
2. Supplier Selection and Sourcing
Here, potential suppliers are evaluated based on cost, quality, reliability and ethical practices. Then, the procurement team negotiates contracts to get the most advantageous terms — which means much more than price. Sometimes, price isn’t even at the top of the list. Timing is often a crucial consideration; imagine the frustration of a waterproof flashlight manufacturer that has the housings, switches, bulbs, etc., all ready to assemble, but the rubber O-rings are late. Building and maintaining strong supplier relationships is essential to managing manufacturing supply chains.
Good supplier relationships can yield greater flexibility with pricing, timelines and sales terms, and provide an indispensable safety net when the unexpected happens. A recent Gartner survey underscored this point, revealing that 77% of chief supply chain officers were actively working to enhance collaborative relationships with key customers and suppliers as a way to mitigate supply chain disruptions. This collaborative approach aims to secure supplies, decrease lead time and reduce risk. However, it’s equally important for manufacturers to diversify their supplier base. Dependence on a single supplier makes a manufacturer vulnerable to anything that negatively affects that vendor. That’s why maintaining relationships with multiple suppliers translates into a robust supply network, overall.
3. Receiving and Inspection
The next phase in the process is to verify the quality of the inputs to your manufacturing process. The key here is to build a systematic approach to quality control that is consistently applied to prevent substandard materials from entering your production process, and to promptly address any discrepancies between your purchase order and what you received. This safeguards product quality, which is vital to customer satisfaction.
4. Inventory Management
The linchpin of a manufacturing supply chain is an inventory management system capable of tracking raw materials, components, subassemblies and finished goods throughout the entire supply chain. This means identifying manufacturing inputs from the moment they’re received, keeping track of them as they undergo change at various points in the production process, and recording their inclusion in finished products.
Such a detailed level of inventory management helps to make sure that the right resources will be available at the right time at each point in the subsequent production and assembly, warehousing, order fulfillment and distribution steps, averting the financial pitfalls of overstocking or stockouts. And if customer complaints later identify a problem with a product, good inventory management will enable a company to trace faulty components all the way back to their suppliers. To accomplish all this, efficient inventory management leverages software systems for real-time tracking and embraces strategies such as just-in-time delivery (when appropriate) to optimize inventory levels — and company cash flow. This can significantly increase the profitability of a manufacturing business.
5. Production and Assembly
This is where the manufacturing in a supply chain actually happens. Raw materials are cut, drilled, milled or otherwise machined into usable components and subassemblies, which are then combined (usually on an assembly line) to build the final product. Or, components and subassemblies are procured from suppliers already formed and ready for final assembly. Thus, this step is like the backbone of a manufacturing supply chain.
One strategy that’s proven to be a game-changer in boosting efficiency in production and assembly is lean manufacturing, an approach that systematically works to identify opportunities to eliminate waste as part of an iterative continuous improvement process. Lean manufacturing is a particularly good fit for businesses with high product complexity and variability, such as automobile and electronics makers or food processing companies.
6. Quality Assurance and Control
A successful quality management program — one that includes both quality assurance and quality control — is essential for manufacturing efficiency. While quality control identifies flaws in finished goods, quality assurance monitors the entire production process, from inspecting inputs as they’re received to making sure that the factory adheres to its expected production protocols. In a robust quality program, a manufacturing business will:
- Define what needs to be inspected and establish quality criteria based on the item’s purpose.
- Set pass/fail parameters and document acceptable levels of variance so quality inspections can be performed consistently.
- Determine the scope of the inspection, choosing between full or sample-based inspections based on a variety of factors, such as whether the vendor for the product’s input is new or has proven its reliability over time, or whether the product is new or has been on the market for many years.
- Design — and document — a structured inspection process to ensure consistency, regardless of who conducts the inspection.
- Document procedures for handling defects, specifying when to do further inspections, return items to suppliers, halt the assembly line, etc.
- Periodically review the program to identify areas for improvement.
Manufacturers that incorporate all these elements into their quality assurance and control processes can proactively address inefficiencies, reduce waste and, ultimately, increase customer satisfaction.
7. Warehousing and Storage
Finished products need to be stored until they’re shipped to a distributor, retailer or end customer. But good warehousing involves far more than just establishing a temporary place to stack products. Efficient warehouse management optimizes storage space and storage conditions so that orders can be picked and shipped properly and rapidly when the time comes, and to save money. A well-managed warehouse can enhance a company’s operational efficiency — which translates directly to the bottom line — not to mention help to improve customer satisfaction. A warehouse management system (WMS) can be crucial to this process by offering real-time tracking of goods and automating many warehouse operations.
Furthermore, integrating a WMS with the company’s inventory management system (IMS) enables the two systems to work in unison, creating a seamless link between finished goods and data about their components and suppliers, on one hand, and their ultimate trip to the end customer, on the other. In that way, the integration of WMS and IMS can significantly improve the overall efficiency of a manufacturer’s entire supply chain.
8. Order Fulfillment
This is the step in which customer orders are received, processed, packed and shipped. Speed and accuracy are the overarching keys to success at this step. But, thinking more broadly and deeply, there are several order fulfillment practices that can benefit an entire manufacturing company. For example, using order fulfillment software that is part of an enterprise resource planning (ERP) system not only enables internal integration of order processing with sales, accounts receivable and other business departments, but with external suppliers and partners, too. Such a system enables a business to program rules and triggers capable of automating processes that go beyond order fulfillment itself, from restocking low inventory to confirming customer deliveries.
Among other best practices are setting clear expectations with customers during their order process, integrating with inventory management software so ordering systems know what stock is and isn’t available, building strong relationships with shipping partners and preparing good customer return policies and procedures. Good order management software provides visibility into the end-to-end order fulfillment process, enabling businesses to track orders in real time and proactively manage difficulties as they arise.
9. Transportation and Logistics
Although logistics is placed, correctly, as a latter step in the manufacturing supply chain, it’s the step with the longest reach, in terms of overlap with the others — forward and aft. There are, for example, inbound and outbound logistics, with the former focused on how materials and other goods are brought into a company and the latter on moving goods to the customer. Inbound logistics includes the steps to order, receive, store, transport and manage incoming supplies, while outbound logistics includes packing finished products, shipping them and delivering them.
When it comes to efficient transportation and logistics, modern technology and traditional best practices play equal roles. Meticulous planning is a cornerstone because it enables companies to anticipate potential obstacles and build contingency plans should those issues occur. Maintaining robust relationships with transportation partners is also important because it helps businesses get reliable, timely deliveries and, potentially, negotiate better rates. Automated logistics technologies enhance efficiency by eliminating manual errors and freeing up workers for more complex tasks.
10. Distribution and Retail
The goal of the outbound logistics described in the previous step is, of course, to move a manufacturer’s products through distribution and retail channels (if appropriate) and to the ultimate customer. Most manufacturers rely on multiple distribution channels, networked together through physical transportation systems and technology-based communications and tracking systems, all overseen by a distribution management process. Finished products typically ship first to a distributor or wholesaler — organizations that have the necessary infrastructure to purchase and manage large volumes of products, including a network of customers’ retail outlets. Retailers, whether brick-and-mortar or online stores, present the goods for customers to buy. Decisions about how to transport goods from the maker to the distributor and then to the retailer — that is, by truck, ship, train or plane — hinge on factors like distance, cost and urgency.
Clear communication and coordination between a manufacturer and its distribution partners is a must in this step, as is efficient transportation. Successful distribution often relies on the quality of a manufacturer’s relationships with its distribution partners and the clarity of their written agreements, which should describe pricing structures, delivery schedules and return policies, at a minimum. Tracking systems capable of providing real-time information on the location and status of goods provide necessary support. An ERP system that includes good accounts payable integration with modules for customer relationship management (CRM), inventory management and warehouse management — all key elements of a distribution management system — can boost manufacturers’ operating efficiency by automating many aspects of distribution and retail.
11. After-Sales Support and Returns Management
Too many small manufacturers think about addressing customer inquiries and managing product returns as an afterthought — if they think of them at all. In reality, though, a well-orchestrated after-sales support and returns system is vital to a manufacturer’s success because it directly affects customer experience, shaping brand loyalty and fostering repeat sales. Excellent customer service starts with establishing a clear returns policy and providing multiple channels for customer interaction. Supporting customer service reps with detailed customer account information, including real-time updates, is important to a positive customer experience.
Handling returns requires establishing criteria for the disposition of returned products, depending on the reason for the return and the results of subsequent quality control checks. Will it be restocked, returned for refurbishment or recycled? Will customers (and any distributors/retailers) receive refunds or credits? And how will returning funds move among the manufacturer, distributors/retailers and customers? Managing all these after-sales support and returns challenges can be greatly eased by a strong, data-oriented IT infrastructure capable of integrating functions from digital ordering to warehouse automation to CRM.
12. Feedback and Continuous Improvement
Finally, a manufacturing organization that is instrumented to collect and analyze customer and supplier feedback is best positioned for continuous improvement, product innovation and a competitive edge in the market. Analyzing feedback can help manufacturers improve their understanding of customer needs and expectations, guiding them to fine-tune their products and processes and sometimes leading them to important innovations. Consider, for example, a kitchen-appliance maker whose customers express the desire to remotely monitor and control their products. A mobile app built for that purpose represents more than mere error correction; it can lead to new products and/or services or potentially expand a company’s market. But none of this is possible unless a manufacturer deliberately embraces the idea of customer feedback as a source of future guidance, and then sets up their organization with the digital tools necessary for data collection and analysis. Regular customer surveys and a system for managing and implementing improvements are common best practices.
Challenges in the Modern Manufacturing Supply Chain
The modern landscape presents manufacturing supply chain managers with many hurdles and obstacles, from global geopolitical uncertainty to pandemic-driven disruptions. Each of these challenges calls for innovative solutions and preemptive initiatives. To make sure their supply chains remain resilient, manufacturers should be prepared to address each challenge head-on.
Increasing Complexity of Global Networks
As manufacturers expand their sourcing operations and customer base across borders, they encounter new regulations, customs and logistical hurdles. Managing a global network means navigating “multimodal” logistics — air, sea, rail and road. Additionally, they must comply with regulations that vary from jurisdiction to jurisdiction; tackle communication barriers, like language and time zones; and seamlessly integrate multiple technologies to ensure a smooth flow of information and goods.
Political and Trade Uncertainties
In recent years, political and trade uncertainties have grown into a persistent concern. Changes in leadership, shifts in policy and unpredictable events, like Brexit, have disrupted trade routes and business relationships, forcing some manufacturers to reconfigure their supply chains and causing costly delays for many. The political climate can affect supply chain costs and reliability in numerous ways, from sudden tariff hikes to new import/export controls. Geopolitical instabilities can disrupt supply chains, and legal differences across countries can make contractual obligations harder to understand — and more challenging to enforce.
Environmental Concerns and Sustainability
The last decade has also seen the environment and sustainability come to the fore in consumer purchase decisions. Manufacturers are under rising pressure to reduce waste and use their resources more responsibly. A growing emphasis on sustainability is requiring manufacturers to minimize their carbon footprints, source raw materials ethically and sustainably, and focus on energy-efficient manufacturing processes. This is an area where smaller manufacturers may have an edge, because the challenge of managing environmental and sustainability issues grows exponentially more complex as a supply chain gets larger.
Demand fluctuations and Forecasting Challenges
Demand unpredictability is a constant challenge, whether due to seasonal shifts, rapid changes in consumer preferences or economic cycles. This volatility makes inventory management complex, necessitating sophisticated forecasting tools and strategies. Accurate forecasting is essential to maintain a steady flow of products that customers will buy.
Advancing technology creates new business opportunities but comes packed with business risks, too; keeping up with the speed of technology change and integrating new systems with existing ones are two of the biggest. There’s also the ever-growing need to manage cybersecurity risks, especially as supply chains become more connected. And the quality of a manufacturer’s data management practices — in other words, its ability to collect, analyze and interpret vast amounts of information — has become crucial to its success.
Workforce and Skills
Unlike technology companies, which also compete fiercely for skilled workers, manufacturers face trouble attracting talented workers to an industry that young people may see as “old school.” Finding the right people for specialized roles can be difficult — yet as manufacturing technology evolves, so do the skills required to operate and maintain it. Hiring — and retaining — qualified workers is a constant struggle, and there’s a concurrent need for ongoing training and development. Manufacturers must also stay up to date on labor regulations that differ significantly from country to country, and even from one state/province to another within the same country.
Technology in the Manufacturing Supply Chain
Technology has always been a cornerstone of manufacturing supply chains. But, by its nature, technology never stops advancing. The six newer technologies enumerated here are already deployed by many large manufacturers and are now seeing rising adoption by medium and smaller companies. Each brings different opportunities to improve manufacturing operations, as well as new risks. Some require investment to improve infrastructure (for data collection, for example); others may raise data privacy concerns, create cybersecurity vulnerabilities or have the potential to displace jobs. Manufacturers must embrace the advanced technologies that make a difference for them, but account for the risks as they do so.
IoT (Internet of Things)
Smart sensors, radio frequency identification (RFID) tags and other IoT devices are making it possible to track and monitor the condition of materials, goods, machinery and the environment in real time. Manufacturers are using these devices throughout their supply chains to gather data from trucks, warehouses and the factory floor, then feeding that info into software applications, such as demand planning and inventory management, for analysis that leads to actionable insights. They’re also producing “smart products” with embedded sensors and remote control capability, the data from which feeds back into quality assurance and after-sales support operations. The information they produce can help manufacturers enhance product quality, optimize inventory and predict maintenance requirements before machines break, to cite just a few examples.
Artificial Intelligence and Machine Learning
AI/ML technology rarely comes in the form of a discrete offering, like ChatGPT. Rather, it is implemented as algorithms embedded in various manufacturing systems to help those systems analyze large amounts of data for better decision-making. AI/ML is particularly useful in advanced analytical tools that manufacturers have used to optimize their production of everything from jet engines to diapers. These technologies can improve manufacturers’ demand forecasts and trucking routes, for example, or better predict equipment failures and enhance quality control. As AI/ML improves, it is becoming capable of automating increasingly complex tasks, boosting companies’ competitive edge by reducing human error and optimizing operations.
The immutable recordkeeping capability of blockchain technologies enhances a supply chain’s security and transparency when suppliers, businesses and customers are part of the same network. It can verify the authenticity of products and of transactions, and can automate contract enforcement and payments among business partners.
Augmented Reality and Virtual Reality
AR and VR technologies create immersive and interactive experiences that can improve workers’ accuracy and efficiency, reducing the time and cost of training and product development. Manufacturers of complex products (think: cars, jet planes) have been using AR and VR for training, remote maintenance and product design. Boeing, for example, used AR’s ability to overlay digital information on the physical world via glasses or headsets to provide technicians with 3D wiring diagrams, right in their field of view, when they are connecting a plane’s wiring harnesses. Instead of overlaying info on the real world, VR creates simulated environments for training or product testing. Ford uses VR for car design and to train assembly-line workers.
Robotics and Automation
Robots, cobots (i.e., collaborative robots) and other types of automated systems are being used for an ever-widening range of tasks, from assembly-line welding to picking and packing products in warehouses. Depending on the type of task, they can be more precise than human workers, more efficient or stronger. They can also work around the clock. But deploying robotic technology is a big commitment in terms of the up-front investment required to acquire the gear and redesign workflows to exploit it — plus the training needed to develop a workforce with the skills to manage and work beside the robots.
Bridge Gaps in Your Supply Chain With NetSuite
In the intricate, interwoven world of manufacturing supply chains, seamless coordination from one step to the next is crucial for success. But achieving useful integration of all the different systems that go into a manufacturing supply chain — from the factory floor to inventory management, warehouse management, customer relationship management and supply chain management — is a tall order. Or it would be, if not for NetSuite’s cloud-based ERP, a comprehensive manufacturing solution that includes all those systems “under one roof” — and already fully integrated. NetSuite Inventory Management software can, for example, provide manufacturers with real-time visibility into inventory levels at every point in their supply chains. That level of information transparency empowers businesses to make better-informed decisions, mitigating the risks associated with an inconsistent flow of materials and products.
NetSuite’s single, unified platform ensures real-time visibility of consistent and accurate data from throughout the supply chain, enabling swift response when conditions change. By bridging the gaps in your supply chain, NetSuite does more than just streamline your manufacturing operation. It enhances operational efficiency, improves decision-making and drives business growth.
In a global context of fast-changing customer preferences and frequent, often unanticipated supply disruptions, flexibility is crucial to manufacturing supply chains. Though realizing supply chain flexibility is challenging, it can be achieved if companies study the 12 steps summarized above and use information technology effectively to increase transparency and control over their entire manufacturing process.
Manufacturing Supply Chain FAQs
Does supply chain include manufacturing?
Yes, manufacturing is the key element within an end-to-end supply chain. “Manufacturing supply chain” refers to the entire process, from sourcing raw materials to delivering a final product to the customer. This includes several interconnected steps, such as planning, sourcing, production and distribution. Manufacturing is perhaps the central aspect of the chain, where the raw materials are transformed into the final product.
What are manufacturing and supply chain operations?
Manufacturing and supply chain operations refer to the series of processes involved in the production and distribution of goods. Manufacturing is the heart of the matter, where raw materials are converted into finished goods. It includes elements such as design, production, quality control and packaging. Supply chain operations refers to the network of vendors, activities, information and resources involved in moving all the elements that go into the production of goods to the plant where they can be manufactured into a product, and then move that product from the plant to the customer. It includes steps like sourcing raw materials, production, warehousing, transportation and distribution. Performing all these operations smoothly and efficiently requires that they be interconnected with rock-solid information technology systems, such as an enterprise resource management (ERP) solution.
What is an example of supply chain production?
Let’s use smartphones to illustrate an example of supply chain production. First, all the raw materials that will go into the phone must be sourced — everything from metals for the phone body and silicon for the microchips to rare earth elements for the phone’s screen and battery. Next, the raw materials go to component manufacturers, such as a silicon foundry that will make many of the needed chips. Once all the components are manufactured, they’re shipped to the assembly plant, where the phone is put together. Next comes quality control, where each smartphone is tested to ensure that it meets the company’s quality standards. While that’s the core “production” part of a supply chain, most manufacturers view their supply chains as continuing on to encompass distribution, retailers, customer use and even “end of life” processes, such as recycling.