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September 22, 2020
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Essentially, ‘supply’ refers to the number of given goods and services that a company (or market) has on hand to offer customers at any given time.
The term comes from commerce economics, and is usually related to products at a certain price point, and over a specific time period. When there is a large supply of a given product, prices will tend to go down. Where there is less supply, the price will tend to be higher.
Other factors related to the supply of a product include:
One of the important principles of economics, you will usually hear ‘supply’ spoken about in its relationship to ‘demand. As we’ll expand upon in just a moment, it is in ensuring the balance between supply and demand where companies face their challenge, but also their biggest rewards.
The law of supply and demand governs the relationship between the seller of a commodity and its buyers.
Within a market structure, supply is how much of a product is available, and demand is the number of units that buyers want to purchase.
If there is high demand but low supply, a product becomes scarce and the price is likely to rise. If there is low demand but a high demand, the price of the product is likely to go down.
In a perfect system, the quantity supplied of a specific product would exactly meet the demand. However, since hundreds of different factors can affect either supply or demand, the relationship tends to be dynamic.
Sometimes, suppliers can take control of the price of a product by restricting supply.
Diamonds are a famous example of this. While companies own a large excess of diamonds, they restrict the supply to the market to artificially increase the value of the product.
In other instances, sellers have less control.
Fidget spinners are a great example of how oversupply and a sudden drop in demand can make prices crash. As the trend for fidget spinners was growing, sellers invested in millions of units. However, many were left out of pocket when demand dried up, and they were left with almost worthless goods.
A supply chain represents the various steps products make from the acquisition of raw materials, all the way up to the point at which a customer receives the goods.
As a company selling goods online, your chain of supply will generally have your company in the middle, with your manufacturers and suppliers before you, and the end customer down the chain after you.
The length, complexity, and efficiency of the supply chain will affect the supply schedule. This in turn decides whether the demand of the market can be met.
In most supply chains there will be a number of parties playing different roles.
At every step of the way, all materials and related goods and tools need to be in the right place at the right time. This is the fundamental pressure of the supply chain.
Supply chain management is a practice that involves the efficient running of supply chains in order to maximize speed, meet demand, and decrease costs.
If your company is taking control of its own supply chain, you will need to look at every stage of the supply chain to ensure that each is as cost-effective and efficient as possible.
Depending on the product or service you’re offering, and how extensive you want your supply chain control to be, this might mean looking at:
When done right, supply chain management helps drive down the costs for a company, and helps make its workflows smooth and predictable.
Even small businesses that aren’t managing the entire supply chain themselves should get to know the processes through which they receive their goods. There are almost always opportunities to drive down costs and improve efficiency by optimizing the supply chain.