What is supply?

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. 

• If you have a brick and mortar store, your supply is the inventory you have on your shelves and in your supply room. 
• Or, if you have an online store and keep your own inventory, your supply is the inventory in your warehouse. 
• Alternatively, if you have an online store but drop ship to customers, your supply is the amount that your wholesaler can guarantee you access to. 

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:

• The price of products used to make it. 
• How much can be produced in a given time. 
• How many places are manufacturing the product.  
• What technology is used to create the product. 
• Laws and regulations. 
• Natural events. 

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. 

What is the law of supply and demand?

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. 

Example of supply and demand in a business setting

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. 

What is a supply chain?

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. 

For instance:

• Any consumer electronics will require the mining or recycling of raw materials like copper, gold, silicon, or plastics. 

• There will then be various processing stages, where raw materials are turned into component parts of the end product. 

• Next will come assembly, where the assemblers rely on the supply of all the component parts. 

• After the product is assembled and packaged, it is shipped to retailers ready for sale to final customers. 

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

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:

• The purchasing, management, transport, and storage or raw materials
• The processing of raw materials into constituent parts and finished goods
• The purchasing of machinery and tools to process, store, and transport goods
• The storage of products ahead of sale to retailers or customers
• The packaging of materials and products 
• The delivery of products to retailers and customers 

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.