Supply chain is the flow of product creation or service delivery from sourcing raw materials, manufacturing, distributing, retail to finally delivering to customers. In performing external analysis of a company, you may want to start with drawing a supply chain of the business as it tells you which stage the company is at and what other related businesses are there. When coming up with corporate-level strategies, a company may decide whether it wants to operate only a single line of business or enter other industries. A supply chain is then a good starting point to explore which related industries are optimal to enter.

Why Should A Company Understand Its Supply Chain?

Mapping out a supply chain is one of the critical steps in performing an external analysis in a strategic planning process. The importance of clearly laying out the supply chain is that it helps a company define its own market and decide where it wants to be in the future. In developing corporate-level strategies, a company often needs to make decisions on whether to operate a single line of business or enter into other related or unrelated industries. Each stage of a supply chain is essentially a different industry, for example, raw material extraction and manufacturing. The supply chain enables a company to understand others that are involved in each of the stages, and therefore provides some insights on the attractiveness or competitiveness in these industries the company might want to enter in the future.