What is a supply chain?

From Apple to automakers, manufacturers rely on vendors for critical parts

Follow economic news for any length of time, and you'll run across the term "supply chain" sooner rather than later.

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If it seems mysterious, it isn't. In fact, it's one of the somewhat rare terms in economic and financial jargon that sounds exactly like what it is, as long as you don't interpret it literally enough to include a series of metal hoops looped together.

A supply chain is the network of people and vendors who deliver the parts used in a company's finished product. While it's admittedly more complex for a company like Boeing that needs components from airplane seats to engines and tires, the concept is no different when applied to a hobbyist who makes, for example, custom birdhouses.

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In the latter case, the supply chain might include lumber from Home Depot, nails from Lowe's and paint from Target. And it could be disrupted if the closest store operated by one of those companies were to close or it stopped carrying the particular type of wood or paint the birdhouse-maker preferred.

REUTERS/Gary Cameron

Supply chains typically garner more attention in times of social or economic distress, such as trade wars or disease outbreaks. When the COVID-19 coronavirus outbreak forced the closure of a number of factories in China, speculation mounted about the potential effects on U.S. manufacturers that rely on Chinese suppliers for parts.

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Apple, the tech giant co-founded by Steve Jobs, warned in mid-February that worldwide iPhone supply would be temporarily limited because factories that had temporarily closed due to the outbreak were ramping up production more slowly than expected when they reopened.

By the same token, when the Trump administration began considering tariffs on cars and car parts in 2018, foreign automakers with plants in the U.S. warned their costs would surge since many of the operations rely on parts shipped from home bases overseas.