Managing Supply Chain Flows

One great way to explain a supply a chain is to think of it as three rivers that flow from a customer all the way back to the source of raw materials. These rivers, or flows, are materials, money, and information, as shown.

Materials flow downstream in the supply chain, starting with raw materials and flowing through value-added steps until a product finally ends up in the hands of a customer. Money flows upstream from the customer through all the supply chain partners that provide goods and services along the way. Information flows both upstream and downstream as customers place orders and suppliers provide information about the products and when they will be delivered.

Managing a supply chain effectively involves synchronizing these three flows. You have to determine, for example, how long you can wait between the time when you send a physical product to your customer and the time when the customer pays you for the product. You also have to determine what information needs to be sent each way — and when — to keep the supply chain working the way you want it to.

Every dollar that flows into a supply chain comes from a customer and then moves upstream. The companies in the supply chain have to work together to capture that dollar, but these companies are also competing to see how much of that dollar they get to keep as their own profit.