20 Mar 2024

Unravelling Upstream and Downstream Supply Chain

Forming the two halves of the supply chain, upstream and downstream functions, needs constant coverage from an SCM’s perspective. This write-up sheds light on challenges, optimization, and their importance.

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You remember the game Tetris.

The game was one fine concentration screener where the players simultaneously had to balance the incoming pieces and the one already laid down to complete a single line. The faster you align the differently shaped pieces called tetrominoes horizontally, the more points you score. The balancing act of the incoming tetrominoes and the outflux of the horizontal line needs an equal amount of focus. In the realm of value chain, upstream and downstream supply chains carry equal amounts of responsibility and are of utmost importance from an organization's point of view.

In this write-up, we will understand the upstream and downstream flow in the value chain and how the two work in tandem. An SCM is dependent on the alignment of the mentioned process and is indeed necessary for an organization's final objectives. Let’s dive in.

Table of Contents

Understanding the Upstream Supply Chain

What is an upstream supply chain?

An upstream supply chain covers the function from raw material procurement to manufacturing of the final product. The basic blueprint goes like this – management first looks for raw material suppliers, which, when received, are utilized during the production cycle. The processes which are involved in the upstream value chain are supplier selection, procurement, and inventory management. When an upstream chain framework is very well thought out and executed, then a company will have stable, efficient, uninterrupted production flow and, of course, a terrific supplier relationship, which, in the face of fluctuating demands, will keep up with the rising demand for raw materials.

What are the challenges in upstream supply chain operations?

With upstream operation containing direct involvement of suppliers, raw material, and transport that makes the accessibility of all functions possible, it is worth highlighting that any retrograde effect on any said process will disrupt normal functioning. Any bottleneck ranging from natural disasters to unrest in international trade, from rising prices to workforce strikes, anything from man-made to natural instances that hinder the flow of resources, will eventually trickle down to production delays and inventory issues. With the mention of inventory issues, it is also worth noticing that overstocking or understocking raw materials will directly impact production efficiency and customer service levels.

How can upstream supply chain be optimized?

Technically, making up for the ground zero of the value chain, the upstream supply chain needs utmost care as it sets the tone for everything else to follow. For an efficient flow of action, management can ensure a diverse supplier base, reducing dependency on one single point of contact, more so in the face of seasonal demand. The other thing SCM should invest in is the AI and ML-based software. This will not only boost operational pedigree but also provide much-required visibility with robust decision-making.

Exploring the Downstream Supply Chain

What is a downstream supply chain?

The value chain leg of distributing the finished product to consumers is covered under the downstream process. Operations from distribution, order fulfillment, and last-mile logistics are integral to the downstream chain and essential to driving peak customer retention levels, day-in, day-out. Not to mention that the aforementioned half of the titular activity is, by default, adaptive to ever-changing user demands and preferences and relies on a wide array of distributors and retailers to reach the target group.

In addition to the customer-first approach, a downstream supply chain streamlines the framework, focuses on delivery speeds, maximizes order fulfillment, and opens up avenues for more responsive inventory management to avoid overstock and understock situations.

What are the challenges in the downstream supply chain?

As you might have figured out by now, the downstream value chain's key focus is ensuring the timely delivery of the finished products to its end target customer base. Which means that key performance indicator contributing to visibility and coordination of the distributor network to ensure successful delivery rates and in few cases reverse transaction too, is necessary. So, in a nutshell, leadership can say that their main challenge is to keep up with the ever-increasing customer expectations of quicker order processing with multiple delivery options (such as last-mile delivery).

What strategies can be implemented to optimize downstream supply chain operations?

With many of the downstream functions involving storage and transportation, leadership should look to invest in warehouse automation tech that enables the stakeholders to manage the stock much more accurately. To keep the order rate intact, OMS (Order Management System) is another virtue that the SCM can infuse, minimizing workflow errors. And, with the same-day delivery concept gaining traction every day, an intelligent transport management system is the way to go ahead.

How can upstream and downstream supply chain be effectively managed?

When viewed collectively, three important pillars are pivotal in managing the supply chain upstream and downstream. Some of the flows go parallel, in ascending or descending, or tandem order.

  • Flow of Materials

    At first read, this might strike as coverage of the function from raw material procurement to the manufacturing of the finished product, but the flow of materials encompasses a reverse supply chain process concerning customer returns and exchanges under the defined timelines.

  • Flow of Money

    The financial flow starts from the downstream supply chain to the upstream. When customers pay for the order received, the retailer pays the money to the distributor, which gets channeled to the manufacturer. Any delay in the economic transaction starts to have a domino effect on the whole value chain system and its stakeholders.

  • Flow of Information

    In a concurrent process, the flow of information drives visibility amongst both supply chains upstream and downstream. Forming a robust communication channel with personnel from both processes allows smooth collaboration and transparency.

So, there you have it. An overview of how upstream and downstream supply chains collectively form the backbone of a solidified process. Not only does it ensure seamless optimization of the many functions involved, but metrics of efficiency, productivity, and reaction time in the face of an untimely disruption all benefit greatly.

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