1.4 Supply Chain Flows
The definitions of supply chain management provided by ASCM, CSCMP, and ISM can be better understood when we consider supply chains as flows. In essence, supply chain management is about designing and managing three key flows: material, cash, and information. Typically, material flows downstream from suppliers to customers, cash flows upstream from customers to suppliers, and information flows in both directions.
The material flow involves the movement of goods and materials from suppliers to customers. In the case of Chase Bank, the material flow was the travel services provided by Frosch. For Boeing, it was the airplane seats supplied by Adient. And for FedEx, it was the packages and documents being delivered to customers.
The cash flow is the movement of funds, often in the opposite direction of the material flow. When Chase Bank acquired Frosch, it was a significant cash flow from Chase to Frosch. Boeing’s strategic partnership with Adient involved a cash flow from Boeing to Adient for the supply of airplane seats. FedEx receives payment from its customers, which is a cash flow to FedEx.
The information flow involves the sharing and processing of information related to the material and cash flows. It includes order information, delivery schedules, and payment terms, among other things. FedEx, for instance, uses data science and machine learning to optimize its information flow, which in turn enhances its material and cash flows.
The advent of e-commerce has made these flows more efficient and faster. For instance, companies like Amazon have direct and immediate visibility of what their customers buy, unlike in traditional supply chains. This real-time information flow allows them to manage their material and cash flows more effectively.
However, despite these positives, e-commerce also presents a significant challenge in the form of reverse logistics, which involves the flow of goods from the customer back to the producer or distributor. This is particularly relevant in industries like e-commerce, where return rates can be as high as 30%. In these cases, the material flow is reversed, with goods moving from the customer back to the retailer or manufacturer. The cash flow can also be reversed, with refunds or credits being issued to the customer.
Managing these three flows – and in some cases, reversing them – is at the heart of supply chain management. Whether it’s a bank acquiring a travel company, an aircraft manufacturer forming a strategic partnership with a seat supplier, or a courier company using technology to optimize its operations, effective supply chain management involves optimizing these flows to improve efficiency, reduce costs, and deliver value to the end customer.
