Upstream and downstream supply chain activity

Written by stephen byron cooper Google
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Upstream and downstream supply chain activity
"Upstream" and "downstream" derive from an analogy of the supply chain as a river. (Photos.com/AbleStock.com/Getty Images)

“Supply chain” is a concept in the production of goods and services that expresses the interdependency of suppliers and customers. Not only is your supplier important, but so is the supplier of your supplier. Similarly, your customer is important and so is the customer of your customer. If your customer cannot sell to its customer, you cannot sell. If the supplier of your supplier cannot deliver on time, your supplies arrive late. The supply chain is a series of suppliers and customers that process resources into delivered products.

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Stream

The idea of expressing the relation of companies in the supply chain introduces a second metaphor. In this analogy, the flow of materials from their origin to the customer is depicted as a river flowing from source to the sea. There is no fixed point for the definition of “upstream” and “downstream” in supply chain. It is a relative term that refers to everything that happens to the materials before they get to you and everything that happens after they leave your location. Upstream activities precede your business and downstream activities describes everything that happens to the product after your processing until it gets to the end user.

Upstream

Each company in the chain is upstream of the retailer who sells to the end customer. Moving one point back from the retailer, the wholesaler is the next point upstream. The retailer does not have to have any contact with the importer, or the manufacturer, or the mines, farms and foresters that provided the materials that went into making the product. Each link in the chain is immediately in contact with its upstream partner.

Downstream

The manufacturer of a product may not be its “producer.” For example, Apple does not manufacture any of its products. All its manufacturing is outsourced to other businesses. Although Apple holds the upper hand in the relationship, it is downstream in the supply chain process from the manufacturer. In a case such as Apple, the company has to control all the points in the process, even dictating the format of the display of the goods in shops. The retailer is not always directly downstream from the producer. There may be an importer and a wholesaler between the two.

Bridging the chain

Retailers and producers need to be aware of the conditions under which their products were manufactured and the quality of the raw materials that were supplied to the manufacturer. Examples of this is the damage that poor working conditions in factories can have on the sales of producers and retailers. Failure in the quality of resources can also damage the image of a retailer. The 2013 scandal of horsemeat substituting for beef in British food is an example of this. Thus, all upstream activities need to be monitored by the retailer. Owners of brands need to monitor downstream activities to control the price and presentation of their products and the types of outlets that sell them in order to maintain brand value.

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