The concept of supply chains and defines key characteristics of supply chains and supply chain management (SCM). A supply chain is formed by multiple participating companies that are legally independent of each other but are interconnected to add value to the material flow. The material flow runs from suppliers to customers, with Original Equipment Manufacturers (OEMs) or Original Brand Manufacturers (OBMs) in between. The ultimate purpose of a supply chain is to serve the end consumer, and the effectiveness of a supply chain in serving consumers determines its competitive advantage.
In reality, supply chains are more complex, often forming networks with multiple suppliers and customers. There can be nested supply chains within larger chains, and different terms like “Value Chain” or “Demand Chain” can be used depending on the perspective. The article highlights the importance of understanding the four intrinsic flows of a supply chain:
- Material Flow: The continuous transformation of materials from raw inputs to finished products defines a supply chain’s boundary. Material flows in different supply chains are distinct and do not overlap.
- Information Flow: Information flows are unique to specific supply chains and encompass demand information, forecasting, production, design, and more. Information can flow in both directions, upstream and downstream.
- Finance Flow: Finance flow represents the monetary transactions within a supply chain, with the end-consumer being the single source of finance. This perspective facilitates supply chain integration and collaboration.
- Commercial Flow: Commercial flow involves the transactional change of material ownership from one company to another in the supply chain. It occurs in supply chains with multiple companies but not within a single organization.
These four flows play a critical role in understanding and defining supply chains and supply chain management, encompassing various research areas and concerns within the field.
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