A supply chain includes all the businesses involved in getting a finished product to the market. You might hear the words "upstream" and "downstream" when referring to various stops along the chain. You must first know the particular stops along the way to know exactly what they refer to and the activities that take place at these specific locations along the chain.
Supply Chain Management
Supply chain management takes into account suppliers, manufacturing plants, distributors, wholesale warehouses and retail stores. The general objective across the board is to get finished products to the consumer in the most cost-effective manner. Inconsistency in levels of consumer demand for a product greatly influences activities all along the supply chain.
Upstream and Downstream are Relative
An explanation of upstream and downstream is relative to location along the supply route. Using an assembly plant as the center of a chain helps to explain upstream and downstream activity more clearly. Sometimes the concept is referred to as the "downstream the supply chain" and "upstream the supply chain."
With the assembly plant as the focus of the supply chain, upstream activity includes suppliers of raw materials, such as aluminum and copper. Activities upstream could include a supplier mining these materials to fulfill orders. Suppose the materials are on order but not on hand. The focus of activity would likely be to mine the requested materials as quickly and efficiently as possible. Transporting or shipping to the plant is another example of upstream activity.
Downstream from the assembly plant are distributors, shipping partners, and point-of-sale stops along the way, such as wholesalers and retailers. One important downstream activity is inventory management. Distributors, wholesalers and retailers all strive to carry inventory in quantities needed to fulfill customer orders without overstocking. When operations are running smoothly, the distributors ship orders on time. When an order cannot be filled in a timely manner, this is called a "stock-out" and activity stalls. Another downstream activity is customer service in the retail store, when the product finally reaches the consumer.
Vertically Integrated Activity
Regardless of whether materials are upstream or products are downstream, the central focus of each business involved along the chain remains the same, to make sales and reap profits. In some operations, the same company may own multiple components of the supply chain. Called vertically integrated, this type of company can have upstream and downstream activities occurring simultaneously under the same upper management and occasionally at the same location.