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As a company that is hyper-focused on supply chain, we at Nulogy believe it is never a bad time to review the concepts and terminology within our industry. To that end, we're starting a new blog series focused on just that – let’s call it Supply Chain 101. In this series, we’ll cover common terms and concepts in supply chain. This will help introduce newcomers to industry terminology, and serve as a refresher for industry veterans.

Here’s our first instalment of Supply Chain 101: the upstream supply chain.

Talking About the Supply Chain

 

Since early 2020, as COVID-19 lockdowns hit manufacturing and transportation, even those outside of the industry learned about “the supply chain,” as store shelves quickly emptied of consumer goods and necessities like toilet paper, cleaning supplies and hand sanitizer. Grocery staples like flour, yeast and rice were especially hard to find. New car shoppers learned about the shortage of semiconductors, an existing problem exacerbated by the pandemic, which also caused an uptick in used car prices. Bicycles, outdoor recreational equipment, and even swimming pool supplies sold out quickly and stocks weren’t replaced. Household appliances disappeared from big box stores and consumers were given order timelines of months rather than weeks.

The list goes on and on. Two years later, consumers are still experiencing delays and higher prices.

As consumer demands shifted rapidly, many companies were unable to respond because of the pandemic and an already brittle supply chain. Manufacturers learned about the bullwhip effect – where relatively small changes in demand by consumers produce a whip-like effect on the demand signal for the upstream supply chain.

Defining the Upstream Supply Chain (Or Supply Ecosystem)

 

Here’s a good definition of the upstream supply chain from the authors at Thomas Insights:

The upstream supply chain includes all activities related to the organization’s suppliers: those parties that source raw material inputs to send to the manufacturer.Thomas Insights

Players in the upstream supply chain are the raw materials suppliers, packaging suppliers, packagers/co-packers, contract manufacturers and the value-added service offerings of third party logistic companies, who produce and package components and/or finished goods. These supply chain partners are a critical and growing part of the fast moving consumer brand industry, and deep collaboration is essential to minimize waste, maximize product availability and reduce costs of many of the everyday items found in grocery and convenience stores.

FMCG Supply Chain Hierarchy

Specifically, the upstream supply chain starts at raw materials suppliers which may be considered Tier 3 suppliers. The Tier 2 suppliers are often subcontractors or suppliers that deliver to the leading supplier. The leading supplier, contract supplier or Tier 1 supplier is making the product.

The upstream supply chain is concerned with production capacity, inventory levels, scheduled delivery, and payment terms, plus everything related to purchasing, distributing and tracking a product to the warehouse.

At Nulogy, we refer to these upstream-focused, interconnected groups of partners as supply ecosystems.

Conversely, here’s how the authors at Thomas Insights define the downstream supply chain:

The downstream supply chain refers to activities post-manufacturing, namely distributing the product to the final customer.Thomas Insights

The players in the downstream supply chain include distributors, retailers and the end customer.

Common Problems Managing the Upstream Supply Chain

 

It should be clear now that the upstream supply chain is crucial to delivering everyday products into the hands of consumers. Given the complexity of the upstream supply chain, however, and especially the unpredictability of the global supply chain, there are a number of challenges facing those who manage these partner ecosystems:

  1. Lack of visibility into partner operations: A consumer brand’s supply ecosystem consists of partners who may all be running disparate operating systems, many of which are unable to provide detailed, near real-time data.
  2. Inability to dynamically collaborate: This lack of near real-time data means that these partners are unable to quickly sense, analyze, collaborate and respond to growing disruptions and changes in the upstream supply chain ecosystem.
  3. Lack of feedback of upstream ecosystem operational data: Without a centralized source of supply ecosystem data, planning becomes much more difficult. To paraphrase Dwight Eisenhower: “Planning is essential, but plans alone are useless.”
  4. Cybersecurity risks: Point to point and legacy direct connections offer exploitable weak points in a supply ecosystem and increase cybersecurity risk.
  5. One-to-one portal solutions put the onus of collaboration on the supplier: many connections in a supply ecosystem are one-to-one, which means it is difficult to share data between all partners. In order for the entire supply ecosystem to adopt deeper collaboration and data sharing, both consumer brands and the partners within their ecosystems need to gain value from data-driven collaboration.

Despite the challenges that face upstream supply chain ecosystems, it is a critical function of the global supply chain that enables consumers to receive the products they enjoy every day. In a future blog post, I will dive deeper into how modern technology can fortify upstream supply chain ecosystems so that they run more accurately, efficiently, and sustainably.

I hope this was an informative crash course into what the upstream supply chain is, and why it’s important. Stay tuned for the next chapter of our Supply Chain 101 series!

To learn how digitalization can accelerate your brand’s supply ecosystem, download the 2022 Gartner Magic Quadrant for Multienterprise Supply Chain Business Networks, brought to you by Nulogy.

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Written By
hank-canitz
PUBLISHED
Aug 31, 2022

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