Supply Chain is the management of flows. There are Five major flows in any supply chain: product flow, financial flow, information flow, value flow & risk flow.

The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. The information flow involves product fact sheets, transmitting orders, schedules, and updating the status of delivery.

The Product Flow

Product Flow includes movement of goods from supplier to consumer (internal as well as external), as well as dealing with customer service needs such as input materials or consumables or services like housekeeping. Product flow also involves returns/rejections (Reverse Flow).

In a typical industry situation, there will a supplier, manufacturer, distributor, wholesaler, retailer, and consumer. The consumer may even be an internal customer in the same organisation. For example in a fabrication shop, many kinds of raw steel are fabricated into different building components in cutting, general machining, welding centers and then are assembled to order on a flatbed for shipment to a customer. Flow in such a plant is from one process/assembly section to the other having relationship as a supplier and consumer (internal). The acquisition is taking place at each stage from the previous stage along the entire flow in the supply chain.

In the supply chain, the goods and services generally flow downstream (forward) from the source or point of origin to the consumer or point of consumption. There is also a backward (or upstream) flow of materials, mainly associated with product returns.

The Financial Flow

The financial and economic aspects of supply chain management (SCM) shall be considered from two perspectives. First, from the cost and investment perspective, and the second aspect is based on from flow of funds. Costs and investments add on as moving forward in the supply chain.  The optimization of total supply chain cost, therefore, contributes directly (and often very significantly) to overall profitability.  Similarly, optimization of supply chain investment contributes to the optimization of return on the capital employed in a company. In a supply chain, from the ultimate consumer of the product back down through the chain, there will be a flow of funds. Financial funds (Revenues) flow from the final consumer, who is usually the only source of “real” money in a  supply chain,  back through the other links in the chain   (typically retailers,  distributors,  processors, and suppliers).

The Information Flow

Supply chain management involves a great deal of diverse information–bills of materials, product data, descriptions and pricing, inventory levels, customer and order information, delivery schedules, supplier and distributor information, delivery status, commercial documents, the title of goods, current cash flow and financial information, etc.–and it can require a lot of communication and coordination with suppliers, transportation vendors, subcontractors, and other parties. Information flows in the supply chain are bidirectional. Faster and better information flow enhances Supply Chain effectiveness and Information Technology (IT) greatly transformed the performance.

In any organization, the supply chain has both Accounts Payable (A/P) and Accounts Receivable (A/R) activities and includes payment schedules, credit, and additional financial arrangements – and funds flow in opposite directions: receivables (funds inflow) and payables (funds outflow). The working capital cycle also provides a useful representation of financial flows in a supply chain. Great opportunities and challenges, therefore, lie ahead in managing financial flows in supply chains. The integrated management of this flow is a key SCM activity, and one which has a direct impact on the cash flow position and profitability of the company.

The Value Flow

A supply chain has a series of value-creating processes spanning over the entire chain in order to provide added value to the end consumer. At each stage, there are physical flows relating to production, distribution; while at each stage, there is some addition of value to the products or services.  Even at the retailer stage though the product doesn’t get transformed or altered, he is providing value-added services like making the product available at a convenient place in small lots.

These can be referred to as value chains because as the product moves from one point to another, it gains value. A value chain is a series of interconnected activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various product services), delivery to final customers, and final disposal after use. That is supply chain is closely interwoven with the value chain. Thus value chain and supply chain are complementing and supplement each other. In practice supply chains with value flow are more complex involving more than one chain and these channels can be more than one originating supply point and final point of consumption.

In the chain at each such activity, there are costs, revenues, and asset values are assigned. Either through controlling/regulating cost drivers better than before or better than competitors or by reconfiguring the value chain, sustainable competitive advantage is achieved.

The Flow of Risk

Risks in the supply chain are due to various uncertain elements broadly covered under demand, supply, price, lead time, etc.  Supply chain risk is a potential occurrence of an incident or failure to seize opportunities of supplying the customer in which its outcomes result in financial loss for the whole supply chain. Risks therefore can appear as any kind of disruptions, price volatility, poor perceived quality of the product or service, process / internal quality failures, deficiency of physical infrastructure, natural disaster, or any event damaging the reputation of the firm. Risk factors also include cash flow constraints, inventory financing, and delayed cash payment. Risks can be external or internal and move either way with the product or financial or information or value flow.

External risks can be driven by events either upstream or downstream in the supply chain:

• Demand risks – related to unpredictable or misunderstood customer or end-customer demand.
• Supply risks – are related to any disturbances to the flow of products within your supply chain.
• Environment risks – that originate from shocks outside the supply chain.
• Business risks – are related to factors such as suppliers’ financial or management stability.
• Physical risks – related to the condition of a supplier’s physical facilities.

Internal risks are driven by events within company control:

• Manufacturing risks – are caused by disruptions of internal operations or processes.
• Business risks – caused by changes in key personnel, management, reporting structures, or business processes.
• Planning and control risks – caused by inadequate assessment and planning, and ineffective management.
• Mitigation and contingency risks –  caused by not putting in place contingencies.

The Integration of Flows in Supply Chain

Supply chain management integrates key business processes from end-user through original suppliers, manufacturers, trading, and third-party logistics partners in a supply chain. Integration is a critical success factor in a dynamic market environment and is a prerequisite for enhancing value in the system and for the effective performance of the supply chain by sharing and utilization of resources, assets, facilities, processes; sharing of information, knowledge, systems between different tiers in the chain and is vital for the success of each chain in improving lead-times, process execution efficiencies and costs, quality of the process, inventory costs, and information transfer in a supply chain. Integration leads to better collaboration for synchronized production scheduling, collaborative product development, collaborative demand, and logistic planning. Also with increased information visibility and relevant operational knowledge and data exchange, integrated supply chain partners can be more responsive to volatile demand resulting from frequent changes in competition, technology, regulations, etc. (capacity for flexibility). Integration is required not only for economic benefits but also for compliances in terms of social and community, diversity, environment, ethics, financial responsibility, human rights, safety, organizational policies, industry code of conduct, various national/international laws, regulations, standards, and issues.

To achieve superior supply chain performance (cost, quality, flexibility, and time performance) require multi-lateral integration:  Internal / External integration;  Functional integration, Geographical integration; Integration in Chains and networks; and Integration through IT. The integration even goes beyond to include supplier’s supplier and customer’s customer to leverage the power of the “network,” beyond their own.

Resource: https://brandalyzer.blog/2016/03/23/the-five-major-flows-in-supply-chain/