Unit 7.5
The Structure of a Supply Chain
Today's Learning Objectives 🎯
By the end of this session, you will be able to:
- ✅ Define what a supply chain is and its importance.
- ✅ Describe the three main components of a supply chain's structure: upstream, internal, and downstream.
- ✅ Identify and explain the three critical flows that must be managed: material, information, and financial.
What is a Supply Chain?
A supply chain is the network of all organizations, resources, activities, and technologies involved in creating and delivering a product, from the initial sourcing of raw materials to the final delivery to the end customer.
It's not a single entity, but a complex web of relationships.
Every product you use—from your phone to your coffee—is the result of a coordinated supply chain effort.
The Three Components of a Supply Chain
We can break down any supply chain into three core, interconnected components.
Upstream
Sourcing & Procurement
Internal
Manufacturing & Production
Downstream
Distribution & Delivery
Think of it as: Get -> Make -> Deliver
🎬 Watch: Upstream or Downstream?
Activity: Sort the Supply Chain
Click a card to select it, then click the correct component bucket to place it.
Sourcing & Procurement
Manufacturing & Production
Distribution & Delivery
1. Upstream Supply Chain 🏭
This is where everything begins. It's all about sourcing the inputs.
- Includes your company's direct suppliers (Tier 1) and their suppliers (Tier 2, etc.).
- Key Activities: Supplier selection, contract negotiation, and managing supplier relationships.
- Goal: Secure a reliable flow of high-quality raw materials and components.
Example: A Furniture Maker
The upstream includes:
- Lumber companies that harvest wood.
- Factories that produce screws and fabrics.
- Suppliers of varnish and paint.
2. Internal Supply Chain ⚙️
This component covers all the processes happening within your organization to create the final product.
- Focuses on the **transformation** of inputs from upstream suppliers into finished goods.
- Key Activities: Production scheduling, manufacturing/assembly, quality control, and internal inventory management.
- Goal: Efficiently and effectively produce the final product to meet quality standards and demand.
Example: The Furniture Maker
This is the workshop where wood is cut, assembled, sanded, and finished into a table or chair.
3. Downstream Supply Chain 🚚
This is the final leg of the journey: getting the finished product into the customer's hands.
- Includes all activities involved in distributing and delivering the product.
- Key Activities: Warehousing, transportation (logistics), order fulfillment, and managing distribution channels (e.g., retailers).
- Goal: Deliver the right product, to the right place, at the right time, in perfect condition.
Example: The Furniture Maker
This includes the trucks that transport the furniture, the retail showrooms, and the delivery team that brings it to the customer's home.
Explorer: Downstream Distribution Channels
Click a channel card to learn about its characteristics, advantages, and challenges.
Direct-to-Consumer
Brand sells directly to end customer (online store, own outlets)
Retail Stores
Products sold via third-party brick-and-mortar retailers
E-Commerce Marketplace
Sold through platforms like Amazon, Daraz, or Alibaba
💻 IT Support Along the Chain
e-procurement portals, supplier databases, online tenders
ERP production planning, barcode/RFID stock tracking, quality-control records
order-management systems, GPS fleet tracking, delivery apps with live status
Unit 7.7 goes deeper into EDI, extranets and SCM software.
🔍 Local Example: Nepali Pashmina Shawl
Upstream
Chyangra goat herders in the Himalayas harvest the raw cashmere wool.
Traders collect and clean the wool for processing.
Internal
Artisans in Kathmandu spin the yarn by hand.
Weavers create the shawls on looms, followed by dyeing and finishing.
Downstream
Exporters ship shawls to international boutiques and online customers.
Quiz: Pashmina Supply Chain Journey
For each activity below, identify the correct supply chain stage. Select an answer and click Check.
🧮 Worked Example: One Kilo of Ilam Tea
Illustrative: a tea factory in Ilam sells packaged tea to shops in Kathmandu.
| Flow | Upstream | Internal | Downstream |
|---|---|---|---|
| 📦 Material | Farmers deliver green leaf | Withering, rolling, drying, packing | Trucks carry cartons to Kathmandu wholesalers |
| 📊 Information | Daily leaf weight per farmer recorded | Batch and grade logged | Shop orders and delivery notes |
| 💰 Financial | Factory pays farmers per kg | Wages and energy costs | Wholesalers pay the factory on credit terms |
Money flows back up the chain, goods flow down, and information flows both ways.
A Tea Estate in Ilam
The Three Critical Flows ⚡
For a supply chain to function, three distinct flows must be managed simultaneously. A failure in one disrupts the entire system.
Material Flow ➡️
The physical movement of goods, including returns (reverse logistics).
Information Flow 🔄
The flow of data: orders, inventory levels, shipping notices. The "brain" of the supply chain.
Financial Flow 💰
The flow of money: payments, credit terms, and invoices from customer back to supplier.
Match: Scenario to Supply Chain Flow
Click a scenario card to select it, then click the correct flow type to match it. Score is shown when all 6 are placed.
🚢 Real Case: One Ship Blocks the World's Material Flow
On 23 March 2021, the container ship Ever Given ran aground and blocked the Suez Canal for six days.
- Hundreds of ships queued at both ends; others sailed the long way round Africa.
- Factories and shops in Europe waited weeks longer for parts and goods.
- After the ship was refloated, the backlog caused congestion at ports for weeks.
Ever Given in the Suez Canal
🎬 Watch: The Suez Canal Reopens
💻 Real Case: When the Information Flow Stops
In June 2017, the NotPetya malware hit A.P. Moller-Maersk, the world's largest container shipping company at the time.
- Its booking and terminal systems went down worldwide.
- Ships and containers still existed (material), but nobody could see which box went where (information).
- Staff fell back on paper and phones while Maersk rebuilt its IT network over about ten days.
🎬 Watch: A Cyberattack Sinks a Shipper
🧪 Quick Activity: Which Flow Failed?
- A landslide closes the highway; vegetables rot in trucks. → Material
- A shop's order email goes to spam; the supplier never sends stock. → Information
- A wholesaler pays late, so a farmer can't buy seed for next season. → Financial
- The warehouse system shows 50 boxes but the shelf has 5. → Information
Why Information Flow is Key 📊
In modern business information systems, the information flow is considered the most critical.
The accuracy and timeliness of information enables the efficient management of the other two flows.
- Triggers Material Flow: A customer order (information) triggers the shipment of a product (material).
- Triggers Financial Flow: A shipping notice (information) triggers the creation of an invoice (financial).
- Improves Efficiency: Real-time inventory data (information) prevents stockouts and reduces costly overstocking.
Simulator: Information Flow Accuracy Impact
Use the slider to change information accuracy and observe how it affects key supply chain performance metrics.
🇳🇵 Nepal's Lesson: A Landlocked Supply Chain
From September 2015 to February 2016, trade through the main Nepal–India border points was largely blocked.
- Fuel, cooking gas and medicines ran short across the country.
- Businesses with only one upstream route (via India) had no alternative.
- Afterwards, Nepal pushed to diversify routes, e.g. transit agreements with China.
💬 Discuss: Map a Product You Use
- Pick one product you used today (instant noodles, a phone charger, rice). Who's upstream, internal and downstream?
- Which flow do you think is weakest for it in Nepal?
- What IT could fix that weakness?
Chapter Summary & Key Takeaways
- A supply chain is a complex network of partners involved in creating and delivering a product.
- Its structure is broken into three parts: Upstream (sourcing), Internal (making), and Downstream (delivering).
- Effective supply chain management requires balancing the three critical flows: Material, Information, and Financial.
- The Information Flow is the digital backbone that coordinates and optimizes the entire supply chain.
Exam Practice 📝
Short answer
- What is a supply chain?
- Distinguish between upstream and downstream parts of a supply chain.
- List the three flows in a supply chain.
Exam Practice 📝 (continued)
Long answer
- Explain the structure of a supply chain and the three flows that move through it, with an example from Nepal.
Revise the answers in the full note.
Image & Video Credits
Images
- Container Ship 'Ever Given' stuck in the Suez Canal, Egypt – March 24th, 2021: contains modified Copernicus Sentinel data (2021), processed by Pierre Markuse, CC BY 2.0, via Wikimedia Commons
- Tea Estate near Ilam Bazar, Ilam: Saroj Pandey, CC BY-SA 4.0, via Wikimedia Commons
Videos (YouTube)
- Alcott Global, "Upstream or Downstream Supply Chain? An Easy Way to Remember!" (0–69 s)
- Al Jazeera English, "Traffic in Suez Canal resumes after stranded ship refloated" (2021; 0–89 s)
- The Logistics Brief, "How a Cyberattack Sank a Shipping Giant" (21–110 s)
Thank You
Discussion & Questions
Next Up: Unit 7.6 - SCM and the Push vs. Pull Models