What Are The Five Flows of Supply Chain and How Do They Relate to the 5-STAR Business Network?

Last updated on

May 20, 2021

Author:

Vivek Sood

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 Since the time supply chain management was invented in 1978 (by our senior partner in Germany - Dr Wolfgang Partsch and his team members), three flows of supply chain were conceptualised early on. The last two flows were added to these three as the concepts of supply chain management were fleshed out and the scope expanded into governance of the enterprise and its eco-system. These five flows are as follows:

Product Flow

For some people, product flow is the only flow, or at least the primary flow that gives rise to all other flows in the supply chain. If this was true then in the strict sense of the word - none of the services companies would have any supply chain.

The fact that many services companies believe this to be the case is the reason why their supply chain management skills - both on the demand management side, as well as the supply management side are significantly deficient. 

Many people, mainly logisticians, focus primarily on the product flow as the sole flow in supply chain management. There are many reasons why they are mistaken. 

Financial/Cash Flow

Arguably the most significant of the five supply chain flows, and the reason for orchestrating the entire supply chain is the finance or cash flow. 

Even today most CFOs would be very proud if they managed to squeeze their suppliers to extract a few extra days of accounts payables out of them, or if they got creative Accounts Receivable factoring arrangements from their bankers. 

Information Flow

Supply chain management takes a great deal of diverse information–bills of materials, product data, pricing, inventory levels, client and order information, planning, supplier and distributor data, delivery status, the title of goods, prevailing cash flow and finance data format.

It can require a lot of communication and cooperation with suppliers, transportation merchants, subcontractors and different parties.

It all started very humbly with the introduction of cash registers that could process basic cash transaction and keep track of the daily sales.

In the 1970s the introduction of functional transactional system enabled automation of the low-value repetitive works within individual functions such as purchasing, invoicing, inventory tracking etc.

In the 1980s the new enterprise transactional systems with best in the class tool were introduced. These systems were generally owned by the users and supported by MIS.

They provided an accurate, consistent view of data across the company even though these were generally closed systems.

By 1990s and early 2000’s the best in class tools, and software reduced the role of the transactional approach, it introduced new synchronisation tools and analytical software into the system.

During the 2000s and 2010’s the term Object-oriented “plug and play” was introduced into the field which emerged the use of fully open software and established the standards of “plug and play” by the way ability to combine the software components was achieved.

By the start of 2010, New internet-based supply chain tools were already in vogue. These contained service-oriented architecture (SaaS) which ensured better GUI also with interactive and integrated software.

Thus the supply chain visibility was improved by the real-time tracking of information and also the extreme transaction processing ability was enabled to scale up the supply chain.

Value Flow

A supply chain would not exist if it did not create value, and, had a mechanism to cut that value-pie and distribute it among all the value creating entities. 

A typical value flow curve looks like this:

Margins in supply chains

Value flow is perhaps the most advanced and complex topic in reality, and is of particular interest to tax authorities and national accounting bodies to determine the Value Added Taxation and national accounts. 

In business strategy and supply chain strategy, every company needs to determine where it would like to concentrate its forces.  A company can only win if it focuses on its strength, its competitors weaknesses and gaps in the marketplace. 

An outstanding example of the value flow driven supply chain strategy is the success of ACER computers as an outstanding brand after its emergence from the shell of contract manufacturing for DELL and other known brands. 

The names of these flows are quite self-explanatory, though to get used to the concept, examples are always useful. If you would like to explore the topic of five flows of SCM in its full glory, the best resource we can point you to is Rivers Of Money Emanating From Supply Chains - FAQs (Frequently Asked Questions) On Five Flows Of Supply Chain.

It is only co-incidental that the 5-STAR Business Network has five key cornerstones as shown in the infographic below:

The 5-STAR Business Networks are configured to modernise the traditional industrial corporations from insular inward looking supply chain behemoths into collaborative, outward looking profit and goodwill generation engines and eco-systems

This entire website, and blog is dedicated to the conceptualisatoin and application of The 5-STAR Business Network, and you will find a lot of significant information in these pages. You also get three free chapters of the book here.

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About The Author
Vivek Sood

I write about "The Supply Chain CEOs", "The 5-STAR Business Networks", and, how to "Unchain Your Corporation". In my work, I help create extraordinary corporate results using several 'unique' supply chain methodologies. Contact me for interesting, high impact projects, or, to get access to my IP for creating transformations using these methodologies.

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