Supply chains are becoming ever more complex: legal regulations, increasing sustainability requirements and higher customer expectations entail that the individual phases of a product cycle from manufacture to delivery can now no longer be viewed in isolation from one another. To ensure that a product is available at the right time in the required quantity and quality, upstream and downstream processes must interlock seamlessly and smoothly. This requirement is supported by a symbiosis of Supply Chain Visibility (SCV) and Supply Chain Risk Management (SCRM), as it not only provides companies with valuable knowledge about their supply chain processes, but also gives them planning security and enables them to benefit from greater resilience to unexpected events.
The impact of upstream and downstream effects on the supply chain
Upstream and downstream effects play a significant role in supply chain planning and management and can quickly impact the efficiency, profitability and resilience of the entire value creation process. They closely interlock the various phases of the supply chain: For example, disruptions in the product cycle (from raw material to finished end product = upstream) can have a direct impact on downstream parts of the supply chain (such as the path from production to the end consumer = downstream), and vice versa.
Negative upstream effects include material shortages, price fluctuations for raw materials, problems at upstream suppliers, or quality defects that can lead to delays and bottlenecks in production or a collapse in profitability. Negative downstream effects, on the other hand, refer to events and changes in later stages of the supply chain: in the event of fluctuations in demand, quality problems or delayed deliveries – also triggered by upstream effects – there may be excess inventories, increased storage costs or customer dissatisfaction. Consequently, this again has an impact on future production: due to a feedback effect, upstream and downstream are in a constant co-dependency. So how is it possible to constantly adapt one’s own supply chain accordingly in order to achieve greater planning reliability – even in volatile times?
SCV and SCRM – a strong alliance
Particularly in the case of complex, global supply chains, companies need to put their business practices on a broad footing in order to be prepared for potential disruptions and risks and to remain able to act. The strategic combination of a functioning Supply Chain Visibility (SCV) and a Supply Chain Risk Management (SCRM) is promising in this context. Both concepts complement each other and help to improve the transparency, resilience and efficiency of the supply chain.
SCV and SCRM – advantages of the symbiosis:
- Better predictability: With increased visibility of the individual processes, supply chain managers are better informed about where things could go wrong in the supply chain. From strategy to implementation, planning and decisions should therefore be closely linked and mapped as transparently as possible. Supply chain visibility empowers this purposeful knowledge – thus, managers are informed in real time about all supply chain activities, the status of processes, and the condition of resources.
- Data-based decisions: Companies gain a data-driven overview of their supply chain using technologies such as IoT, artificial intelligence, predictive analytics or cloud computing. Risk analyses, test scenarios and simulations provide information on how decisions affect the key figures or stability of the supply chain and derive probabilities for future events. This makes it easier for those responsible to take appropriate and necessary measures.
- Early identification of risks: Collecting and analyzing real-time supply chain data – such as information about suppliers, transport routes, or inventory levels – elps to identify irregularities, delays, or bottlenecks in both upstream and downstream processes more quickly. With the help of risk management, companies can react immediately, reschedule accordingly or activate emergency plans.
- Laws, compliance and sustainability: Better supply chain visibility also facilitates compliance with legal regulations, such as the Supply Chain Act, which has been in force since January, or the new EU directive CSRD. Further, it supports the monitoring of sustainability targets. This helps to avoid violations of applicable laws or even the non-fulfillment of compliance and contractual conditions, which can otherwise quickly lead to delays, delivery failures or even severe fines.
- Improved customer orientation: Risk mapping, tracking, and transparency enable improved communication with customers. They can track the status of their orders in real time, receive realistic delivery times and are informed quickly about any delays or changes. This increases customer satisfaction and strengthens trust in the company.
Upstream and downstream: using data and establishing early warning systems
Detailed knowledge of the entire value chain ensures that all companies, goods and processes along the upstream and downstream supply chain are identified. Corresponding digital solutions and technologies such as artificial intelligence, big data or cloud-based platforms support supply chain management, create reports and connect the data in real time. By increasing visibility and implementing early warning systems and response mechanisms, the combination of SCV and SCRM can impact both upstream and downstream effects.
Mitigate upstream effects: With end-to-end visibility, companies gain comprehensive insight into supplier performance and can better monitor delivery times, product quality, and order status. Deficiencies or bottlenecks are detected more quickly so that proactive measures can be taken. Risk management continuously analyzes and prioritizes risks associated with suppliers: This leads to alternative suppliers also being identified and considered – after all, supply chain diversification mitigates dependencies on individual suppliers and thus reduces potential material or product shortages or quality problems.
Mitigate downstream effects: End-to-end supply chain visibility enables the creation of realistic delivery schedules, while risk management helps predict supply chain disruptions. Providing alternative routes or sources of supply in the event of an emergency can minimize negative impacts on delivery schedules. Also, the combination of SCV and SCRM has a quality control function: in the event that recalls occur, for example, companies can determine exactly which products are affected and how to respond appropriately to the challenge. Proactive measures can also avoid unnecessary costs which can be triggered by delays, delivery failures or incorrect planning in the warehouse.
Conclusion: Strengthening the sustainability of the supply chain with SCV and SCRM
Upstream and downstream effects illustrate the complex relationships and interdependence between the various stages and partners along the supply chain. Close observation and monitoring of developments and changes, even in the early stages of the supply chain, enables companies to detect potential disruptions in good time and respond more quickly. This is where Supply Chain Visibitlity and Strategic Risk Management form a strong alliance: by making individual processes transparent and providing a 360-degree view of the supply chain, managers can identify risks, perform a holistic risk assessment based on data, and create early warning systems. Customer satisfaction also increases: Those who not only focus on efficiency and improved performance with supply chain visibility, but at the same time fulfill consumers’ desire for more transparency with regard to the product cycle, will be rewarded with stronger customer loyalty as well as brand loyalty and thus increased competitive advantages.