4--Flows in the Supply Chain Term IV

7/28/2019 4--Flows in the Supply Chain Term IV

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Material Flows

Figure shows the flow of material (products andservices) from the source of materials forward

(or upstream) to the final consumer in the

external chain. It should be noted that there is

also a backward (or downstream) flow ofmaterials, mainly associated with product returns.

The growing importance of reverse logistics in

recent years has sharpened the focus on

management of these flows. For example,

Return is the process most recently

incorporated into the SCOR model (Supply Chain

Council, 2005


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Money Flow

In a supply chain, money flows from the ultimate consumer

of the product back down through the chain.

The timing of these flows is critical in ensuring that supply

chain companies maintain the ability to meet their ongoingoperational expenditure commitments.

The working capital cycle a well known construct in the

field of financial management (see, for example, Keown et.

al., 2004)

provides a usefulrepresentation of financialflows in a supply chain (see Figure ).


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Cash Flow Cycle


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Income Statement and Cash Flows

While the income statement shows a pretax profit of

$160,000, the statement of cash flows shows that wewould not have enough cash to finance operations.

Managing cash flows and profit are critical for long

term survival.


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Cash Flow

Cash flows in to a company when it collects on receivables,

borrows money, or sells stock.

Cash flows out from a company when it acquires plant and

equipment, purchases raw material, produces goods, markets

goods, repays investors, or repays debt.

Of interest is not only the aggregate amount of these flows

but their timing.


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A performance metric used within the SCOR

model is cash-to-cash cycle time (SupplyChain Council, 2005).

This is defined by adding the number of days

worth of inventory held to the number of days of

receivables outstanding and then subtracting the

number of days of payables outstanding.

The result is a measure of the number of days of

working capital that are tied up in managing thesupply chain.


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Information Flow

As shown in slide (above) information flows in the supplychain are bidirectional.

From an SCM perspective, it can be argued that managing the

information flows is the most critical of all the activities .

This is because the flow or movement of materials or money

is usually triggered by an associated information movement.

Effective management of material and money flows is,therefore, predicatedupon the effective management of the

related information flows.


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Knowledge Flow

One of an important factor in the success oforganizations is the efficiency of knowledge flow.The knowledge flow is a comprehensive concept

and in recent studies of organizational analysisbroadly considered in the areas of strategicmanagement, organizational analysis andeconomics.


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Financial Flow

Adopting new automation solutions to financial

flows such as Purchasing Cards (P-Cards), DistributionCards, and Electronic Invoice Presentment and Payment

(EIPP) systems creates signifi cant improvement

opportunities in many areas including higher speed,

cost savings, lower Days Sales Outstanding (DSO), andmore reliable and predictable financial fl ows.


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Information Transfer

Financial flows also include information transfer

via Electronic Invoice Presentment (EIP) and

electronic payments. This combination constitutes

the Electronic Invoice Presentment and Payment

(EIPP), an advanced payment application that

automates specific financial tasks, as well as

provides the opportunity to collect, aggregate,and share valuable information across

the supply chain.


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Innovative payment

Solutions can now include detailed transaction

information such as date and time of receipt,supplier name, quantity received, P.O. number,etc. Having both financial and detailed product

information available electronically can minimizehuman errors, reduce reconciliation time, andcreate a more tightly integrated supply chain.Importantly, banks can aid customers in ensuringthat reconciliation and posting to General Ledger(GL) is integrated automatically


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Financial Flow

The financial flow in a typical supply chain includes

thousands of invoices and payments in a given year. Thescale of this problem is challenging corporations to find ways

of streamlining their processing. There are also considerable

savings to be obtained in other categories besides

processing improvements.


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Financial Flow

Any single organization in the supply chain has both AccountsPayable (A/P) and Accounts Receivable (A/R) activities. Eachinvoice is an A/P from the downstream buyers perspectiveand an A/R from the upstream sellers viewpoint.

Multiple invoices, however, are often paid by a single

payment. This requires information as to which specificinvoices are covered by a remittance.

Also, when invoices are reconciled prior to payment, thethree-way match of purchase order (P.O.), shipping receipt,and invoice may fail if all documents are not precisely

consistent. Both of these potential failures can often be dealtwith by innovative payment solutions with pre-establishedtolerances for automated processing.


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Bullwhip Effect(Information Flow)

The bullwhip effect to which Forrester (1958) referred is

essentially the product of poor information managementin the supply chain and leads to a requirement to holdexcessive inventory levels.

The corollary of this is that if levels of demand visibilityare high throughout the supply chain then inventorylevels can be reduced.

As Christopher (2005) notes, good information

effectively becomes a substitute for high levels ofinventory.


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Information and

communications technology (ICT)

The centrality of information management in effective supplychain design is a central theme in contemporary thinking.

Recent years have seen the development and proliferation of

a range potentially valuable ICT tools.

The key is to view ICT as a tool which has the capability of

enhancing supply chain integration levels.

For this reason, technology has become a critical SCM enabler

in that it enables or facilitates higher levels of both internal

and external integration


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What is Knowledge?

Knowledge is something that comes frominformation processed by using data. It includesexperience, values, insights, and contextualinformation and helps in evaluation and

incorporation of new experiences and creation ofnew knowledge. Knowledge originates from, andis applied by knowledge workers who are involvedin a particular job or task. People use theirknowledge in making decisions as well as many

other actions.


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Davenport and Prusak (1998)

In the last few years, many organizations realize

they own a vast amount of knowledge and that

this knowledge needs to be managed in order tobe useful. Davenport and Prusak (1998) defined

knowledge as a fluid mixture of experience,

values, contextual information, and expert insight

that provides a framework for evaluating andincorporating new experiences and information.


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Knowledge

(1) Knowledge is embedded in complex organizational

processes;

(2) knowledge is embedded in legacy systems;

(3) knowledge is embedded in externally based

processes; and

(4) knowledge is embedded in the ERP system.

(5) knowledge is often dispersed, differentiated, and

embedded


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Invoices and Payments

Invoices and Payments

The financial flow in a typical supply chain

includes thousands of invoices and payments in agiven year.

The scale of this problem is challengingcorporations to find ways of streamlining theirprocessing. There are also considerable savings to

be obtained in other categories besidesprocessing improvements.


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A/P--A/R

Any single organization in the supply chain has both

Accounts Payable (A/P) and Accounts Receivable (A/R)

activities. Each invoice is an A/P from the downstreambuyers perspective and an A/R from the upstream sellers

viewpoint. Multiple invoices, however, are often paid by a

single payment.


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Invoices

This requires information as to which specific invoices arecovered by a remittance. Also, when invoices arereconciled prior to payment, the three-way match of

purchase order (P.O.), shipping receipt, and invoice may failif all documents are not precisely consistent. Both of thesepotential failures can often be dealt with by innovativepayment solutions with pre-established tolerances forautomated processing.


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Delays in Invoice Reconciliation

Delays in Invoice Reconciliation

Delays in invoice reconciliation are a particular cause

of additional Working Capital; they delay receipt ofpayments and increase Days Sales Outstanding (DSO)

of receivables. When there is a three-way mismatch

of invoice, P.O., and shipping receipt, there is an inevitable

delay while the mismatch is investigated. These

investigations typically take time, as well as add cost.

4--Flows in the Supply Chain Term IV

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