Material Flows

Figure shows the flow of material (products and services) 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 of materials, 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

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 ongoing operational 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 useful representation of financial flows in a supply chain (see Figure ).

Cash Flow Cycle

Income Statement and Cash Flows

While the income statement shows a pretax profit of $160,000, the statement of cash flows shows that we would not have enough cash to finance operations. Managing cash flows and profit are critical for long term survival.
8

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.

A performance metric used within the SCOR model is cash-to-cash cycle time (Supply Chain 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 the supply chain.

Information Flow
As shown in slide (above) information flows in the supply chain 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.

Knowledge Flow
One of an important factor in the success of organizations is the efficiency of knowledge flow. The knowledge flow is a comprehensive concept and in recent studies of organizational analysis broadly considered in the areas of strategic management, organizational analysis and economics.

Financial Flow
Adopting new automation solutions to financial flows such as Purchasing Cards (P-Cards), Distribution Cards, 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), and more reliable and predictable financial fl ows.

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.

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 minimize human errors, reduce reconciliation time, and create a more tightly integrated supply chain. Importantly, banks can aid customers in ensuring that reconciliation and posting to General Ledger (GL) is integrated automatically

Financial Flow

The financial flow in a typical supply chain includes thousands of invoices and payments in a given year. The scale 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.

Financial Flow
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 downstream buyers perspective and an A/R from the upstream sellers viewpoint. Multiple invoices, however, are often paid by a single payment. This requires information as to which specific invoices are covered by a remittance. Also, when invoices are reconciled prior to payment, the three-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 dealt with by innovative payment solutions with pre-established tolerances for automated processing.

Bullwhip Effect(Information Flow)

The bullwhip effect to which Forrester (1958) referred is essentially the product of poor information management in the supply chain and leads to a requirement to hold excessive inventory levels. The corollary of this is that if levels of demand visibility are high throughout the supply chain then inventory levels can be reduced. As Christopher (2005) notes, good information effectively becomes a substitute for high levels of inventory.

Information and communications technology (ICT)

The centrality of information management in effective supply chain 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

What is Knowledge?
Knowledge is something that comes from information processed by using data. It includes experience, values, insights, and contextual information and helps in evaluation and incorporation of new experiences and creation of new knowledge. Knowledge originates from, and is applied by knowledge workers who are involved in a particular job or task. People use their knowledge in making decisions as well as many other actions.

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 to be 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 and incorporating new experiences and information.

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

Invoices and Payments

Invoices and Payments

The financial flow in a typical supply chain includes thousands of invoices and payments in a given year. The scale 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
.

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 downstream buyers perspective and an A/R from the upstream sellers viewpoint. Multiple invoices, however, are often paid by a single payment.

Invoices
This requires information as to which specific invoices are covered by a remittance. Also, when invoices are reconciled prior to payment, the three-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 dealt with by innovative payment solutions with pre-established tolerances for automated processing.

Delays in Invoice Reconciliation

Delays in Invoice Reconciliation Delays in invoice reconciliation are a particular cause of additional Working Capital; they delay receipt of payments 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.