Product Flow
Effective supply chains must have a reliable and efficient system for moving goods between steps in the supply chain. This facet of supply chain management is known as Product Flow. Product Flow is generally a forward moving process, and it is the keystone for the supply chain: any supply chain improvement will ultimately affect product flow, enabling timely deliveries of a better-quality product at a lower cost.
Product flow coincides with information and funding flows as partners place orders in the Planning, Procurement and Production Stages. The physical product flow starts at the "Produce" stage and continues through to product delivery to the end user.
Strategic Issues in Product Flow
Product flow is highly supply chain-specific. The physical attributes of the product, the stakeholders involved in moving the product from place of production to place of consumption, the geography of production and shipment--all of these are significant factors in deconstructing and understanding the key issues in product flow for a given supply chain.
Product Characteristics: Product characteristics include the physical attributes and chemical composition of a product. Is the product perishable? Is it a stand-alone product or is it part of a broader package of products? What is the weight and volume of the product? In the case of pharmaceuticals or nutritional supplies, chemical characteristics may affect the way a product is transported and stored (e.g., requiring a certain temperature).
Stakeholders: Who is involved in product flow and what are their roles? Examples might include generating orders, selecting a supplier, establishing purchase agreements and moving the product from supplier to the customer. It is important to map the range of responsibilities and circles of accountability of each stakeholder to the underlying product flow, especially in areas where there are overlapping areas of responsibility and/or multiple stakeholders. It is also significant to understand where the partners, key activities and inputs into the supply chain are located. Does the product travel far from production to end customer?
Lead Time: The lead time is the duration of time required for each step of the supply chain. It is important to consider both the lengthvariance of lead time. Long lead times indicate that the supply chain may require advance planning and may be slow to respond to changes, and they may be especially problematic for perishable products. Large variances in lead time can trigger the bullwhip effect, where variability of orders is amplified upward in the supply chain. In this case, a partner may change their behavior to sustain through an anticipated delay, either through ordering more than is actually needed, placing multiple orders or requesting expedited processing.
Component and Landed Costs: Component cost is the cost associated with each step of the product flow process. The final cost of procuring, producing and delivering a product is called the landed cost. Different supply chains may incur component costs at different times and in different currencies. Tracking product flow component costs helps highlight bottlenecks and their associated financial impact. Additionally, it is important to standardize landed cost into one currency to monitor historic trends, fluctuations in exchange rates. Component costs can be a useful metric to help evaluate different sourcing and transportation arrangements.
Kind of Delivery: Many humanitarian organizations like UNICEF primarily deal with emergency and non-emergency products. Emergency products are those that are unanticipated and require a very short lead time. They generally follow a push system, with the procurement agency sending supplies to implementing partners based on estimated need. Emergency orders are often expedited and shipped via air transport, so their component costs are quite high. Non-emergency orders are planned early and targeted for a particular program. This is a pull system, with demand originating from implementing partners.
Disruptions in Supply Flow: Disruptions in product flow can occur at any stage of the supply chain. Delayed deliveries, poor quality of products and insufficient order volumes mean that fewer people are reached and humanitarian objectives are not achieved to their fullest. There are operational practices to hedge against disruptions--such as diversifying the supplier base and holding buffer inventory at strategic locations-- but there can be trade-offs in making these choices. These will be discussed in more detail in the Recommendations section.
Relationship Between Supply and Demand, Future Demand Projections: Product flow works to match supply with demand, so forecasts of future demand form the basis for all strategic and planning decisions in a supply chain. Accurate forecasts result in accurate orders and help supply chain stakeholders plan on-time and cost-effective product flow.
Product Quality Assessment and Monitoring: Poor product quality risks causing replacements, reworks and delays--all of which will directly increase overall supply chain costs. Organizations dealing with humanitarian emergencies like UNICEF face the danger that poor-quality products could further harm the health of people already living in adverse conditions, and could damage relationships and trust of the organization.