What a Supply Chain Is: Three Flows and Many Tiers

The flows of material, information and money, the tiers of suppliers and customers, and what upstream and downstream mean.

9 min

Activities: 0 of 3

A supply chain is the set of organisations, places and activities that together bring a product from its raw materials to the person who finally uses it. It includes the companies that grow, make, store, move and sell the product, and the customers who buy it.

Think of a bag of rice on a shop shelf. Before it got there, a farm grew the rice, a mill cleaned and polished it, a packer put it into bags, a food distributor stored it, a transport company moved it, and a shop sold it. No single company did all of this. The supply chain is all of them, linked together.

The rest of this course follows one invented example: a food distributor that buys staples such as rice, flour, lentils, cooking oil and dates from farms, mills and packers, and sells them to shops, hotels and hospitals. Its warehouses and trucks are run by Quorvale Logistics, an invented logistics provider.

The three flows in every supply chain

The physical goods: raw materials, parts, packaging and finished products. Material mostly flows towards the customer. Returns, empty pallets and recycled packaging flow back the other way.

Tiers, upstream and downstream

Each company sees the chain from its own position. A supplier that sells directly to you is a tier 1 supplier. A company that supplies your tier 1 supplier is a tier 2 supplier, and so on. Customers can be described in the same way: your direct customers, and their customers.

Upstream means towards the raw materials and the suppliers. Downstream means towards the end customer. For the food distributor, the rice packer is a tier 1 supplier, the mill is tier 2 and the farm is tier 3. The shops are downstream; the farms are far upstream.

Worked example: a bag of rice moving downstream

  1. 1

    Tier 3

    Farm

    Grows and harvests the paddy rice and sells it to a mill.

  2. 2

    Tier 2

    Mill

    Cleans, hulls and polishes the rice and sells it in bulk.

  3. 3

    Tier 1

    Packer

    Packs the rice into 5 kg bags and sells them to the distributor.

  4. 4

    Focal company

    Food distributor

    Buys, stores and sells the bags. Quorvale Logistics runs its warehouse and trucks.

  5. 5

    Customer

    Shop

    Sells the bag to a household, the end customer.

Key terms

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Match each item to the flow it belongs to

  • Pallets of flour delivered to a warehouse
  • A weekly sales forecast sent to a packer
  • A shop paying the distributor’s invoice

A cooking oil bottler sells to the food distributor. The bottler buys its empty bottles from a packaging maker. From the distributor’s position, what is the packaging maker?

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