Save this! What exactly are the four flows in the supply chain?

The four flows—commonly referred to as information flow, physical flow, financial flow, and reverse logistics—constitute the core of supply chain management.

According to the United States According to the ASCM definition, supply chain management is “the process of delivering products and services from raw materials to end customers through a globally networked system, leveraging pre-designed flows of information, physical goods, and financial resources.”

Information feed

Information flow is central to supply chain management, spanning all nodes and associated processes across the end-to-end supply chain. In the digital era, an increasing number of information‑management tasks have already been or are poised to be automated by systems.

Production planning has evolved from the traditional manual scheduling and procurement‑demand calculation approach to a highly integrated business planning system.

In the manufacturing process, IoT technology enables the collection of real-time data from each smart manufacturing device and integrates it with the enterprise’s… Integration with ERP systems, intelligent logistics systems, product lifecycle management, and shop-floor control systems has enabled the transition from traditional manufacturing to information‑driven production.

1) ERP

Enterprise Resource Planning ( Enterprise Resource Planning, or ERP for short, was first introduced in the early 1990s. From the perspective of corporate management, the key lies in the term “planning.”

ERP’s functional modules can simultaneously support a wide range of tasks, from formulating medium- and long-term strategic plans to executing operations on the shop floor.

From the perspective of information flow, The key to ERP lies in “integration.” ERP represents a software system architecture in which multiple modules—such as finance, production, logistics, and sales—are integrated into a single platform.

The foundation of this integration is a database shared by all modules, Each user within the ERP system can access the database, though permissions vary among users.

2) Transportation Management System

Transportation Management System ( Transportation Management System, hereinafter referred to as TMS) It is a system software for managing transportation, encompassing decisions on transport modes, import‑export planning, the planning and control of fleet operations, as well as the development and optimization of loading schedules, among other functions. 。

TMS helps shippers identify transportation resources, develop transport plans, and deliver end-to-end logistics solutions. It also enables shippers to engage additional carriers, optimize their existing logistics providers, and minimize transportation costs while maintaining high service quality.

TMS facilitates the movement of goods across air, sea, road, rail, and other modes, enabling multimodal transport and supporting transoceanic logistics.

3) Warehouse Management System

Warehouse Management System (Warehouse Management System, abbreviated as WMS) is a software application that helps manage and intelligently execute warehouse or distribution center operations.

Early stage WMS is a standalone warehouse management system that digitizes traditional paper-based record-keeping functions.

Nowadays WMS has evolved into a highly robust system, offering functionalities such as receiving, putaway, inventory location management, inventory control, cycle counting, task interleaving, order allocation and picking, replenishment, packing, shipping, human resource management, and interfaces for automated material handling equipment.

These systems Using mobile devices, barcodes, and RFID has laid the foundation for data transmission in the WMS. , providing accurate real-time data while enhancing the efficiency of warehouse and supply chain management.

Physical logistics

It is also referred to as logistics; its original definition pertains to the physical movement of materials, which is why it is likewise known as… Material Flow or Physical Flow. In a broad sense, logistics elements encompass warehousing, transportation, customs clearance, and the corresponding information systems. Physical flows are very common and widely prevalent across all enterprises.

Take the manufacturing sector as an example: suppliers provide factories with components and raw materials for production. Some of these have undergone preliminary processing and require only assembly, while others necessitate further machining and forging, such as steel stamping and forming.

These components and raw materials are first delivered to the factory’s warehouse via logistics arrangements made by the suppliers. Upon receipt, workers use forklifts to unload the goods from the trucks onto the ground, then verify the shipment against the delivery notice and packing list. If the documentation matches the physical inventory, the items are moved to an internal warehouse for temporary storage.

Shortly thereafter, workshop workers, in accordance with the daily production schedule, request that the warehouse assemble all the raw materials required for that day’s production.

After receiving instructions, warehouse stockers prepare the raw materials required by the workshop according to the list and then deliver them to the production line.

In the workshop, workers complete the production and assembly of products. Following final inspection, the items are packaged and palletized, then moved to the finished‑goods warehouse in preparation for shipment.

Finished goods are shipped according to the customer’s delivery schedule, with logistics vehicles arranged to deliver the products to the designated destination. Throughout this process, materials flow in a single direction: starting from raw materials, they pass through multiple stages of production, processing, assembly, inspection, and packaging, ultimately reaching the point of sale as finished products and being purchased by customers.

Cash flow

Cash flow refers to the monetary compensation that customers provide to manufacturers or service providers in exchange for the products or services they receive. Cash flow is closely tied to corporate finance, and supply chain professionals should possess a basic understanding of financial concepts in order to effectively apply them. Communicate with finance personnel using “the same language.” Below are two supply-chain–related financial metrics: inventory turnover and the cash conversion cycle.

1) Inventory Turnover

Inventory turnover is a key metric for assessing supply chain management performance. A higher turnover rate indicates that a company can support its sales operations with lower inventory levels, freeing up capital that can be reinvested in business initiatives or used to develop new products.

The primary objective of supply chain management is to accelerate inventory turnover, enabling inventory to be swiftly converted into cash and moved on to the next stage. In the cycle of “purchasing raw materials—production and processing—sales and monetization.”

Completing one cycle can generate a profit for the company. The more cycles you complete in a year, the greater your total profit will be.

2) Cash Conversion Cycle

Cash flow is the lifeblood of business operations, especially in... During the COVID‑19 pandemic in 2020, many companies declared bankruptcy due to cash flow disruptions. A robust cash flow ensures a company’s long-term sustainability, and the cash conversion cycle is a key financial metric.

Cash Conversion Cycle (Cash-to-cash cycle time) refers to the total period, measured in days, that a company takes to convert its cash into raw materials or finished goods, process them through production or trade, and ultimately recover cash upon sale.

The cash conversion cycle calculation incorporates three components: days sales outstanding, inventory turnover days, and days payable outstanding. , which can be simply understood as follows:

Days Sales Outstanding: The number of days’ worth of sales that your customers owe you.

Days of Inventory: The number of days your total inventory can cover sales.

Days Payable Outstanding: The number of days you owe your suppliers for goods and services.

The cash conversion cycle is a key indicator of a company’s financial health; the faster the cycle, the healthier the company’s operations. To shorten the cycle, companies must reduce both days sales outstanding and days inventory outstanding, while simultaneously increasing days payable outstanding.

Reverse logistics

Forward logistics is relatively easy to understand, whereas reverse logistics is far less streamlined and orderly, characterized by a high degree of unpredictability. The operational dynamics of reverse logistics differ fundamentally from those of forward logistics—associated with manufacturing and distribution—and are considerably more complex.

The physical flow described earlier is a forward‑oriented, order‑driven logistics process: manufacturing firms use standardized packaging, affix labels to cartons, and transport goods via pallets and trucks. By contrast, in reverse logistics, companies contend with irregular packaging and unpredictable material flows, often arising from random combinations under diverse conditions.

The most common form of reverse logistics is returns from e‑commerce purchases. Every year during major e‑commerce sales events, while consumers enjoy the thrill of shopping, they also return a large number of items. Since online purchases don’t allow customers to see the actual products, and as long as the return policy permits, consumers can return items without providing a reason.

When shopping in brick-and-mortar stores, consumers simply bring returned items back to the store, making returns relatively easy for retailers and eliminating shipping costs. However, online returns present a different challenge: with low return rates, reverse logistics costs can be very high, and improper handling by retailers can lead to significant waste.

In addition to e‑commerce returns, reverse logistics encompasses resource recovery and reuse, remanufacturing, waste management, and more.

The four flows within the supply chain interweave and converge throughout the entire process. As supply chain digitalization advances, the pace of these flows continues to accelerate, helping enterprises continuously enhance efficiency, reduce costs, and ensure supply chain security.