What is upstream and downstream?
Upstream refers to activities or processes that occur earlier in a supply chain or production process, such as the extraction of raw materials. Downstream refers to activities that happen later in the process, such as refining, distributing, or selling the finished products to consumers.
Upstream and downstream are terms commonly used in various industries. They are most common in supply chain management, oil and gas, and manufacturing, to describe different stages of the production process.
What your upstream and downstream are depends on the activities. You may be a supplier of raw materials, which means you have a large downstream and a small upstream. If you are a distribution company, you likely have a large upstream and a small downstream.
Common upstream supply chain
The upstream part of the supply chain focuses on the activities, processes, and entities that occur before the production of the final product. This includes:
- Suppliers: Upstream activities involve suppliers that provide raw materials, components, and parts needed for production.
- Procurement: The process of acquiring raw materials and components from suppliers. This involves negotiation, contracting, and purchasing.
- Inbound logistics: Refers to the transportation, storage, and handling of incoming materials.
Common downstream supply chain
The downstream part of the supply chain involves activities that take place after the production of the final product. It focuses on delivering the product to the end customer. This includes:
- Distribution: Involves moving finished products from the manufacturer to various points of sale or directly to the customer.
- End users: The consumers who purchase and use the final product. They are the final recipients in the supply chain.
Why is knowing your upstream and downstream important?
Knowing your upstream and downstream processes is important for several reasons. In the section below, you’ll find several reasons why you should closely examine this concept and start mapping your own.
Compliance with sustainability regulations
A thorough understanding of your supply chain is essential for ensuring compliance with sustainability regulations. Many sustainability frameworks require reporting on the concept of Scope 1, 2, and 3 emissions. Scope 3, which includes emissions from your supply chain, is particularly important because it extends beyond your own operations.
An example of such a framework is the Corporate Sustainability Reporting Directive (CSRD). It mandates reporting on Scope 3 data from your supply chain to ensure compliance.
In conclusion, understanding the environmental impact across your supply chain enables you to comply with sustainability regulations. This helps your business meet local and international legal requirements.
Improved risk management
Having a deep understanding of your supply chain is crucial for effective risk management. By staying aware of potential issues with your suppliers, including delays or disruptions, you can plan ahead. This allows you to implement strategies to mitigate these risks.
Similarly, understanding your product delivery process allows anticipation of challenges related to demand fluctuations and distribution. Such preparation keeps your business competitive and resilient.
Better cost control and efficiency
A comprehensive view of your supply chain is essential for controlling costs and improving operational efficiency. Identify opportunities for savings, such as better negotiation with suppliers or more efficient logistics. This can significantly reduce costs.
Optimize distribution processes and manage inventory more effectively. These actions ensure your operations are streamlined and cost-effective.
How to map your upstream and downstream?
Mapping your own supply chain can help you better understand your business operations. It helps identify potential inefficiencies, and enhance overall productivity. Here’s an easy guide to mapping your supply chain, broken down into manageable steps.
1. List all your suppliers (upstream)
Begin by thoroughly identifying and cataloging every supplier that plays a role in your value chain. This step involves not just noting down the primary suppliers who provide you with raw materials or key components. It also may requires delving deeper into the secondary and tertiary suppliers that may contribute indirectly.
Consider all sources of inputs, including those that provide services or technology that supports your production process. The goal is to have a comprehensive understanding of every entity that feeds into your operations,
2. List all actions after your involvement (downstream)
Once you’ve completed your part in the production process, the product often continues on a journey through various stages before reaching the final consumer. In this step, you need to map out everything that happens to the product after it leaves your hands.
This includes the steps involved in distribution, logistics, and warehousing. It also covers any intermediary processes that may occur, such as packaging, marketing, or even further refinement by third parties.
It is also important to include the end-users. They are a crucial part of your value chain and can have a significant impact on your company.
3. Place everything in the right order
With the lists of suppliers and post-production actions in hand, the next task is to arrange all these elements in a logical, chronological order. Begin with your suppliers at the very start of the process and continue through to the final stage, where the product is in the hands of the end customer.
This step is crucial for visualizing the complete flow of your value chain. By placing everything in sequence, you can see how raw materials are transformed into finished products and how they move through various stages until they reach the market.
4. Understand the links and relationships
Having mapped out the value chain, it’s now time to delve into the connections between each element. This involves identifying and analyzing the relationships between suppliers, processes, and distribution channels.
Understanding these links means recognizing how each stage depends on the previous one and how information, materials, and products flow from one stage to the next. It’s also important to assess the strength of these relationships, as well as any potential risks or vulnerabilities.
For instance, are there suppliers who play a critical role and whose failure could disrupt the entire chain? Are there opportunities to strengthen certain relationships or improve communication and collaboration? This understanding is key to managing and optimizing your value chain.
5. Document and refine
The final step is to document the entire value chain, capturing all the suppliers, processes, and relationships you’ve identified. This documentation should be detailed and clear, potentially including diagrams, flowcharts, or other visual aids to make the information easily digestible.
Once documented, the value chain should be reviewed and refined. This might involve revisiting earlier steps to ensure accuracy or making adjustments based on new insights.
Refining the value chain could also involve seeking feedback from other stakeholders or experts who might provide valuable perspectives. By continually refining your value chain, you ensure it remains relevant, efficient, and aligned with your business objectives.
Upstream and downstream in sustainability reporting
The terms “upstream” and “downstream” have become more important with the rise of sustainability reporting. Sustainability reporting is the process where companies report on their sustainability practices. This can be either mandatory or voluntary.
The impact of upstream and downstream on sustainability
Understanding the upstream and downstream aspects of your value chain is critical for accurately calculating and managing your emissions. Upstream emissions typically originate from the sourcing and production of materials, while downstream emissions occur during product distribution, usage, and disposal.
By assessing the emissions and environmental impacts associated with both upstream and downstream activities, companies can get a comprehensive view of their overall carbon footprint. This understanding is crucial for setting realistic sustainability goals and making informed decisions to reduce environmental impact.
How to improve your value chain for sustainability reporting?
To improve sustainability reporting, it’s vital to refine both upstream and downstream processes. You can take several steps to enhance the value chain for sustainability reporting.
Engage with suppliers to ensure they follow sustainable practices, such as using renewable energy and minimizing waste. This collaboration not only reduces upstream emissions but also enhances the credibility of sustainability reports.
Streamline transportation and distribution by adopting more efficient routes, fuel-efficient vehicles, or sustainable packaging options. These improvements help lower downstream emissions and contribute to a more sustainable value chain.
Leverage technology to monitor and report emissions accurately throughout the value chain. Real-time data from tools like blockchain or IoT can significantly enhance the precision of sustainability reports.
Mapping your upstream and downstream for sustainability reporting
Creating a detailed map of your upstream and downstream processes is essential for accurate sustainability reporting. This mapping involves identifying every step in your value chain, from sourcing raw materials to product disposal, and quantifying the environmental impact at each stage.
For example, under the CSRD, companies are required to provide detailed disclosures on how their value chain impacts the environment. A comprehensive value chain map helps companies meet these CSRD requirements by clearly showing where emissions and waste occur. Understanding your value chain for CSRD enables more accurate reporting and focused sustainability improvements.
