Upstream activities can be described as supply chain activities that take place prior to when the company in focus takes over further product refinement. These activities could e.g. be conducted by suppliers and raw material manufacturers that supply a given company with material for further refinement. It could also be logistic companies that deliver goods or services from external vendors to the company. In short, upstream activities are all activities maintained by external partners before a given company takes over with its value adding activities.
Upstream activities can oftentimes hold great importance for companies, because many traits valued by end users might be influenced or directly defined by partners maintaining upstream activities. Likewise, many strategic initiatives taken by various companies like e.g. quality improvement, timely delivery and innovation are often directly linked to the performance of upstream activities, and must be handled proactively by companies reliant on the performance of others.
It is therefore of pivotal importance that companies have good relations with their upstream partners, and that companies actively seek to disseminate knowledge to their upstream business partners.
Companies might actively engage suppliers in R&D projects to secure the capabilities of suppliers, or develop other competencies of suppliers like e.g. speedy delivery, high quality and high reliability. The key is to identify what is valued by the end consumer, and thereafter secure or develop the needed competencies required of suppliers.
Likewise, companies may engage in IT sharing with upstream partners that will potentially secure a more streamlined reordering, capacity planning and forecasting, so that suppliers and logistic partners are able to meet specific requirements related to production capacity, time of deliveries etc.
Modern companies are also oftentimes evaluated on the social standards of their products. Therefore, it is very important for many companies that their suppliers live up to various social standards like low levels of pollution, child labor policies and general work conditions of employees. Companies therefore often have to evaluate upstream activities accordingly, and secure that e.g. suppliers live up to their social responsibilities.
Social Responsibility (CSR) is becoming an evermore important topic in general SCM, and is important for many modern companies operating in both domestic and international markets.
If companies are not able to maintain the needed level of competency at their upstream counterparts, companies may conduct a related diversification into the business of their counterparts. This move potentially made by companies is also referred to as backward intergration.