In this edition, I will discuss the meaning and
significance of the supply chain and logistics management. Often, those who
work in logistics age given titles like SCM Head or SCM Manager, but when asked
about their scope of jobs, mainly in logistics scope such as warehouse and transportation.
This is because some companies still do not fully understand what logistics is
really about or how it should be used to fine tune the supply chain to achieve
optimal benefits, they just change logistics become supply chain department without
knowing on what supply chain scope of works is. On the other hand, there are
also many companies that completely understand supply chain management and the
important role the supply chain plays. To be specific, let’s talk about the
basic concept of the supply chain and logistics management.
More and more people are asking what supply chain
management is and if we refer to books on the subject it typically defines
supply chain management as:
1. “A systemic and strategic coordination of
business functions using tactics that cross over and into other business
functions within a particular company and even into other business, for the purpose of improving the long term
performance of the individual companies and the supply chain as a whole”
(by Mentzer, DeWitt, Min, Nix, Smith and
Zacharia, “Defining Logistics Supply Chain”, 2001)
2.
“The process of planning, implementing, and controlling the operations
of the supply chain with the purpose
of satisfy all customer requirements as efficiently as possible” (by Booz Allen Hamilton, 1982)
3. “The delivery of enhanced
customer service and economic value through
synchronized management of the flow of physical goods and associated information
from the source point to the consumption point” (by AMR research)
4.
“The management of upstream
and downstream relationships between supplier and customers to deliver superior customer value at a
lower cost of the supply chain as a whole” (by Martin Christopher,”
Logistic and Supply Chain Management”)
If we refer to Larson and Halldorsson (2004), it
states that there are four conceptual perspectives on can take when defining
the supply chain vs logistics management.
You may now sense that is simple understanding,
logistics are mostly focused on the transportation and warehousing which
logistics itself as part of supply chain management. Logistics and supply chain
management are similar in certain respects, including:
·
Both are related to the management of the flow of goods or services
·
Both are concerned with the purchase, movement, storage, transport,
administration and distribution of goods
·
Both focus of improving the efficiency and effectiveness of the
management of goods.
In short, logistics
management is oriented on the single planning of how goods and information will
flow in one focal company while supply chain management coordinate all
processes across business units, from upstream to downstream, from suppliers to
end customer through integrated 3 flows which facilitate goods, information and
cash flow among companies.
This definition tell us that
logistics is about managing all the movement and storage activities that are
associated with product and service flows. The term “focal organization” is
commonly used to describe the managing of an organization’s inbound and
outbound flow of goods, services and related information. The term “related information”
encompasses everything from inventory quantities and locations, order statuses,
shipment statuses and locations to transportation statuses and vehicle
locations. But what about information that flows up and down a supply chain
that is not related to flow of goods and services? Information related to
marketing plans, advertising, pricing structure, product management status,
ownership, titles and financial reports do not seem to be a concern for
logistics managers.
It may be argued that
awareness of the importance of supply chain management is due to its frequent
mentioning in logistics literature (Cooper, Lambert, & Pagh, 1997). Unlike logistics,
which focuses on the planning of inbound and outbound flow of product, services
and related information from a focal organization perspective, supply chain
management is concerned more with the actual processes than the planning. This mean
that a fundamental aspect of supply chain management is consideration of not
just the costs and profit of one company (the focal company), but all the
companies involved in the supply chain.
From the explanation above,
it is clear that problems with supply chain in our companies must be fixed to increase
profitability. By developing a truly integrated supply chain, added value can
be created.
To add value to a supply
chain, the main focus should be: Process Efficiency, Shorter Cycle Times, Lean
Techniques, Full Asset Utilization and Appropriate Inventory Levels.
When we can clearly pinpoint
the desired result that supply chain management should produce, we can
determine its coverage area, particularly which activities for the upstream and
downstream that should be prioritized. Then, we can differentiate which
activities that supply chain management should be responsible for. Typically,
these activities fit into the plan, do, check, action in general management
where in Supply Chain Management there is “plan-source-make-deliver-return”
process. So activities related to manufacturing such as Plan for production
planning, Source for procurement/strategic sourcing, Make for production and Delivery
and Returns for logistics & distribution activities, which all of them are
part of supply chain management. By first carefully mapping out the departments
and duties of supply chain management can be more easily allocated.
Now that we understand what
supply chain management is, are we ready to effectively manage it? Managing a
supply chain is not an easy thing. From the pictorial illustration above, we
find that the supply chain involves a very large number of people both inside
and outside the company with a range of activities that are probably wider than
can be anticipated. Besides that, the various uncertainties that crop up within
the supply chain network and the innate market competitiveness found within supply
chain management requires strong, agile and adaptable people that can cope with
random and rapid changes. The core principals of supply chain thinking are
faster, better and cheaper. We need to also realize that the various challenges
that are often encountered in managing the supply chain are caused by
complexity, uncertainty, variability and volatility, which are endemic due to
the many divisions and companies involved in the supply chain as well as the
ever changing direction of demand from the customer. The most important
principles in supply chain management are transparency of information and
collaboration between and across all functions of the company’s internal and
external supply chain links.
From the discussion above,
we should be better able to understand why supply chain management can be a
source of competitive advantage. We need to consider the source of this advantage
in the global marketplace since we know that fierce competition in today’s
markets is being led by advances in industrial technology, increased
globalization, tremendous improvements in information availability, plentiful
venture capital and creative market, the simple pursuit of the market shares in
no longer sufficient to ensure profitability, so companies need to focus on
redefining their competitive space and profit zones.
An ever broadening spectrum
of supply chains has shifted downstream toward the customer/end user and as a
result, customer satisfaction has become the ultimate goal of the most
companies. As the customer is increasingly in charge of the marketplace,
interfirm cooperation is critical to satisfying them. Manufacturers and their
intermediaries must be nimble and quick or face the prospect of losing market
shares. This means that customer relationship and predictable performance
within the supply chain are more important than ever.
Today’s business environment
stresses both relationships with customers and the service level provided to
them. Business are competing more fiercely than ever to capture customers in
both the domestic and international markets and this demands that organizations
be quick, agile and flexible or they do not survive. These characteristics
simply cannot be obtained without coordination in the supply chain.
(recommended reference: Fundamentals of Supply Chain Management, by John T
Mentzer, 2004)
Source:
Logistics+ Vol. XI Issue No. 61