Exploring The Basic Concept of Supply Chain And Logistics Management

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)  

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Logistics+ Vol. XI Issue No. 61