Over the centuries, logistics has been associated with the planning and coordina-tion of the physical storage and movement of raw materials, components, and fin-ished goods. There are many definitions of logistics. The Council of Supply Chain Management Professionals (CSCMP) defines logistics as “that part of SCM that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services, and related information between the point of ori-gin and the point of consumption in order to meet customers’ requirements” [2].
In a similar vein, APICS—The Association for Operations Management defines logistics as “the art and science of obtaining, producing, and distributing mate-rial and product in the proper place and in proper quantities” [3].
A very simple, yet comprehensive description, defines logistics as consisting of the Seven Rs: that is, having the right product, in the right quantity and the right condition, at the right place, at the right time, for the right customer, at the right price. Logistics provides place utility by providing for the transfer of goods from the producer through the delivery value network to the origin of demand.
Logistics provides time utility by ensuring that goods are at the proper place to meet the occasion of customer demand. Logistics provides possession utility by facilitating the exchange of goods. Finally, logistics provides form utility by performing postponement processing that converts products into the final con-figurations desired by the customer [4]. Together, these utilities constitute the value-added role of logistics.
Understanding the organizational boundaries and functional relationships of logistics can be seen by separating it into two separate, yet closely integrated spheres of processes, as illustrated in Figure 1.1. The Materials Management sphere is con-cerned with the incoming flow of materials, components, and finished products into the enterprise. This sphere comprises the flow of materials and components as they
move from purchasing through inbound transportation, receipt, warehousing and production, and presentation of finished goods to the delivery channel system. The sphere of Physical Distribution is concerned with the outbound flow of goods from the place of production to the customer. Functions in this sphere encompass ware-house management, transportation, value-added processing, and customer order administration. Finally, logistics management is a connective function, which coordinates and optimizes all logistics activities as well as links logistics activities with other business functions, including marketing, sales, manufacturing, finance, and information technology.
Defining Supply Chain Management
As they sought to penetrate deeper into the marketplace and rationalize and accel-erate product supply and distribution, businesses have always known that by using the capabilities and resources of partners in the supply chain, they could dramati-cally enhance the footprint of their own core competencies. As far back as the late 1970s, firms had recognized that by linking internal logistics functions, such as transportation and warehousing, with those of channel partners, they could reach new markets, increase pipeline velocities, and cut costs far better than they could by acting in isolation. By the final decades of the twentieth century, how-ever, it had become abundantly clear that the prevailing use of logistics partners needed to be dramatically expanded and elevated to a strategic level. In place of the opportunistic, tactical use of channel partners to achieve a short-term objective,
Logistics
Figure 1.1 Logistics management functions.
strategists began advocating the transformation of these transient relationships into integrated, mutually enriching partnerships. Logistics channels were to be replaced by “value networks.”
Although it an be said that logistics remains at the core of what supply chains actually do, the concept of SCM encompasses much more than simply the transfer of products and services through the supply pipeline. SCM is about a company integrating its process capabilities with those of its suppliers and customers on a strategic level. Integrative supply chains consist of many trading partners partici-pating simultaneously in a collaborative network containing multiple levels of com-petencies and driven by various types of relationships. SCM enables companies to activate the synergy to be found when a community of firms utilizes the strengths of each other to build superlative supply and delivery processes that provide total customer value.
SCM can be viewed from several perspectives. Like most management philoso-phies, definitions of SCM must take into account a wide spectrum of applications incorporating both strategic and tactical objectives. For example, APICS—The Association for Operations Management defines SCM as
the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a com-petitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally. [5]
In their text Designing and Managing the Supply Chain, Simchi-Levi and Kaminsky define SCM as
a set of approaches utilized to efficiently integrate suppliers, manufac-turers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying ser-vice level requirements. [6]
Finally, the CSCMP defines SCM very broadly as encompassing the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities.
Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service pro-viders, and customers. In essence, supply chain management integrates supply and demand management within and across companies. [7]
While these definitions provide for a generalized understanding, they are inadequate to describe the depth and breadth of both the theory and practice of
SCM. Gaining a more comprehensive understanding begins by approaching SCM from three perspectives: one tactical, one strategic, and finally, one technology-enabled. The tactical perspective considers SCM as an operations management technique that seeks first to optimize the capabilities of the enterprise’s operations functions and then to direct them to continuously search for opportunities for cost reduction and increased channel throughput by working with matching func-tions to be found in supply chain customers and suppliers. The mission of SCM at this level is focused on synchronizing day-to-day operations activities with those of channel partners in an effort to streamline process flows, reduce network costs, and optimize productivity and delivery resources centered on conventional channel relationships. Finally, SCM in this area is dominated by a sequential view of the flow of materials and information as it is handed-off from one channel to another.
Tactical SCM can be broken down into four key value-enhancing activities. The first set of activities, channel supplier management, involves optimizing the inbound acquisition and movement of inventories and includes supplier management, sourc-ing and negotiation, forecastsourc-ing, purchassourc-ing, transportation, and stores receipt and disposition. After inventory receipt, companies can begin executing the second major channel activity, product and service processing. In this group of functions can be found product engineering, product manufacturing, and product costing.
The third group of activities, channel customer management, includes finished goods warehousing, value-added processing, customer order management, channel ful-fillment, and transportation. The final group of activities, channel support activities, focuses on utilizing channel partners to facilitate financial transactions, market-ing information flows, electronic information transfer, and integrated logistics. The objective of operational SCM is to engineer the continuous alignment of internal enterprise departments with the identical functions to be found in supply chain partners. Channel operations synchronization will accelerate the flow of inventory and marketing information, optimize channel resources, and facilitate continuous channelwide cost reduction efforts and increased productivity.
The second perspective of a comprehensive definition is associated with SCM as a strategy. The principle characteristic of strategic SCM can be found in the transition from a supply chain model that is interfaced, sequential, and linear to one centered on functional and strategic interoperability. The mission of SCM at this level is to propel channel trading partners beyond a concern with logistics optimization to the establishment of collaborative partnerships characterized by the integrating of cross-channel correlative processes that create unique sources of value by unifying the resources, capabilities, and competencies of the entire net-work ecosystem to enhance the competitive power of the netnet-work as a whole and not just an individual company.
While the tactical and strategic perspectives of SCM have constituted a revolution in business management in and of themselves, the power unleashed by the merger of SCM and today’s integrative information technologies has added a third and radically new perspective, changing completely the nature of supply chain theory
and practice. In fact, it is very difficult to define SCM without acknowledging that at the heart of its development stands the tremendous integrating and networking capabilities of today’s information systems. The driver of this dramatic change can be attributed to the application of the Internet. As illustrated in Figure 1.2, the deployment of technology toolsets based on the Internet has enabled companies to develop new methods of integrating with their customers, suppliers, and support partners. Technology-enabled SCM extends the reach of channel management sys-tems beyond enterprise boundaries to integrate in real-time the customer/product information and productive competencies to be found in customers’ customers and suppliers’ suppliers channel systems. The synergy created enables companies to dra-matically improve revenues, costs, and asset utilization beyond a dependence on internal capabilities and resources.
Finally, technology-enabled SCM provides today’s supply chains with the means to realize the strategic possibilities of the original SCM model. At the dawn of the Internet Age, companies had come to realize that they were not simply iso-lated competitors struggling on their own for survival but were in reality part of a much larger matrix of intersecting business systems composed of intricate, mutu-ally supporting webs of customers, products, and productive capacities played out on a global scale. What had been missing in the past was an effective mechanism to enable the intense networking of commonly shared strategic visions and mutu-ally supportive competencies among channel partners. The merger of the Internet and SCM, on the other hand, offers whole supply chains the opportunity to create value for their customers through the design of agile, flexible systems built around dynamic, high-performance networks of Web-enabled customer and supplier part-nerships and critical information flows. As detailed in the next section these radical
Supply functions
Enterprise boundaries Supplier Supplier
Supplier
Supplier
Supplier Supplier
Supplier
Customer Supply chain
ecosystem
Supply chain ecosystem
Demand
Digital data Fulfillment
Customer
Functions
Internet linkages
Technology enablers
Figure 1.2 The technology-enabled supply chain.
improvements to SCM have required theorists and practitioners alike to revisit the current definitions of SCM.