The evolution of logistics and Supply Chain Management (SCM) in the 1990s can be traced back to “physical distribution management” in the 1970s when there was no coordination among the various functions of an organization, and each was committed to attain its own goal. This myopic approach then transformed into “integrated logistic management” in the 1980s that called for the integration of various functions to achieve a system-wide objective. Supply Chain Management (SCM) further widens this scope by including the suppliers and customers into the organizational fold, and coordinating the flow of materials and information from the procurement of raw materials to the consumption of finished goods.
The objectives of Supply Chain Management (SCM) are to eliminate redundancies, and reduce cycle time and inventory so as to provide better customer service at lower cost. The focus has shifted from the “share of the market” paradigm to the “share of the customer paradigm, wherein the goal is to create “customer value” leading to increased corporate profitability, shareholder value, and sustained competitive advantage in the long run.
Logistics involves getting, in the right way, the right product, in the right quantity and right quality, in the right place at the right time, for the right customer at the right cost. The logistic network consists of the suppliers, the retailer and the users. The purpose of an integrated logistic network in a supply chain is to fulfill customer orders through providing place utility to deliver products and services to end users. The place utility is achieved by managing a number of key functions of a supply chain. The functions include:
- Demand management
- Inventory management
- Order processing
- Information Management
Logistics is a key enabler of supply chain collaboration. Improving performance in this field allows supply chains to increase their efficiency significantly and help to create innovations in different areas. In this context, an important task is to find structures and approaches which enable all types of performance management in logistics and supply chains for a better fulfillment of customer needs.
Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement. There are four major decision areas in supply chain management:
- Transportation (distribution)
And there are both strategic and operational elements in each of these decision areas.
Distinguishing Logistics and Supply Chain Management (SCM)
In literature, logistics and Supply Chain Management (SCM) are often used interchangeably, though there is a subtle difference between the two. Supply Chain Management (SCM) is more strategic in nature whereas logistics is more operations-oriented. While Supply Chain Management (SCM) deals more with the linkages in the chain, contracts and relationships, supplier selection, information and financial flows besides materials flows, creating new facilities such as plants, warehouses and distribution center’s, and broader issues such as society, economy, government and environment, the scope of logistics is more or less confined to the routine job of transportation and storage of goods. However, if one deeply ponders, one may realize that logistics is the core of Supply Chain Management (SCM), and if logistics fails, the whole chain snaps.