Logistics and Supply Chain Management, 4th Edition

However, whilst the Generals and Field Marshals from the earliest times have

understood the critical role of logistics, strangely it is only in the recent past that

business organisations have come to recognise the vital impact that logistics man-

agement can have in the achievement of competitive advantage. Partly this lack of

recognition springs from the relatively low level of understanding of the benefits of

integrated logistics. As early as 1915, Arch Shaw pointed out that:

The relations between the activities of demand creation and physical supply …

illustrate the existence of the two principles of interdependence and balance.

Failure to co-ordinate any one of these activities with its group-fellows and also

with those in the other group, or undue emphasis or outlay put upon any one

of these activities, is certain to upset the equilibrium of forces which means

efficient distribution.

… The physical distribution of the goods is a problem distinct from the

creation of demand … Not a few worthy failures in distribution campaigns

have been due to such a lack of co-ordination between demand creation and

physical supply …

Instead of being a subsequent problem, this question of supply must be met

and answered before the work of distribution begins.

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It is paradoxical that it has taken almost 100 years for these basic principles of

logistics management to be widely accepted.

What is logistics management in the sense that it is understood today?

There are many ways of defining logistics but the underlying concept might be

defined as:

Logistics is the process of strategically managing the procurement, move-

ment and storage of materials, parts and finished inventory (and the related

information flows) through the organisation and its marketing channels in

such a way that current and future profitability are maximised through the

cost-effective fulfilment of orders.

This basic definition will be extended and developed as the book progresses, but it

makes an adequate starting point.

Supply chain management is a wider concept

than logistics

Logistics is essentially a planning orientation and framework that seeks to create

a single plan for the flow of products and information through a business. Supply

chain management builds upon this framework and seeks to achieve linkage and

co-ordination between the processes of other entities in the pipeline, i.e. suppliers

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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It i

s only in the recent past that business organisations have come to recognise

the vital impact that logistics management can have in the achievement of

competitive advantage.

LO G ISTICS, THE SUPPLY CHAIN A N D C O M P E TITIVE STRAT E GY

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and customers, and the organisation itself. Thus, for example, one goal of supply

chain management might be to reduce or eliminate the buffers of inventory that

exist between organisations in a chain through the sharing of information on

demand and current stock levels.

It will be apparent that supply chain management involves a significant change

from the traditional arm’s-length, even adversarial, relationships that so often

typified buyer/supplier relationships in the past. The focus of supply chain man-

agement is on co-operation and trust and the recognition that, properly managed,

the ‘whole can be greater than the sum of its parts’.

The definition of supply chain management adopted in this book is:

The management of upstream and downstream relationships with suppliers

and customers in order to deliver superior customer value at less cost to the

supply chain as a whole.

Thus the focus of supply chain management is upon the management of relation-

ships in order to achieve a more profitable outcome for all parties in the chain. This

brings with it some significant challenges since there may be occasions when the

narrow self-interest of one party has to be subsumed for the benefit of the chain as

a whole.

Whilst the phrase ‘supply chain management’ is now widely used, it could be

argued that it should really be termed ‘demand chain management’ to reflect the

fact that the chain should be driven by the market, not by suppliers. Equally the

word ‘chain’ should be replaced by ‘network’ since there will normally be multiple

suppliers and, indeed, suppliers to suppliers as well as multiple customers and

customers’ customers to be included in the total system.

Figure 1.1 illustrates this idea of the firm being at the centre of a network of sup-

pliers and customers.

Extending this idea it has been suggested that a supply chain could more accu-

rately be defined as:

Figure 1.1 The supply chain network