Logistics and Supply Chain Management, 4th Edition

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

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more competitive through the value it adds and the costs that it reduces overall.

They have realised that the real competition is not company against company but

rather supply chain against supply chain.

It must be recognised that the concept of supply chain management, whilst rel-

atively new, is in fact no more than an extension of the logic of logistics. Logistics

management is primarily concerned with optimising flows within the organisation,

whilst supply chain management recognises that internal integration by itself is not

sufficient. Figure 1.9 suggests that there is in effect an evolution of integration from

the stage 1 position of complete functional independence where each business

function such as production or purchasing does its own thing in complete isolation

from the other business functions. An example would be where production seeks

to optimise its unit costs of manufacture by long production runs without regard for

the build-up of finished goods inventory and heedless of the impact it will have on

the need for warehousing space and the impact on working capital.

Stage 2 companies have recognised the need for at least a limited degree of

integration between adjacent functions, e.g. distribution and inventory manage-

ment or purchasing and materials control. The natural next step to stage 3 requires

the establishment and implementation of an ‘end-to-end’ planning framework that

will be fully described later in this book.

Stage 4 represents true supply chain integration in that the concept of linkage

and co-ordination that is achieved in stage 3 is now extended upstream to suppli-

ers and downstream to customers. There is thus a crucial and important distinction

to be made between logistics and supply chain management.

The changing competitive environment

As the competitive context of business continues to change, bringing with it new

complexities and concerns for management generally, it also has to be recognised

that the impact on logistics and supply chain management of these changes can

be considerable. Indeed, of the many strategic issues that confront the business

organisation today, perhaps the most challenging are in the area of logistics and

supply chain management.

Much of this book will be devoted to addressing these challenges in detail but

it is useful at this stage to highlight what are perhaps the most pressing currently.

These are:



The new rules of competition



Globalisation of industry



Downward pressure on price



Customers taking control

The new rules of competition

We are now entering the era of ‘supply chain competition’. The fundamental dif-

ference from the previous model of competition is that an organisation can no