In reviewing the business elements of a company that interfaces with EDI, I am certain the most difficult to understand is the “Supply Chain”. The most common mistake is thinking that “Supply Chain Management” (SCM) is just another name for “Logistics”.
Logistics may be integrated into SCM, as SCM covers the start and end of the whole process. In some organizations logistics is separated from SCM and is more concentrated on the transportation and logistics side.
We have at least two scenarios:
- Logistics included within SCM
- SCM divided into Logistics and SCM
There are even more possibilities too. We will expand on this issue and show there are many alternatives, all depending on how YOUR BUSINESS needs to operate.
The Council of Supply Chain Management Professionals has created excellent definitions of both “Logistics” and “Supply Chain Management”:
LOGISTICS: The process of planning, implementing and controlling procedures for the efficient and effective transportation and storage of goods, including services and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. This definition includes inbound, outbound, internal and external movements.
SUPPLY CHAIN MANAGEMENT: encompasses 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 providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Supply Chain Management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the logistics management activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, finance and information technology.
Now for some amplifications, alternate definitions and comparison of these definitions.
Logistics is the management of the flow of goods and services between the point of origin and the point of consumption in order to meet the requirements of customers. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. Supply Chain is a wider concept that includes forecasting, supply planning, supply ordering, logistics and customer order management. The concept of logistics originated with the recognition that internal company functions could be managed more effectively and efficiently by combining separate departments as an organizational element. In this sense, the concept of ‘Logistics’ was a follow-on idea to combining Warehousing and Outbound Transportation into the Distribution function. Then other functions, including Inbound Transportation, Material Management and Customer Service were consolidated. The principle enabler of this trend was the widespread adoption of enterprise level information systems applications (ERP).
Supply Chain extends upstream to, for example, Bill Of Materials planning and downstream into, for example, supplier evaluation. Supply Chain includes all of the material movement related to the trading partners: Visibility to Vendor Inventory, Ordering from Vendor, Receipts from Vendors, Storage, Production/Sales Order Fulfillment, Loading, In-Transit Visibility, Visibility to Customer Inventory and Ordering from the Customer. Supply Chain Management (SCM) builds on the Logistics concept, but the emphasis is on the opportunities which stem from coordinating activities and sharing information with suppliers and customers. Logistics starts from producer and finishes at end consumer. But Supply Chain's authority starts at the supplier of raw material and finishes with the consumer. Traditionally, the Purchasing and Sales functions manage an organization’s communications with its suppliers and customers, respectively. The principle mission of SCM is to work with trading partners, which does not replace the dialog that Purchasing and Sales have historically carried out.
We see that to manage the supply chain there are five distinct disciplines:
- Production & Inventory Control
- Strategic Procurement
- Transportation & Warehousing
- Information Systems (ERP and EDI)
- Supply Chain Improvement
The Farmer School of Business at Miami University has developed a much more extensive list of Supply chain management competencies.
- Traditionalist: SCM is one small part of logistics.
- Re-labelling: The re-labelling perspective simply renames logistics; what was logistics is now SCM.
- Unionist: This perspective treats logistics as a part of SCM; SCM completely subsumes logistics. Stock & Lambert (2001) suggest ‘‘supply chain management is the management of eight key business processes:(a) customer relationship management, (b) customer service management, (c) demand management, (d) order fulfillment, (e)manufacturing flow management, (f) procurement, (g) product development and commercialization, and (h) returns’’. These processes subsume or include much of logistics, purchasing, marketing and operations management.
- Inter-sectionist: The intersection concept suggests SCM is not the union of logistics, marketing, operations management purchasing and other functional areas.
Logistics and Supply Chain Management are two areas that are often felt could overlap. We see that different companies define them differently. Logistics deals with strategy and coordination between marketing and production. On the other hand supply chain management focuses more on purchasing and procurement. This is one of the main differences between logistics and supply chain management. It is interesting to note that supply chain management can include factors relating to inventory, materials and production planning in its concept. On the other hand logistics includes factors relating to demand management and forecasting in its concept.