When logistics is debated in general public, people mostly consider trucks, truck-drivers and noise. These aspects certainly belong to the broad business area related to logistics and nowadays Supply Chain Management (SCM). However it is easy to say that logistics and SCM contain a lot more than this.
Critically evaluating the development of SCM over the last 30 years is the purpose of this essay. Doing so it is meant to involve a description of the development from physical distribution, via logistics to SCM, a confrontation of logistics and SCM and an explanation why supply chain managers are now part of the senior management group.
Evolution and Definitions
Although this essay is supposed to start looking at the development of SCM from the 1980s on, it is sensible to give a brief overview of the history before. Until the beginning of the 1950s the term logistics was primarily used in conjunction with military (Ballou 2007). In the 1950s and early 1960s basically every business entity involved in producing and distributing goods worked on its own and cared about itself first of all. The distribution efforts of manufacturers were not sophisticated at all and the logistics related functions within the company appeared divided (Rushton et al. 2010; Ballou 2007). Considering the total costs or total logistics costs approach, managers and academics created the conception of physical distribution in the late 1960s (Bowersox, 2008). This conception comprises, for instance, transportation, packaging and storage (Soni and Kodali 2008; and Rushton et al. 2010) and McKinnon (1988, S. 133) defines it as “collective term for the range of activities involved in the movement of goods from point of production to final point of sale”. As a Result of this initial development the Physical Distribution Management (NCPDM) was founded in 1963 (Bowersox, 2008). At this stage Drucker, cited in Bowersox (2008, p.338), called “Physical Distribution: The Frontier of Modern Management”. Kotler, cited in Soni and Kodali (2008), distinguished the evolution of physical distribution into different stages, such as firstly the shortage of goods, secondly the transition Period and then the Mass Production. This allocation illustrates the shift from manufacturing oriented to demand oriented production. Concerning business entity management the responsibility for material stocks and flows was shared between different function within the company. The position of a physical distribution manager as an overall responsibility was about to gain importance, however there were only
a few physical distribution managers positioned at top level management (Gattorna and Walters 1996).
Main drivers which fed the development of logistics in the 1970s are market deregulation, liberalisation, enhanced product differentiation, advancing technology and also less powerful manufacturers because of an increasing impact of major retailers (Rushton et al. 2010; Soni and Kodali 2008). According to Hesse and Rodrigue (2004) the progressing globalisation was another factor which changed the business environment and hence stimulating the development of logistics. Smykay´s definition, cited in Ballou (2007, p. 335), of physical distribution is:
“Physical distribution can be broadly defined as that area of business management responsible for the movement of raw materials and finished products and the development of movement systems”.
As 1964 is this definition´s date of origin, it could be called well ahead of time. Although it is very similar to McKinnon´s definition it anticipates an important stage of development of the 1980s by talking about “movement of raw materials and finished products” (Smykay cited in Ballou, 2007, p. 335). This indicates the new notion of looking not only at the product movement from producer to customer but also from raw material supplier towards the producer. Now managers and academics thought about inbound as well as outbound activities when talking about product movement upstream from the raw material supplier, through different tiers to the producer and also downstream from the supplier through possibly intermediaries to the ultimate customer (Rushton et al. 2010; Bowersox, 2008). So a new notion was created as logistics now comprised purchasing, demand forecasting, product planning and manufacturing planning additionally to the activities consolidated under the term physical distribution (Ballou 2007). As this change of understanding of logistics went along the NCPDM was renamed as the Council of Logistics Management (CLM) in 1985. The CLM (2012) defines logistics as:
“Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, service and related information between the point of origin and the point of consumption in order to meet customers´ requirements”.
Another definition, which is more general than the previous one and focuses mainly on the characteristics proper logistics need to content, of logistics is:
“Logistics involves getting, in the right way, the right product, in the right quantity and the right quality, in the right place at the right time, for the right customer at the right cost” (Mangan et al. 2008, p. 9).
Mainly the advancing development of information technology in the late 1980s and beginning of the 1990s boosted the possibility to integrate more processes and functions along the supply chain from beginning of the chain to end. As the development of informational technologies continued rapidly the approach of coordination and cooperation was enlarged to even collaboration. During this time in the 1990s the term SCM evolved from the described evolution. (Rushton et al. 2010; Bowersox, 2008). Although there are some writers who do not distinguish logistics from SCM (Waters 2007; Lysons and Farrington 2006) and despite the whole field of SCM has not been really well precisely described (Skjoett-Larsen 1999) until recent time, there are definitions which shall be stated here. The again renamed CML, which is now called Council of SCM Professionals (CSCMP) (2012), defines:
“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”.
Christopher (2011) and Gattorna (2003) add to this notion the aspects of an increased importance of customer service or customer satisfaction. Due to intensified competition, companies or better supply chains had to focus more on the customer needs and this implied a shift in business management from forecasted, foresighted to end customer demand driven production. The paradigm changed from pushing inventory out to the customer to letting the customer demand pull the inventory out of the supply chain. (Bowersox, 2008). This Change enhanced customer service quality and cost efficiency (Gattorna 2003). The scope of SCM was widened by Battaglia (1994) about strategic area such as planning and marketing.
At present SCM has become a important business competence and plays a “value adding” part (Rushton et al. 2010) in the relationship between customers, producers and suppliers. As Ballou (2007) predicted, SCM becomes a “competitive weapon” for “demand generation” in today´s buyers´ markets.
Although the current concept of SCM is widely accepted in contemporary science, for instance, Christopher (2011) suggests superseding the word supply within SCM with “demand”. He argues that the supply chain should orientate mainly on consumers not on suppliers. Furthermore he recommends replacing the word “chain” with “network”, because it
is normally not only one consistent flow of goods right through the channel to the customer (Christopher 2011). Concentrating on how the concept of SCM is implemented in today´s businesses, Ballou asks “to what extend is the theoretical scope of SCM actually practiced?”. Fawcett and Magnan (2002) in turn brought to light that almost 50% of the companies are bothered about only the processes within their own firm. Only 8% of the companies would achieve efforts in integrating upstream and downstream processes and functions.
Logistics vs. SCM
In this paragraph the differences between logistics and SCM shall be highlighted. Some academics represent the view that SCM is just a new word for logistics. They suggest to use those two terms synonymously (Waters 2007; Lysons and Farrington 2006) Those, who think that SCM is an evolutionary construct, see SCM as the wider concept than logistics because of the integration of marketing and finance issues (Battaglia 1994). Mangan et al (2008) describes logistics as the physical storage and movement of goods. However SCM is described as “intercompany, boundary-spanning” (Mangan et al 2008) possessing an “end- to-end perspective”. Also Christopher (2011) characterises SCM as a concept which is aimed at an intercompany approach through coordination, cooperation and collaboration, while logistics mainly focuses on the organising of the material-flow within a company. All these approaches towards further integration have only been possible because of the rapid development of information technologies (Hesse and Rodrigue 2004). “Strategic orientation” (Mentzer et al 2001) inside of a supply chain is only possible with the concept of SCM as it considers the material flow from raw material supplier to the final customer. Another aspect that distinguishes SCM from logistics is the “mutually sharing of risks and rewards” (Cooper and Ellram 1993), as this consideration goes far beyond the scope of logistics.
As reasons for the development from logistics to SCM in recent time can be accounted “greater demands form customers”, “removal of trade barriers” and “improved communications among consumers and businesses” (Waters 2007).
As described above the field of study of logistics and SCM is not yet a fixed and defined one. Lots of writers and academics have not completely agreed so far. Therefore Larson and Halldorsson (2004) researched about the relationship between logistics and SCM and brought four different perceptions to light: traditionalist, relabeling, unionist and inter- sectionist. The traditionalist considers SCM as a part of logistics, as a “special type of logistics” (Larson and Halldorsson 2004). The relabeling angle of view basically gives
logistics the new name SCM just like above mentioned writer Walters (2007) does by saying that those two terms should be used interchangeably. The inter-sectionist believes that logistics and SCM have sectors which are equal but also have sectors which are absolutely different (Mangan et al 2008; Larson and Halldorsson 2004). The unionist perspective looks at logistics as a sub region of SCM. This perspective considers nearly all classic business functions, including logistics, as part of SCM (Mentzer et al 2001). Consequently the unionist corresponds with the above described relationship between logistics and SCM as logistics being the subordinated term.
The enhanced importance of supply chain managers today
Considering that already in the 1960s and 1970s a reasonable amount of logistics managers appeared in higher management levels (Gattorna and Walters 1996) and that SCM, if you follow the above described unionist perspective, evolved into a superior doctrine with, for instance, even strategic aspects (Mangan et al. 2008), this implicates that today supply chain managers should surely be considered for highest management positions. Following Mangan and Christopher (2005) the position of a supply chain manager needs to receive top level management responsibilities and recognition because of the horizontal orientation of business integration of SCM. The change from traditional vertical business integration to supply chain orientated horizontal orientation asks a varied skill set from supply chain managers such as logistics skills, general business skills and management skills. These executions show that due to the increased requirements and responsibilities of the supply chain managers, this position needs to be collocated in senior management.
In theory the positioning of a supply chain manager seems to be pretty much clear. However in practice not nearly every company has awarded the supply chain manager-function the importance and influence it should be entitled to. Roselli and Giovanni´s study (2012) indentified this “gap between theory and practice” (Roselli and Giovanni 2012). They undertook a survey asking companies about supply chain relevant topics and found out that the company representatives, who answered the survey, were seldom supply chain managers but often general managers or CEOs. On the one hand this reveals that the theoretical positioning of supply chain managers have not been fully established in practice. On the other hand it highlights the importance of SCM functions if the highest company representatives like CEOs answer such a supply chain survey.
Looking at the development of the supply chain over time shows that cooperation has increased steadily. Until the 1970s the small degree of cooperation on the outbound site was subsumed under the term physical distribution, which represents activities like transportation and storage of goods. At this time physical distribution managers received only moderate attention. Due to further market deregulation and basically boosted globalisation the concept of physical distribution was renewed as logistics, which now comprised activities like purchasing and manufacturing additionally. The rapidly increasing development of information technology enabled the further development towards SCM, now also comprising nearly all classical business functions including strategic aspects. Although the term SCM received great attention, it is not undisputed. Yet today only a few academics do not consider SCM as the framework in which logistics plays its part. Thus the unionist perspective on the relationship between logistics and SCM is widely accepted. Especially the extensive and horizontal integration of functions and processes along the supply chain has a value adding impact. This clearly shows that the positioning of supply chain managers within a company needs to obtain more attention as it has so far.
- Quote paper
- Ralph Strubbe (Author), 2012, Critically evaluate the development of Supply Chain Management over the last 30 years from its roots in physical distribution into a strategic boardroom level business issue. , Munich, GRIN Verlag, https://www.grin.com/document/203915