QUESTIONS ON LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Logistics refers to processes and activities of a company’s supply chain pertaining to specific controls used to enhance efficiency in the flow of services, products and information in the supply chain (Walker and Jones, 2012). Notably, both forward and reverse flow of logistical activities, between the points of manufacture and consumption, characterize supply chains. The logistics of supply chains are designed to meet the expectations of customers, such as efficiency, cost effectiveness and delivery of goods in desired conditions (Christopher, 2016). On the other hand, supply chain management refers to the control, supervision and monitoring of the flow of materials, financial resources and information across all sectors of a supply chain (Ballou, 2007). It is important to note that a supply chain refers to interrelated processes and activities facilitating the flow of resources from suppliers through manufactures, wholesalers, retailers to customers. The divergent definitions of logistics and supply chain management demonstrate that logistics is a small aspect of supply chain management. Walker and Jones (2012) explain that supply chain management is the overall oversight of the whole supply chain. This is unlike logistics which focuses on oversight of the movement of resources across the supply chain.
Logistics and supply chain management can be distinguished on the basis of the objectives their processes and activities seek to achieve. The main objective of logistics is to achieve the highest level of customer satisfaction (Christopher, 2016). This means that logistics focus on meeting the unique needs of customers, such as customizations and delivery of manufactured products at right time and conditions. On the other hand, the main objective of supply chain management is to achieve competitive advantage (Ballou, 2007). This shows that supply chain management is related to the strategic approaches a company implements to ensure that its supply chains are competitive, cost effective, efficient and aligned with industry standards. Through supply chain management, a company seeks to make its supply chain activities better than those of other manufactures in the same industry with a goal of achieving strategic goals related to profitability, business growth and market share (Christopher, 2016).
The number of organizations involved in logistics and supply chain management operations and activities also demonstrate the differences in the scope of the two concepts. Notably, logistics often involves a single organization. On the other hand, supply chain management involves multiple organizations. This reaffirms the fact that supply chain management is a larger concept applicable in all of a company’s supply chain operations. Walker and Jones (2012) specify that logistics is one of the fractions of supply chain management. Regardless of the wider scope of supply chain management, it is notable that it emanated from the concept of logistics (Walker and Jones, 2012). This indicates that supply chain management is a modern version of logistics. The concept of managing resources across a supply chain was postulated in the early 20th Century when companies needed to create assembly lines to facilitate the movement and utilization of resources (Ballou, 2007).
The concept of logistics is specifically traced back to the early 1900s. During this time, logistical operations were simple as products moved directly from firms to the market (Cooper, Lambert and Pagh, 1997). Between 1940s and 1960s, logistical operations evolved through fragmentation. This means that the activities of a company’s supply chain were segmented into specific operations, such as sourcing, demand forecasting, production planning, warehousing, material handling, packaging, distribution planning and order processing and customer service (Figure 1) (Christopher, 2016). In this sense, logistics became specialized with each of a company’s operational areas focusing on specific processes geared towards the achievement of common goals or objectives.
Figure 1: Evolution of Logistics
Between the 1960s and 1970s, logistical operations were integrated (Cooper, Lambert and Pagh, 1997). This indicates that the diverse operations that characterized earlier logistics were consolidated with a goal of combining operations that serve similar objectives. During this period, logistical operations were consolidated into materials management, warehousing, materials handling, packaging and physical distribution (Figure 1) (Christopher, 2016). Between 1970s and 1990s logistical operations shifted from business focus to customer focus. This is because manufacturers realized the importance of delivering customer value through their supply chain activities. Walker and Jones (2012) note that since mid 1980s, logistics is applied as a differentiator. This shows that logistical operations and activities are used by companies to demonstrate that the benefits they offer their customers are better or more than those of competitors. In this sense, logistics is currently applied as a determinant of a company’s competitive advantage. The future of logistics is described as behavioral and boundary spanning (Walker and Jones, 2012). Ballou (2007) explains that logistical operations are increasingly expanding across geographical boundaries as more companies internationalize. Therefore, future logistical operations will be driven by emerging and innovative technologies, such as logistics and supply chain management systems.
Ballou (2007) reveals that supply chain management practice can be traced back to early 1980s. The term supply chain management was first used in 1982 by Keith Oliver. After its creation, supply chain management integrated logistics in the consolidation of supply chain operations (Walker and Jones, 2012). This is due to the fact that logistical operations were motivated by the need for large-scale operations, cost reduction and re-engineering business activities. According to Christopher (2016), supply chain management was motivated and conceptualized on the basis of new technologies, such as the electronic data interchange (EDI) systems of the 1960s. However, supply chain management is commonly associated with the globalization era, especially in the 1990s, when logistics were internationalized. Walker and Jones (2012) indicate that the development of enterprise resource planning (ERP) systems in the 1990s promoted the internationalization of logistics, which was widely adopted by companies in the oil industry.
New trends, such as the adoption and implementation of emerging technologies by companies have led to increase in the efficiency of supply chain activities, especially procurement and logistics management (Walker and Jones, 2012). In the context of current and emerging trends in supply chain management, it involves the use of modern technologies to enhance collaboration and coordination with stakeholders, such as third-party service providers, intermediaries and supplies, to enhance customer experiences and improving the efficiency of supply chain operations (Christopher, 2016).
Logistics and supply chain management are significantly influenced by evolutionary technologies and trends of innovation in business logistics. For example, Christopher (2016) illustrate that companies in United Kingdom apply emerging technologies to efficiently provide specific value propositions to customers through their logistics and supply chain management practices. Evolutionary trends in logistics and supply chain management associated with the application of emerging technologies by companies across the UK are illustrated by reduction in transport intensity, deregulation of transport, falling product prices and inventory reduction (Walker and Jones, 2012). Additionally, companies operating in various industries across the UK are experiencing significant productivity improvements related to the integration of emerging technologies in logistics and supply chain management (Christopher, 2016). Notably, changes in management structures are also experienced by companies due to the effects of new trends and changes in logistics and supply management among UK companies, especially multinationals (Walker and Jones, 2012). Human resource management operations have also been improved regardless of the globalization of logistics and supply chain management due to the integration of new technologies, such as integrated human resource management systems by top supply chains, such as Coca-Cola, Samsung Electronics, Unilever and McDonalds.
Sarkis, Zhu and Lai (2011) assert that the main objective of supply chain management processes is to enhance customer value. This is attributed to the fact that products and services in the globalized business environment are measured in line with the level of customer value and satisfaction. For this reason, companies implement supply chain management models and strategies designed to meet the needs of target customers, and therefore providing them with value for the money they spend on specific services and products (Monczka et al., 2015). Sarkis, Zhu and Lai (2011) agree that the changes most companies implement in their supply chain management and logistical activities are motivated by the need to enhance customer value. This shows that the kind of supply chain a company adopts and implements is influenced by the need to enhance customer value. It is important to note that customer value refers to the perceived value of a service products compared to associated costs.
According to Stadtler (2015), supply chain management practices should be focused on ensuring conformity to consumer requirements in order to enhance customer value. This is because conformity to consumer needs defines the ability of a company to offer customers what they want, which is among the main factors influencing perceived value of services and goods (Seuring and Müller, 2008). Sarkis, Zhu and Lai (2011) indicate that customer requirements for access and convenience should be met by companies through the implementation of effective supply chain management strategies. Therefore, effective management of inventory and its distribution to retailers for convenient access by customers should be one of the main areas of focus in supply chain management practices. Stadtler (2015) states that specific dimensions defining customer value, such as price and brand should also be addressed by supply chain management practices. Seuring and Müller (2008) demonstrate that supply chain management activities should focus on reducing additional expenses, such as inventory costs and waste in logistics to prevent transfer of additional costs to consumers. This is attributed to the fact that customer value is enhanced when the pricing of services and goods is reasonable or aligned with market prices (Monczka et al., 2015). Sarkis, Zhu and Lai (2011) note that manufactures should effectively balance between price and value considerations. In addition, supply chain management processes should focus on the brand dimension since perceived customer value is related to the brand image and its distinction from competing products (Monczka et al., 2015).
Product selection is another important dimension of customer value that should be addressed by supply chain management practices. Stadtler (2015) demonstrates that providing customers with a wide range of products allows them to select those that are best aligned with their unique needs and preferences. Therefore, inventory management practices within a supply chain should provide for making a company’s diverse products available within megastores with a goal of meeting the divergent needs of customers within target market segments. Sarkis, Zhu and Lai (2011) demonstrate that providing for the delivery of value-added services in supply chain management practice is an effective approach of enhancing the perceived value of products among customers. Value-added services that supply chains should provide include product accommodations, support services, maintenance and information access (Monczka et al., 2015). In accordance to Seuring and Müller (2008), value-added services are effectively provided through the integration of emerging technology capabilities into supply chain management and operations. Enhancing relationships and experiences is another vital supply chain management strategy that leads to enhanced customer value. Stadtler (2015) illustrates that the integration of customer relationship management systems into a company’s supply chain allows it to develop meaningful relationships with customers, making it difficult for them to switch to competing products. Therefore, supply chain management practices should integrate customer relationship management processes for active engagement with customers, which determines their perceived value of services and products.
According to Sarkis, Zhu and Lai (2011), strategic pricing is an effective supply chain management strategy for enhancing customer value. Seuring and Müller (2008) demonstrate that strategic planning allows companies to effectively manage their revenue by selling right inventory units to right customer segments at right prices. Strategic pricing through smart pricing of products also allows companies to price products in a manner that they influence demand for their inventory. In this sense, efficiency in logistics and management of inventory contributes significantly to the ability of a company to provide customers with value for what they spend on its products. Stadtler (2015) argues that it is when supply chain management processes are planned and implemented in the context of the objectives of building customer loyalty, improving customer satisfaction and discouraging defection to other products that companies are able to enhance customer value.
Sarkis, Zhu and Lai (2011) point out that supply chain management can be used to enhance customer value through the integration of the key elements influencing value creation to all logistical operations. These elements include quality, service, cost and time. For instance, supply chain management should focus on ensuring that the delivery of products to customers is aligned with specific quality measures, such as performance, functionality and the technical specification of customers. In addition, the commitment of a company to provide support services to customers after delivery of goods influences the perceived value (Monczka et al., 2015). Furthermore, customers should be satisfied with the costs attached to delivered products. Stadtler (2015) indicates that supply chain management practices should be responsive to specific customer requirements, including delivery lead times. Sarkis, Zhu and Lai (2011) explain that regardless of the quality of products, if they are not delivered on time, customers will not get value for their money.
Seuring and Müller (2008) note that supply chain management practices are also used to allow companies achieve competitive advantage. It is this competitive advantage indicates a company’s performance in the market, growth of sales, brand image and profitability (Monczka et al., 2015). Supply chain management is an important element of competitive advantage as it should be aligned with strategic goals of a company to grow sales (Seuring and Müller, 2008). Stadtler (2015) demonstrates that competitive advantage is achieved when companies are able to provide customers with value for their products through the integration of customer needs, requirements and preferences in the implementation of all business activities and operations across the supply chain. For this reason, supply chain management should ensure that the design, manufacture, promotion, delivery and provision of support services are aligned with market standards and customer needs (Monczka et al., 2015). The design and implementation of logistical operations specifically distinguishes a company from its competitors in line with its ability to provide customers with value and meeting their needs (Seuring and Müller, 2008). Sarkis, Zhu and Lai (2011) reveal that the ability of a company to retain its customers and to grow its market base is the prerequisite to competitive advantage. This is achieved through the alignment of all supply chain activities with the overall market demand and the specific preferences of customers within target market segments.
According to Stadtler (2015), the main dimensions of excellence in supply chain operations should also be part of the supply chain management practices within companies. These dimensions include value advantage and cost advantage. Seuring and Müller (2008) maintain that supply chain management should focus on creating superior value than its rivals in order to compete favorably in the market. In addition, the delivery cost of products across the supply chain should be designed with a goal of enhancing efficiency and lowering costs (Monczka et al., 2015). This is because low cost in supply chain operations translates to higher profits, which allows a company to gain competitive advantage in the market in the context of financial performance.
Sarkis, Zhu and Lai (2011) argue that supply chain activities should pursue the objective of value creation through tailored services, responsiveness to customer needs and the delivery of tailored services. Stadtler (2015) explains that products that are tailored to meet the needs, requirements and preferences of customers are highly competitive. In addition, a company that is responsive to the needs of customers in the implementation of supply chain activities gains competitive advantage by growing its customer base. Seuring and Müller (2008) illustrate that supply chain management processes should leverage opportunities in logistics for cost reduction, such as integration of logistics and schedules and capacity utilization in order to compete favorably in the target market.
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