This article examines the subject of Logistics Management. Topics covered include working definitions of the terms logistics management and supply chain management, and an outline of the various activities involved in the logistics management process. Also, we highlight the key supply chain management processes and the relationship each plays in conjunction with logistics management. A practical example of logistics management in action is provided, along with the various logistic management activities and terms of art.
Supply Chain Management
Supply chain management is not a new concept -- nor is logistics management. The actual practice of logistics management has its first recorded origins in annals of military history from the times of the ancient Romans and Greeks, whereby armies employed basic logistics principles to make sure that their respective armies were adequately equipped with needed supplies for waging warfare. Commercial businesses, driven by the process of transforming raw materials in the manufacturing process, have always engaged in supply chain management on some level. However, the phrase supply chain management was first coined by the consulting firm Booz Allen Hamilton back in 1982.
Oftentimes, logistics management and supply-chain management are used interchangeably by supply chain management professionals. Yet, they are entirely separate concepts. The distinction lies in the fact that logistics management is a subset of activities within the broader supply chain management process. Thus, no meaningful discussion of logistics management can take place without a solid footing in supply chain management. The Council of Supply Chain Management Professionals (CSCMP) recognizes this distinction of logistics management as a component of supply-chain management.
Definitions of Supply Chain Management
The CSCMP defines supply chain management as:
"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" (CSMP, n.d.).
Similarly, yet in more plain language, the National Alcohol Beverage Control Association (NABCA) defines supply chain management as:
"Supply chain management is a set of approaches used to efficiently integrate suppliers, manufacturers, warehouses, and customers so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimize system wide costs while satisfying service-level requirements" (NABCA, 2004).
Therefore, a typical supply chain consists of an integrated, coordinated network of suppliers, manufacturers, warehouses, distributors, and retailers, through which parts, raw materials, and subassemblies are acquired, transformed, and delivered to the ultimate customer (see Figure 1). Simply stated, supply chain management (also known as SCM) includes the following supply chain functions of: planning, buying decisions, making products, storing products, moving products, selling products, and handling of returns from customers. By its very nature, supply chain management requires effective collaboration, i.e., real-time, accurate communication and information exchange among the various supply chain partners, as well as the functional areas in a company, such as marketing, finance, and operations.
Note that an AMR Research study of supply chain organizations identified the following goals related to supply chain management (Hillman, 2006):
- Manage and reduce materials costs;
- Optimize overall internal supply chain costs;
- Reduce supply chain risk;
- Improve manufacturing efficiency;
- Enhance customer service;
- Understand customer/end-user demand.
Cleary, firms gain a competitive advantage when they are able to achieve these stated goals. The benefits of effective supply chain management can range from higher productivity, lower supply costs, greater customer loyalty, lower inventory carry costs while increasing inventory turnover, decreasing transportation costs, and order fulfillment costs -- to name a few. Combined together, these improvements normally translate into increasing company profits and increased market share -- certainly a desirable state of affairs for any company.
Core Business Processes
Aside from understanding the goals related to supply chain management, a fundamental grasp of supply chain management requires an essential understanding of the core business processes involved in supply chain management. The Global Supply Chain Forum of the Ohio State University identifies eight key supply chain management processes and the relationship each plays with respect to the logistics management function (Lambert, 2004):
- Customer relationship management -- key customers and customer groups are identified. The logistics function interfaces with customer relationship management in that logistics capabilities are determined in light of the firm's identified customers.
- Customer service management is the administration and coordination of key suppliers and customers. The role of logistics management is to outline key performance specifications for suppliers in alignment with customer requirements and expectations.
- Demand management balances customer requirements with supply chain capabilities, matching supply and demand with minimal disruptions. Logistics' role is to produce reliable and accurate forecasts for the demand management process.
- Order fulfillment entails those activities for defining customer requirements and designing an order fulfillment network, which enable firms to meet customer requests. Network planning is provided by logistics management in designing and operating the information systems necessary for accurate and cost-effective order fulfillment.
- Manufacturing flow management includes all activities necessary to provide the timely and efficient ability to manage a variety of products in the supply chain and to move products through a company's plants. Prioritization criteria are developed by logistics in moving products through the manufacturing plant.
- Supplier relationship management identifies key suppliers based on the capabilities of these suppliers and the needs of the firm. In turn, the logistics management function manages the inbound flow of parts, supplies, and raw materials needed in the production process.
- Product development and commercialization provides the structure for working with customers and suppliers to develop products and market them to potential customers. Working closely with marketing and operations, logistics management establishes movement requirements that enable the delivery of products to the final consumer.
- Returns management is the process dealing with product returns, namely through returns-management and return-avoidance (i.e., getting it right the first time). In logistics management parlance, this is known as reverse logistics -- to be discussed later.
(The entire section is 3297 words.)