Differences between supply chain management and logistics
Marketing is one of the most significant functions in any business organization. Marketing has a significant impact on the success of a business (Horch, 2009). Marketing involves a number of activities. Among the activities are the supply chain management (SCM) and logistics. The two are interrelated, but they are not the same.
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Supply chain management is a term that refers to the flow of goods from their manufacture point to the end consumer point. There are several networks that are usually interconnected to ensure that the value of the end product has been added to meet the consumer needs and maximize client satisfaction. The supply chain management is developed on the basis of two major ideas. The first idea is that products go through a number of organizations before they reach the end consumer point. In other words, the product is subjected to the cumulative efforts of the line organizations (Radhakrishnan, 2001). These organizations make up the supply chain. The second idea is that each of the organizations in the supply chain is mostly concerned with the activities that take place within it and ignores what happens in another organization.
This is the idea that has become of much concern to researchers since the disjoint caused leads to ineffectiveness in the supply chain. The supply chain should be handled in such a way that the company should attain the highest level of customer satisfaction and competitiveness. The supply chain needs organizations to work together to develop and make the supply chain the most effective. The activities involved in the management of supply chain include design of products, planning, control, execution, and monitoring of activities. It may also involve infrastructure and logistics (Chopra & Meindl, 2012).
Logistics, on the other hand, is the act of managing how resources flow from their point of origin to the point where they will be consumed (Waters, 2010). The aim of logistics is to ensure that certain requirements are met to enhance the competitiveness of the organization. Brimer (1995) suggests that the logistics have the capacity to affect the company’s profitability because they focus on serving the customer by providing products to the client’s satisfaction. Logistics involves management of all resources, including physical resources, financial resources, human resources, and informational resources. Among the activities that are executed in logistics are producing, packaging, material storage, transportation, warehousing, and flow of information.
Supply chain participants responsible for managing inventory
The supply chain has three major participants. Each participant has their own roles to play. The roles are interdependent, but they are performed independently by each participant. The three participants are the suppliers, manufacturers, and distributors. The supplier is the one who avails products for purchase to the purchasing organization. Manufacturers, on the other hand, deal with the production activities. Finally, the distributors are external to an organization and they sell either to the supplier or to the manufacturer. They also collect payments and are involved in the maintenance of inventory.
The supplier/ manufacturers’ products are usually stored by the distributor. Distributors are, therefore, the supply chain participants who are responsible for inventory management. They need to manage inventory to reduce the costs of operation and the price of the product charged to the final consumer (BMS Team, 2012). This increases the level of satisfaction for the consumers because they are always willing to pay less. In addition, it increases the competitive advantage of the organization.
Ways of minimizing stock levels through the supply chain
Minimizing stock levels is important because it is effective in the reduction of operating costs of an organization and reduction of the products’ prices. It is the responsibility of the supply chain manager to ensure that stock is maintained at the lowest possible level and still maintain consistence in supply. As a CEO of Notebook Computer Company, there are a number of ways that can be used to reduce stock levels. To begin with, forecasting of future demand is very important. Statistical trends, as well as line of best fit techniques can be used to increase the accuracy of this prediction based on historical figures. Reducing the rate at which the demand and supply vary will also be effective. The inventory policy should be reviewed periodically to cater for any changes in the demand for notebook computers. Reduction of safety stock level will also be effective. This will help in reducing the level of stock held at any one time and the holding cost thereof (LaMacchia, 2013).
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In addition, as a CEO I can adopt quantitative approaches. The techniques include centralizing inventory since it will be more economical compared to distributed warehouses. Understanding consumer behaviour will also help in reducing the stock levels. This is where one needs to know the lead time for customers to avail the goods when they need (Chopra & Meindl, 2012). Sometimes, stock may become obsolete, especially in the information technology industry, due to the rapid change in technology. The obsolete stock should be eliminated to reduce holding costs. The ABC approach can also be effective in minimizing stock levels. This approach is similar to Pareto analysis (LaMacchia, 2013). Under this approach, the management will find ways through which the replenishment lead times can be reduced in an effective manner. This is done to enable the manufacture department to hold raw materials that are cost effective.
Factors to consider when designing a logistic network for a global operation
There are a number of network designs that can be used by an organization to distribute its goods in a global operation. The organization can choose from any of the designs. The following is a classification describing the designs:
- Manufacturer storage with direct shipping- this is where the manufacturer does the production work, stores the finished goods in the warehouse, and then ships the goods direct to the final consumer. The manufacturer has two warehouses in such a design; one warehouse for the raw materials and the other one for the finished goods.
- Manufacturer storage with direct shipping and in-transit merge- under this design, the manufacturer does the production and stores the goods. However, he has the in-transit merge. This is where goods from various sources for a given order are sent to a distributor first before being shipped. At this point they are consolidated and sent as a unit.
- Distributor storage with carrier delivery- this is where finished goods are first stored by the distributor before being sent to their final destination. The distributor has a carrier/means of transport that transports the goods to the destination.
- Distributor storage with last mile delivery- this is the case where the goods are stored by the distributor before they are dispersed. The distributor delivers the goods to the last consumer, instead of first delivering them to a retailer or a wholesaler.
- Manufacturer/ distributor storage with customer pick up. Under this design, the manufacturer or the distributor stores the finished goods. The consumer then picks the goods from the stores (manufacturer and/or distributor stores).
- Retail storage with consumer pick-up- this is the case where the goods are first delivered to the retailer. The retailer stores the goods and then the consumer picks them from there.
The world of business has undergone a rapid revolution in the globalisation era. Organizations have gone international in the search for more markets for their products. The shift in demand is more rapid today compared to the past. Consequently, it is the responsibility of the management to ensure that the organization changes its supply chain networks as the demand keeps changing (Wisner, Tan & Leong, 2011). Global organizations such as UPS and Federal Express should make a number of considerations when designing these networks. The following are the factors that need to be considered by the persons responsible for the design of logistics networks.
Global organizations have operations in various countries. It is important to consider the number of operations that the organization has (Waters, 2011). At the same time, the location of each operation should be considered. Different countries have different policies and business environments. These could be important factors for logistics networks design (Lambert 2008). The number and volume of production for each location should also be considered. This goes hand in hand with the level of demand in that country. The production volume to be established will be higher if a location has a high demand. Varying numbers of activities are carried out in different locations depending on the production volume.
The number of activities should be considered to ensure that the required labour is provided, as well as to ensure that there are sufficient resources for the activities and the production process. Finally, the frequency of orders and the transport methods to be employed are also important factors. This is important in ensuring that there is a consistent and sufficient supply of goods and services. Balancing the lead time and the available inventory at any given time cannot be ignored because it facilitates minimization of costs. Finally, the technological changes should also be considered (Ailawadi & Singh, 2012). The technology is changing at a high rate, a factor that cannot be ignored by any global organization that wishes to win the competitive advantage race.
Benefits of information technology in supply chain management
Information technology is turning out to be the ultimate solution for most business organizations and business operations. Technology helps in the improvement of service quality and efficiency. Among the benefits of applying information technology in the supply chain management include giving the organization a competitive edge. IT is now being considered as a significant determinant of an organization’s competitive advantage. An organization is able to find the best solution for the supply chain management through information technology. It is easier to improve the efficiency of the same (Ahmad & Schroeder, 2001). The managers are able to track inventory movement and ensure a constant supply in return.
Another benefit is that the business can focus on other critical business activities once the supply management has been made efficient through the implementation of IT. Implementing information technology in the supply chain helps in achieving high quality information and success in the organizational performance. The management is able to get real time and accurate information. This facilitates decision making. Information technology will also enable the organization to form partnerships/ collaborations with the supply chain partners (Seuring & Gold, 2012).
The effectiveness of the supply chain management will be improved if the supply chain partners collaborate. Consequently, the overall consumer satisfaction will improve and give the business a competitive edge. Finally, IT supports decision making in the supply chain management. It is possible to make more accurate decisions with the help of IT. It is important to note that decision making is a very critical activity in any business corporation (Grieger, 2004).
Another factor that should be considered when making the design is the global logistics network. The management should configure the network to understand how it works and how the products of the company can fit in the network. The management should also consider the framework that will be used in categorizing the supply chain structure. This will depend on the design that the organization will use for its supply. Strategic orientation is another important factor that should not be ignored. This refers to the procedures followed during the supply of goods. The procedures may refer to the location of facilities and the choice of transport to be used. The location of stores will highly depend on the nature of goods, thus it will be a very crucial factor to consider.
Impact of supply e- commerce on supply chain management
The traditional ways of doing business are increasingly being overtaken by time as people opt for online trading in line with developments in technology. Electronic business, also referred to as e-business or e-commerce, has become increasingly popular among business organizations due to its benefits (Bidgoli, 2010). Among the impacts that e-commerce has on supply chain management include cost efficiency (Qrunfleh & Tarafdar, 2013).
E-commerce is known to reduce the operational costs for any business organization by a great margin. It is easy to make online transactions. It also saves money. The time spent is also less compared to the time spent in traditional business settings. Saving time could also be considered as improving time efficiency. Cost efficiency improves the profitability of a business. The aim of any business is to maximize its profits. One way of achieving this end is by reducing operating costs.
The sportswear retailer distribution centre will be able to improve its link with the customers through e-commerce. E-commerce improves the level of communication between the organization and its customers. The distribution centre will be able to get the information about the customer requirements. This will facilitate its distribution efficiency because it will provide the goods in real time and with required specifications (Auramo, Kauremaa, & Tanskanen, 2005). Another impact of e-commerce on the sportswear retailer will be that it will improve the consumer orientation. This is where the customer needs are met in order to improve their level of satisfaction. The retailer will be able to understand the needs of customers and strive to meet them.
Another benefit is that the retailer will be able to track shipments. Online solutions enable tracking of shipments. The management is able to know the location of a shipment at any given time. It is also able to facilitate timely delivery and gain customer loyalty and a competitive advantage (Auramo, Kauremaa, & Tanskanen, 2005). Still on shipment, there will be minimal need for documentation. This will increase accuracy. It is easier to make errors on paper documents and they go un- noticed than it is in the case of an online documentation. Minimal paper work also reduces the bulk of documents, saves costs, and improves efficiency. The organization is able to get real time information about the shipments through e-commerce. Online trading sites have options that enable customers to chat with the organization, thus they can provide the management with real time information.
Need for third Party Logistics
Third party logistics are firms whose function is to provide logistics services to other firms (customers). There are organizations that opt to outsource some of their services. If an organization outsources its logistics services, then the firm to which it outsources is the one referred to as the third party logistics firm. There are a number of reasons why an organization should go for a third party logistics partner. First, it helps in increasing the level of efficiency and specialization. Secondly, a third party logistics company helps the organization to improve on flexibility and scalability. It is expensive to start up a logistics division within an organization. An organization needs to start small and then scale up as it proceeds.
The third party logistics company provide this possibility (Cardinal Logistics, 2012). The organization will be flexible to scale up depending on its operations. Third party providers help the organization to save on capital expenditure. The organization needs to spend on buying equipment, as well as distribution centres to start up a logistics division. Outsourcing the division will help the organization save on this cost. The organization will also incur reduced inventory costs and improve its profitability. Finally, it will help in improving customer service because outsourcing logistics will shorten the shipment time. This will increase customer satisfaction.
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Third party logistics have the ability to increase the supply chain surplus effectively. This will be possible by aggregating the supply chain assets to a higher level compared to the level that the organization can reach. It will also be possible to aggregate the capacity by aggregating demand in other firms to help the organization gain production economies. They can also aggregate inventory across a large number of customers. Transportation aggregation can also be established by third party logistics whereby they will induce more effective modes of transport. Finally, they will aggregate warehousing and procurement. Other forms of aggregation include information, receivables, and quantity aggregation.
Despite its benefits, outsourcing logistics is also associated with a number of risks that the management needs to consider before making the move. Some of the risks that have to be considered include the business issues that may arise from outsourcing logistics. A company loses some control of its business when it hires a third party logistics firm. It starts depending on the third party logistics firm for supply of products and services. There is a possibility that this move could lead to the company having a poor public image. It might also affect its stock, leading to a loss of competitive advantage.
Anything that happens to the third party logistics company will have an impact on the outsourcing company. For instance, if workers in the third party logistic go on strike, then this will negatively affect the outsourcing organization’s business. Among other business issues that may arise include leakage of important business information that could lead to loss of competitive advantage (Cardinal Logistics, 2012). The cost of coordinating the third party logistics could also be high, thereby increasing operating costs.
Ethical issues could also be a risk to the organization. Things might end up going wrong for the organization if it fails to choose the right third party logistics. The logistics company may not perform to the standards that are in line with the business strategies. It is the outsourcing company that will be held responsible for any ethical issues resulting from the third party logistics. The third party could lead to service degradation. Finally, employment issues could be a risk to the company if it outsources logistic services. If the company outsources some of its activities, then there is always a risk of employees’ backlash as they fear for their job security. There could be a problem if employees are not well informed of the intended changes because they will be worried about losing their jobs (Zhang et al., 2010).
Considerations for selection of the performance measurements of suppliers to match organizational needs
The services provided by the supply chain department may not be satisfactory to the company’s CEO in some situations. The services may not be in line with the company’s business strategy. It is the duty of the CEO and the top managers to ensure that the problem is rectified to secure more new products and services for the company in the future. This could be done through implementing a number of performance measurement strategies in the bid to improve the performance of the supply chain. First, the company can measure the supply chain effectiveness. This could be done by measuring the number of orders that are received on a timely basis and in full. The supply chain needs to ensure that orders are delivered on time.
They should also be delivered in full. The effectiveness could also be measured by determining the customer back order rate. If the customer gets better services, then chances are that they will come back for more orders. If they do not get satisfaction in the way they are served, then they will not come back for more orders. The number of supplier orders received on time and in full should also be measured here. Similarly the backorder rate for suppliers could be used. Finally, the number of returns and claims by customers and suppliers could be used to determine the effectiveness of the supply chain (Rossi et al., 2013).
Secondly, the CEO can measure the efficiency of the supply chain. This can be done by determining the average weeks of inventory cover. If few weeks are taken, then it indicates efficiency. More weeks will indicate inefficiency. The value of inventory cover can also be used to determine efficiency. Accuracy is the objective of any supply chain. Inventory should be measured accurately. Accuracy indicates efficiency. Finally the documentation should be free of errors or contain minimal errors if any.
The third measure could be the financial measure. This involves consideration of costs incurred. The costs include warehouse costs, customer clearance cost, total logistics costs, production cost, and freight cost. The costs should be compared with the return on investment and the general product profitability. Low profits indicate the poor supply chain performance, while high profits indicate good performance. Ways of improving the financial performance should be developed if it is poor.
Another consideration could be the cost of the products from various countries. For instance, a certain country could supply the country in question with products at a cheaper cost compared to the locally produced products. It will be better if the country buys the products from outside since they give it economies of scale. The cost at which the supplier sells its product can act as a measure to the supplier’s ability to match the organizational needs. Organizations strive to lower the cost of production as much as they can.
Future challenges for the supply chain management
The business world is dynamic and things are subject to change in the future. This presents new challenges to the management. The supply chain management is likely to face challenges in the future. The challenges could include technological changes. Technology is changing at a high rate. Some applications become obsolete as technology advances (Grieger, 2004). The applications used today will need to be changed in the future. The other challenge could be the changing demand. Customers prefer new things each day and their behaviour is subject to change. The management, therefore, should be on its toes to predict the changes in customer behaviour in order to satisfy them at all times. The other challenge could be the increase in competition. The supply chain gives the business a competitive advantage, thus it should be able to cope with the increasing competition.
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