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
Essay 2012 9 Seiten
Table of content
2. Historical evolution and term definitions
3. Logistics versus SCM
4. Supply chain managers as part of the senior management group
6. Reference list
‘The real challenge is to improve the capabilities across supply chains significantly in order to drive out cost and realize revenue benefits - fast’ (Gattorna 2003, p.4). This statement both demonstrates the importance for enterprises and emphasizes the complexity of the supply chain requirements these days. In times of strong competition almost everywhere it is especially important to meet customer needs and thus ‘achieving high levels of service’ (Taylor 1997, p.3). But where does Supply Chain Management (SCM) have its roots and what stands behind it?
The purpose of this essay is to critically evaluate the development of SCM. It will both include an explanation of the differences between logistics and SCM and its reasons as well as an explana- tion why supply chain managers are now part of the senior management group. Therefore, the history of physical distribution, logistics and SCM will be mentioned, these three central terms will be defined precisely and four academic strategic approaches will be introduced briefly.
2. Historical evolution and term definitions
Although the focus is on the development of SCM over the last 30 years it is useful to mention briefly that logistics has its origin before the 1950s after the World War II (Bowersox 2008). Conse- quently it was primarily used in ‘military terms’ (Ballou 2007, p.333). During the ensuing years companies faced the situation that responsibilities within their departments such as Marketing, Fi- nance and Production were fragmented to a certain extent. Logistics was considered as being less relevant. (Ballou 2007) According to Rushton et al. (2010, p.7) ‘in this period, distribution systems were unplanned and unformulated’. Thus, Gattorna and Walters (1996, p.1) reflect Peter Drucker’s words which examine ‘distribution as ‘the last dark continent’ for business to conquer’. Physical Distribution evolved originally within the 1970s and enhanced strongly onwards. Dr Drucker stated pragmatically that ‘physical distribution is simply another way of saying ‘the whole process of busi- ness’’ (cited in Bowersox 2008, p.338). In this era this term used to explain the physical transfer of a product from the production to the marketplace (Ballou 2007). This is intensified according to McKinnon’s definition of physical distribution as being ‘the collective term for the range of activities involved in the movement of goods from point of production to final point of sale’ (McKinnon 1988, p.133). The ambition was to save costs in processes and to provide improved services as informa- tion and control became more important (Rushton et al. 2010). In the years after, physical distribu- tion developed quickly together with the term of material management and the focus turned to the orientation of logistics by looking upstream to suppliers and downstream to customers (Bowersox 2008). Due to globalisation it was necessary to generate efficiencies through all parts of an enter- prise such as a decrease of cycle times as well as a reduction of inventory costs (Hesse and Rod- rigue 2004). According to Mangan et al. (2008) companies needed to focus on areas such as logis- tics to generate cost savings rather than on production, because the quality of products should not be impacted. The term logistics is since its roots controversially discussed all along the science and research. Referring to Rushton et al. (2010, p.4) ‘there is, realistically, no ‘true’ name or ‘true’ definition that should be pedantically applied, because products differ, companies differ and systems differ. Logistics is a diverse and dynamic function...’. Nevertheless, there are many definitions in place. Mangan et al. (2008, p.9) define logistics as much more than only ‘trucks and sheds’, although they are quite important parts, as follows:
Logistics involves getting, in the right way, the right product, in the right quantity and right quality, in the right place at the right time, for the right customer at the right cost.
This is a quite technical definition which is used similarly by the Chartered Institute of Logistics and Transport (UK, 2005), cited in Rushton et al. (2010). But it represents the true nature and requirements logistics is facing. According to Christopher (2011, p.2):
Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organisation and its marketing channels in such a way that current and future profitability are maximised through the cost-effective fulfilment of orders.
This definition adheres to the entire company by addressing departments however and activities. Thus, logistics should lead to positive results in business related issues. The commonly used term SCM has its roots in the 1990s. It was somehow ‘the first moon landing: a great breakthrough fol- lowed by a period of great achievement’ (Bowersox 2008, p.340). In the course of time it became essential that key functions were adjusted not only within a company but rather between two or more companies in order to provide service to the customer best possible (Rushton et al. 2010). This new collaborative aspect between enterprises and the fact that technology developed quickly strengthened the evolution of SCM as a discipline. The computer was highly used for transferring information between the value chains. (Soni and Kodali 2008) Mentzer et al. (2001) pointed out that 'Corporations have turned increasingly to global sources for their supplies’. Hence, the value chain needs to be coordinated closely. However, the term is defined differently in the world of re- search and science. The Council of Supply Chain Management Professionals (CSCMP, 2012) formulates:
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.
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- Institution / Hochschule
- Heriot-Watt University Edinburgh
- Logistics SCM Supply Chain Management Physical distribution Supply chain manager term definitions Traditionalist Unionist Intersectionist Re-labeling