Supply chain management is more than logistics

By: 

Reggie Horne is the Traffic Network Manager for Frito Lay in Frankfort, IN. He has worked in supply chain management for 22 years. Currently, Reggie serves as an adjunct faculty member at Kelley Indianapolis, teaching P300, Introduction to Operations and Supply Chain Management.

Logistics is delivering the right thing, to the right place, at the right time. Logistics management is the planning, implementation, and control of the flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer's requirements.

Many logistics firms use computer modeling to determine the most cost-effective solution daily. Using data analysis, a logistician will change the delivery parameters within the computer model to improve service and/or reduce costs. However, logisticians are just one part of the team that manages the supply chain.

Supply Chain Management can be defined as the design, planning, execution, control, and monitoring of supply chain activities, with the objective of creating net value and building a competitive advantage. All supply chain managers are concerned with meeting customer needs. While logisticians focus on product movement, other supply chain managers are focused on the movement and storage of raw materials, work-in-process inventory, and finished goods. Still other supply chain managers lead new product development, procurement, sourcing, and performance measurement.

The organizational role of supply chain management is to synchronize supply with demand.

Below is an example of the transformation and decision making of a new product through the supply chain:

The product development team is ready to launch a new product. The projected sales for this product requires 25 production run hours per week. Given the short run time and expensive production changeover, the supply chain planning team decides that only one plant should produce this product.

However, break-even analysis determines that a second plant should begin producing the new product when the production time is greater than 50 hours per week.

The performance measurement team wants to establish a high compliance safety stock setting to reduce the projected stock-outs for the new product. However, the warehouse warns that a high level of unsaleable (stale) product is more likely with new items, and suggests a high freshness safety stock setting.

The logistics team shares that the distribution costs will be higher with this single source item that has to ship via rail, truckload, and less-than-truckload, to deliver the product nationally. The procurement team has analyzed the possibility of out-sourcing this product and found a potential producer.

The IT group has updated the manufacturing database with the SKU specifications and the sales data bases with the sales forecast down to the individual store level.

From product development to procurement and sourcing, managing the supply chain is an increasingly complex series of interconnected activities. The logistics team plays an integral role in the supply chain which moves the necessary materials from point A to point B. Yet, the new product roll-out example above shows there are many different facets of the supply chain that must work together effectively to meet customer demands.

Without logistics, raw materials and finished goods cannot move to the customer. In conclusion, an integrated supply chain is required to provide a strategic advantage, and fully meet customer demands.