Linking logistics to the supply chain

In the previous steps, we explored two key concepts (supply chain and logistics) – we’ll now look at how these link together.

In Step 1.3, we mentioned how the value chain tool was used by firms to identify areas of competitive advantage. From a supply chain perspective, this meant integrating activities to control the flow of goods and materials from source to the customer, leading to savings and higher profit margins.

The adoption of the ideas of the value chain by management in the 1990s has led to several major studies of supply chains.

The Grocery Manufacturers Association (GMA) in the USA commissioned a study of grocery supply chains and concluded that savings of $30bn a year in inventory could be made just by reducing stock holdings from 104 days to 61 days on their outbound supply chains (Coyle et al. 2017).

A further study by the Supply Chain Council undertook a simple benchmarking exercise of the top performing 10% of US businesses in 1996 and again in 1997, examining their percentages of costs to sales. These top companies had an average cost to sales of 7%, compared with the median businesses, who achieved an average cost to sales of 13%. The areas on which the top-performing businesses focused were logistics activities, including transportation, inventory and systems.

Businesses realised that their supply chains consisted of different stages and often the logistics flows between them were not working efficiently. By focusing on theses stages and their poor interactions, improvements could be made that improved operational systems, improved services and reduced costs.

Illustration of integrated supply chain basics -- these includes vendors, contracted manufacturers, manufacturers, wholesalers/distributors, and retailers and distributors. You then have the various logistics flows across these supply chain basics, which include product/services flow, information flow, cash flow, and demand flow

Click on the image to expand and zoom in.

The above diagram shows the various flows through a supply chain.

Illustration of supply chain stages by Stevens (1989) -- has suggested that supply chains have evolved in four stages -- these include stage one (baseline) which began with purchasing, material control, production, sales and distribution. Stage two (function integration) which involved materials management, manufacturing management and distribution. Stage three (internal integration) involved a closer integration of the supply chain stages identified in stage two. Stage four (external integration) involved suppliers, internal supply chain and customers

Click on the image to expand and zoom in.

Stevens (1989) suggested that supply chains have evolved (as illustrated above) and will continue to examine ways of encouraging the integration of the various stages of a supply chain, so there will be fewer stages of inventory and one internal supply chain serving separate suppliers and consumers.

How is this possible? Through the management of the logistics flows within the supply chain. This has encouraged a more integrated approach to logistics within supply chains.

Your task

When manufacturing a bicycle, what do you think are the different stages and the logistic flows between them? Share your responses in the comments area.


References

Coyle, J. (2017) Supply Chain Management: A Logistics Perspective. London: Cengage Learning

Stevens, G. (1989) ‘Integrating the Supply Chain’. International Journal of Physical Distribution & Materials Management 19 (8). 3-8

Share this article:

This article is from the free online course:

Principles of Global Logistics Management

Coventry University