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How do supply chains work?

In a supply chain, various separate functions are integrated such as transport, warehousing, purchasing, marketing and finance.
© Coventry University. CC BY-NC 4.0

Here, we define what we mean by a supply chain and consider its relationship with logistics. In a supply chain, various separate functions are integrated such as transport, warehousing, purchasing, marketing and finance.

A short history of supply chains

The term ‘supply chain’ began to appear in the 1980s. A supply chain is the network of elements involved in different stages, from upstream (supplier-end of the supply chain) to downstream (customer-end of the supply chain), producing value in terms of products and services to the ultimate customer.

Upstream deals with the raw material and other supplies as an input, while downstream deals with the product and considers its transportation and distribution – see the image below:

Diagram showing upstream and downstream supply chain links, as described in the text above. Adapted from The Manufacturing and Technology Enterprise Centre (2017).

What does a supply chain involve?

A supply chain includes suppliers, manufacturers, distributors, retailers and consumers, with materials, products, information and resources being transferred between each element.

There is often confusion between the terms ‘logistics’ and ‘supply chain’. However, Larson and Halldorsson (2007) offer four perspectives, outlining the relationship between the two terms:

  • Traditionalist: the Supply Chain Management (SCM) is part of logistics – and logistics is the wider term used
  • Re-labelling: there is no difference between the terms; however, SCM is the term used instead of logistics
  • Unionist: SCM is the wider concept that incorporates logistics
  • Intersectionist: there are similarities between the two terms, but each possesses its own characteristics

Visual representation of perspectives described above.

We approach this course from the unionist perspective, recognising that SCM is the wider concept incorporating logistics. The table below defines the relationship and differences between the two terms:

Logistics Supply Chain Management
Meaning The process of movement and storage of goods The coordination and management of the supply chain partners and activities to deliver the right product to customers
Aim Customer satisfaction Competitive advantage
Evolution A concept that has been in existence for a long period of time A modern concept

References

Larson, P., Poist, R., & Halldorsson, A. (2007). Perspectives on logistics vs SCM: A survey of SCM professionals. Journal of Business Management, 28(1), 1-24.

© Coventry University. CC BY-NC 4.0
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International Logistics: A Beginner’s Guide to Logistics Management

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