How do supply chains work?

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:

_{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

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:

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.}