Supply Chain Management – key towards the future
Posted by: Afsal T I | Logistics
Oxford dictionary defines Logistics as the detailed organization and implementation of a complex operation. Traditional logistics focuses its attention on activities such as procurement, distribution, maintenance and inventory management.
The term Logistics has a military origin. It was associated with the movement of troops and their supplies in the battlefield. As time passed by, the term started to be used in business lexicon gradually and has now become synonymous to a range of activity from procurement to final product delivery. In a typical business scenario, many activities and mostly business organisations work in tandem to get the final product delivered in the hands of the end consumer. A network of these organisations makes the final delivery successful in the hands of the end consumer. This network of organisations working in tandem is called the Supply Chain.
Traditional organisations used to consider manufacturing and marketing operations separately. The value addition in integrating these two functions has been identified considering the inter dependence between the two. Logistics can be seen as a link between these two vital functions of an organisation. Logistics typically refers to intra organisational activities focusing attention on various activities of an organisation such as procurement, manufacture, maintenance, distribution, inventory management, marketing and sales.
What is Logistics?
Logistics is about getting the right product, to the right customer, in the right quantity, in the right condition, at the right place, and at the right cost. – John J. Coyele Logistics can be broadly classified into Inbound Logistics and Outbound Logistics. Inbound Logistics concentrates on purchasing and arranging the inbound movement of raw materials to the manufacturing units. Outbound Logistics deals with the storage and movement of the final product.
3PL and 4PL
The concept of 3PL came in early 80s as a cost reduction mechanism. 3PL concept mainly referred to outsourcing of various activities of logistics to different service providers ranging from specific assignments like trucking to the complete processes like inventory management. This was mainly intended to reduce costs and then to improve the quality of services as each service provider gets enough attention on their respective portfolios. Experience of 3PL was not so favourable as the service providers did not have adequate expertise to operate complex logistics activities.
This led to the inception of another concept 4PL. 4PL or the Fourth Party Logistics refers to an integrator of supply chain processes on behalf of the organisation and does contracting and co-ordination of the logistics activities. The main reasons for the inception of 4PL concept were the lack of integration of supply chain processes and the increase in global business operations along with the complexities of various activities involved.
Supply Chain Management This denotes the management of the flow of goods and services involving the movement and storage of raw materials, work in progress and finished goods from point of origin to the point of consumption. Keith Oliver, a consultant in the early 1980s, introduced the term Supply chain management. This gained momentum and prominence in the late 1990s, as the global trade grew deeper and spread vast across the world. As more and more economies including that of developing nations like India opened up, the relevance of Supply Chain Management grew multifold. With the advent of e-commerce and online shopping in the new millennium, Supply Chain management has grown in to one of the key factors determining the success of any business.
Basic Concepts of Supply Chain Management
Supply chain management includes four basic legs:
- Inventory Planning
Inventory has a linear relationship with cost. Hence organisations would want to reduce the inventory levels. This can be achieved only through efficient and accurate forecasting, as the goods will move incessantly from warehouses to customers.
Overstocks lead to increase in working capital requirements and carry costs, which will lead to blockage of resources of the organisation.
Hence Inventory Planning becomes a major and decisive area in efficient supply chain management.
This depends on the end consumer based on the geographical and logistical considerations.
Storage of goods forms one of the basic functions of the supply chain management. Primary functions of a warehouse include product movement, storage and intermediate packaging and shipping to other destinations. Warehouses adopt different distribution strategies like Cross Docking, Milk runs, Direct Shipping, Pooled Distribution, Hub and Spoke model etc. depending on its needs and infrastructure.
Transportation usually accounts for 1/3rd of the total logistics cost. It is a strategic decision of a business depending on the level of risk involved, geographical location and customer requirements. Transportation is a trade off between cost of carrying and delivery time. Methods with higher delivery time involve higher carrying cost of inventory. Hence effective supply chain management systems optimise the cost of carrying and delivery time to meet customer requirements with greater satisfaction. More often than transportation becomes the face of the supply chain system as it is the interface between the business and its end consumer. Economies of transportation is usually linked to the distance between the origin and the destination and the density of the package. Value and risk of goods carried also accounts to the pricing.
Supply chain management is a function that integrates different components of a business. Main characteristics of Supply chain management are:
- Network of functions
- Continuous flow of information, material and money
- Effective coordination
- No conflicting objectives among the different functions
- Balance of Cost and Service
- Long-term relationship.
Is Supply Chain Management a good option for Career?
In the Indian business and industrial scenario, supply chain management is the next big thing. Experts find unlimited scope in the field due to globalisation of businesses and shortening of product life cycles.
All businesses, retail, manufacturing, FMCG or healthcare or ecommerce all thrives on the expertise of logistics and supply chain management. Hence a career in logistics and supply chain management does not limit a person to a specific industry; in fact the scope of the field is spread across all industries. Opportunity for employment is huge for a supply chain management professional.
With the industry and business expanding multifold in extreme acceleration in the developing countries like India and China, the trade is in need of skilled professionals and talented leaders to meet the demands. People with good leadership skills and determination can become successful supply chain coordinators and managers. Their successful performance shall for sure result as a deciding factor on the development and success of the organisation.
Supply Chain Management has become the pivotal area in the development of any business or even economy. It is definitely growing to be the most sought after career in the years to come.