Introduction to Logistics

Management UNIT 3 LOGISTICS AND SUPPLY CHAIN

MANAGEMENT – INTER
RELATIONSHIP*
Structure
3.0 Objectives
3.1 Introduction
3.2 Supply Chain Management: Conceptual Framework
3.3 Distinction between Logistics and Supply Chain Management
3.4 Supply Chain Management: Activities and Processes
3.5 Application of Tools of Supply Chain Management : Areas
3.6 Supply Chain Management: Challenges
3.7 Conclusion
3.8 Glossary
3.9 References
3.10 Answers to Check Your Progress Exercises

3.0 OBJECTIVES
After reading this Unit, you should be able to
Provide a conceptual framework of supply chain management;
Distinguish logistics from supply chain management;
Discuss the processes of supply chain management and their inter
relationship across the supply chain;
Explain the areas for application of tools of supply chain management; and
Examine the challenges in supply chain management.

3.1 INTRODUCTION
Supply chain management (SCM) encompasses a series of interrelated activities
from movement and storage of raw materials; work in progress inventory and of
finished goods from point of origin to point of consumption. SCM has lot of
activities relating to industrial engineering, system engineering, logistics and
information technology.SCM is an umbrella concept that links together multiple
processes. Logistics refers to movement, storage and flow of goods, services,
and information within the overall supply chain. This unit familiarises you with
important aspects of inter-relationship between SCM and logistics.

3.2 SUPPLY CHAIN MANAGEMENT:

CONCEPTUAL FRAMEWORK
A supply chain is a complex and dynamic supply and demand network with the
sequence of organisations in their facilities, functions, and activities, which are

38 * Contributed by Col. (Dr.) Rajive Kohli, Management Consultant, New Delhi

involved in production and delivery of a product or service. It comprises a network Logistics and Supply Chain
Management- Inter
of suppliers, distributors, distribution centres, retailers, etc. All have a common Relationship
goal of transforming and delivering the final products to customers. Supply chain
management (SCM) is an integrating function for linking major business functions
and processes within and across companies into a unified, high-performing
business model. It includes all logistics management activities, manufacturing
operations, coordinating processes/ activities across marketing, sales, product
design, finance, and information technology. 

SCM has evolved from an initial focus on improving relatively simple, but labour-
intensive processes to the contemporary practice of engineering and managing
of extraordinarily complex global networks. The term SCM was developed to
express the need to integrate the key business processes, from end user to original
suppliers. There has been a tremendous impact of information technology on
logistics and supply chain management. The trend now is more on third-party
service providers (outsourced) to improve purchasing and supply management
with focus on transportation and logistics for quick response and integrated
logistics. Nowadays, customers want not only the products but also the guaranteed
efficient services, including environmentally friendly and recycling practices.

3.3 DISTINCTION BETWEEN LOGISTICS AND

SUPPLY CHAIN MANAGEMENT
Globalisation’s influence brought to fore the need for logistics strategies to deal
with complex networks including multiple entities spanning multiple countries.
There is distinction between logistics and supply chain management. Logistics
is that part of the supply chain process that plans, implements, and controls the
efficient, effective flow (forward as well as reverse) and storage of goods, services,
and related information between the point of origin and the point of consumption
in order to meet customers’ requirements. Supply chain management is the
systemic and strategic coordination of the traditional business functions across
these business functions within a particular company and across businesses within
the supply chain for the purposes of improving the long-term performance of the
individual companies and the supply chain as a whole. SCM refers to strategic
issues, and logistics and operational issues.

All the activities, associated with the sourcing, procurement, consumption and
logistics management, come under the SCM incorporating the coordination and
collaboration with the parties such as suppliers, intermediaries, distributors and
customers comprising the entire flow that brings a product or service to sale.

Logistics management is a small segment of SCM that deals with the

management of goods in an efficient way, focused on the transportation and
storage. SCM is a broader term and refers to the connection, right from the
suppliers to the ultimate consumer. Over the years SCM evolved as an
improvement over logistics management.
The key differences between logistics and SCM are:
a) Supply chain covers procurement, logistics, and other functions while
logistics is a separate function that focuses on product movement between
suppliers and stores/customers.
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Introduction to Logistics b) Logistics refers to the movement, storage, and flow of goods, services and
Management
information inside and outside the organisation.SCM is the movement and
integration of supply chain activities in a way to link major business
processes within and across companies into a high-performance business
model.

c) Logistics management mostly involves transportation functions, focusing

on movement of freight from one point to another on time and in the most
cost-efficient way possible; and includes creating partnerships with
transportation companies.

d) The main aim of logistics is meeting customer requirements for their

satisfaction. The main objective of SCM is to gain a substantial competitive
advantage.

e) SCM controls a broader number of functions and focuses on achieving

customer satisfaction and maximising profit in a long-term manner,
encompassing the management of supply and demand, control over cost
allocation and all collaborations.

f) A single organisation is involved in logistics while there are multiple

organisations in SCM.

g) SCM is a new concept as compared to logistics, while logistics is an activity

within the SCM.

3.4 SUPPLY CHAIN MANAGEMENT: ACTIVITIES

AND PROCESSES
SCM involves a series of activities which may or may not be interconnected to
one another, the important components being:

a) Planning: It represents a strategic segment to manage resource utilisation

for satisfying customer requirements for their products and services.

b) Information: Detailed information of all components is critical for effective

SCM which is managed through systems and computers.

c) Source: Selecting the best suppliers for supplying raw material to produce
the product. It requires developing a set pricing and delivery system in the
supply chain.

d) Production: In manufacturing, the supply chain manager should schedule

the activities needed to produce, test, package, and label. It is the most
important component of the supply chain.

e) Delivery: This part is mainly referred to as logistics by the supply chain

manager, which starts with the receipt of orders from the customer. It has a
network of warehouses for storing the product, choosing carriers to deliver
the product to the customer and establishing a system for receiving payments.

f) Return of goods: This is a critical part of the system, wherein a flexible

and responsible network is created to take back excess or defective products
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 delivered to customers and also providing support services to those who Logistics and Supply Chain
Management- Inter
encounter some problems with its usage. Relationship

SCM has several processes. These include:

a) Customer Relationship Management: It plans, controls, and assesses
customer interaction and data with the aim of building strong relations.

b) Customer Service Management: It assists in administering product and

service contracts.

c) Supplier Relationship Management: It guides in developing and

maintaining a good relationship with the suppliers. At the time of selecting
suppliers, priority is given to supplier’s capability regarding quality,
reliability, innovation, services, and cost reductions.

d) Manufacturing Flow Management: It covers activities associated with

the movement of products inside and outside the factories, to ensure
flexibility in the manufacturing process.

e) Demand Management: A comprehensive structure is provided to best

understand the customer’s needs.

f) Order Fulfilment: It encompasses all the activities which identify customer

needs, the logistics network, and fulfils orders.

g) Product Development and Commercialisation: A framework is provided

for developing and introducing new products into the market.

h) Returns Management: It is concerned with functions associated with

returns, reverse logistics etc. It is an indispensable part of the SCM process.
Check Your Progress 1
Note: 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) What is the interrelationship between logistics and supply chain
management?
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2) Describe the components of supply chain management.

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Introduction to Logistics
Management 3.5 APPLICATION OF SUPPLY CHAIN
MANAGEMENT TOOLS: AREAS
A supply chain management system is needed for the timely manufacture of goods
and assuring the consumer that requirements are efficiently fulfilled. It is
important to focus on where and how specific tools can be used to improve the
overall performance and reduce the total cost of a supply chain. The measurement,
management and optimisation of processes in the supply chains are critical
business activities that require a set up to understand information, and to
determine, analyse and track the performance of this information.

SCM tools help enhance the efficiency of logistics operations. The key
components in SCM that can be automated are inventory management and control,
system integration and procedural costs. All these can save time and money,
bring in automation of operational processes, transparency, and accuracy.
Advanced Planning and Scheduling (APS) Software encompasses software tools
that generate production schedules based on demand forecast, production
requirements, and various other components pertaining to production planning
and scheduling. APS has become a necessity for manufacturers who are seeking
to take their manufacturing operations to the next level. There are many tools,
techniques, strategies, and platforms in logistics and SCM. These are useful in
following areas of SCM.

1) Shipping Status: Shipping status tools are a simple way to keep track of

all the shipments. The network technologies provide real-time alerts update
to every party involved in the transaction and of the situations and potentially
solve a problem before it becomes a large issue. One can also schedule
alerts to know when the shipment is completed, or if the estimated time of
delivery has changed, so that necessary adjustments can be made.

2) Order Processing: Software is available that provides order processing

tools, making tasks easier and more efficient. It supports all functions across
order processing, such as billing, sales order processing, order management,
order fulfillment, and so on. This reduces the time involved in the
conventional processes pertaining to orders which were manually generated.

3) Supplier Management: Businesses having complicated supplier

management activities can use tools that make supplier management both
easier and more effective. These can track contributions being made by
suppliers to the current supply chain. This information is used to renegotiate
contracts or change suppliers, cutting the costs without disrupting supply.

4) Managing Bids and Spending: The entire procure-to-pay system can be

set up and managed efficiently. It also helps one to take a closer look at
how much is being spent where and the time it takes for the production.
The overall goal is to optimise production planning by cutting down on
warehouse space, inventory costs, and the different procedures of storing
excess inventory.

5) Demand Forecasting: To run an effective lean inventory operation, one

needs to meet the ever-changing demand for goods from clients and
consumers. The available tools not only do provide insight into past trends,
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 but it can also create forecast for future needs. Through utilising past trends Logistics and Supply Chain
Management- Inter
and real-time data, supply chain software can help one anticipate future Relationship
consumers’ demand.

6) Collaboration Portal Tools: Collaboration portal tools facilitate

communication of matters pertaining to the supply chain. This includes
issues such as bottlenecks, order issues, and various others. Utilising portals
will help all concerned parties have access to production progress, order
forecasts, product specifications, purchase orders shipment history, and so
on. The collaboration portals allow for transparency in supply chain.

7) Analytics and Reports Tools: After the supply chain software collects
information, analytics and reporting tools are the most effective way to
move forward. Analytics is one of the most important technologies in an
effective supply chain. Data collected is comprehensive and beyond
inventory and shipment can give information on every sector of a company.
In conjunction with demand forecasting, analytics can also find any errors
or gaps in the supply chain. Reports are the result of analytics. Analytics
can lead to various types of reports that depict the data. Each report will
reveal how the supply chain is able to meet the pre-established key
performance indicators.

8) Security Tools: Supply chain managers are generally focused on the supply
chain but ignoring safety can expose your business to threats. Data theft is
a serious problem among businesses, potentially driving the partners and
customers away and affecting the company’s reputation. Anyone who
purchased goods from the firm is also at risk of having passwords, credit
cards, and personal information stolen. The risk of data theft can significantly
decrease through SCMS security features. Smart businesses will limit access
to their SCMS so that employees only have access to the information they
need, to do their jobs. This mitigates the risk of someone accidentally
misusing the information.

9) Compliance Tools: There is a growing concern amongst consumers in

knowing where the products are made and how they are produced. As a
result, suppliers are concerned to ensure that their standards comply with
industry, government policies, and consumer expectations. Also, it enables
easy access of records to establish compliance in the event of an audit.

Many tools are available that individually impact the supply chain, but it is
best to utilise these tools in conjunction with one another. Many of these
tools are designed to function with other tools, thereby increasing the overall
effectiveness of supply chain.

3.6 SUPPLY CHAIN MANAGEMENT:

CHALLENGES
Supply chains are an integral part of the economy and new supply chains and
processes are being created every day. The supply chain opportunities are
expanding from global sourcing of goods to distribution, sales and fulfilments
touching all areas of SCM. There are certain challenges which are described
below:
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Introduction to Logistics Manufacturing: The supply chains begin with the process of manufacturing
Management
and end with getting the product into the hands of the consumer. The
production department is responsible for coordinating production schedules,
determining how long the manufacturing process of a product will take and
keeping track of the inventory of finished products. The materials analyst
keeps track of inventory and material schedules and coordinates materials
with production schedules.

Data analysis: Data management by data analyst, data acquisition engineer,

data manager, data administrator or statistician is a key component in supply
chain. A proper understanding and analysis of this data helps supply chains
work efficiently. In fact, data analysis and management are vital within
SCM, since all the processes involved in serving consumers effectively
have to be data driven.

Procurement: Procurement, focusing primarily on identifying and

purchasing the raw materials needed to create products, is a key part of
what keeps supply chains going. There is a wide range within this, from
procurement analyst focusing on one specific aspect of purchasing, to
purchasing managers who oversee the purchasing decisions for an entire
organisation.

Transportation: Getting products into the hands of consumers is the main

goal of a supply chain and meeting this goal is possible through
transportation. This is the responsibility of transportation analysts or logistics
analysts under a transportation manager with primary focus on getting
products from the factory to the consumer.

Customer service: Always a crucial part of any interaction between a

business and a consumer, customer service ensures that customers are
satisfied with the products they receive. There are many roles from accounts
specialist at a logistics firm working to coordinate product shipments and
resolve customer issues, to a customer service manager overseeing the
satisfaction of a company’s entire client base.

Innovations in supply chain management imply making a business more efficient

by improving the way inventory and logistics are handled. The challenges are to
be transformed into opportunities. It could be through:

1) Predictive Analytics and Machine-learning: Big data can predict outcomes

from various supply chain scenarios, make recommendations, and manage
supply risk. .

2) Corporate Cards to Streamline Supply Chain Payments: These

automated payments make supply chains more efficient by reducing
processing errors and eliminating invoicing. These are streamlined and more
secure. In current times these have more acceptance.

3) Strategies outside Current Boundaries: Many companies are introducing

innovations in the supply chain by focusing on what improvements they
can bring about in their current partnerships and arrangements. They need
to forge new arrangements within their supply chain to improve productivity
and meet their targeted benchmarks.
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4) Improve Operating Techniques: Most companies look for the latest high- Logistics and Supply Chain
Management- Inter
tech SCM tools to make their supply chain division more effective. One Relationship
way that many supply chain professionals have been able to improve
efficiency is through imbibing the Japanese philosophy of business
improvement known as Kaizen, a process philosophy that emphasises
teamwork, lean manufacturing, and allowing the employees provide inputs
in the process. There are five key elements of Kaizen—teamwork, personal
discipline, improved morale, quality circles and suggestions for
improvement.
Check Your Progress 2
Note: 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) List important areas of application of supply management tools.
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2) What are the challenges of supply chain management?

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3.7 CONCLUSION
SCM is an improvement over the traditional logistics management which helps
in the timely delivery of the products to customers. It also plays a crucial role in
increasing business profits, by reducing the overall costs, which improves its
competitiveness. The SCM system brings together all the key activities such as
purchasing, production, storage, transportation and distribution, under a single
system, in order to produce and distribute the merchandise in desired quality and
quantity, at right time and place, so that the overall cost is reduced and service
levels are improved.

Logistics and SCM are fast-growing business areas. The global companies have
heavily invested in SCM to gain competitive advantages. Computer technology
has advanced at such a phenomenal rate that it is currently far ahead of the ability
of the supply and logistics field to adequately utilise the new technologies. The
communication capabilities have fundamentally changed the way we think about
information sharing and dissemination. However, supply chain and logistics
planning are still primarily based on the distributed models that came as the
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Introduction to Logistics result of personal computers. There is great scope for new generation of supply
Management
chain and logistics planning technology based on centralised planning and
collaboration.

3.8 GLOSSARY
Business Process Reengineering (BPR): The fundamental rethinking and radical
redesign of business processes to achieve dramatic organisational improvements.

Kaizen: It is a Japanese business philosophy of continuous improvement of

working practices personal efficiency etc. The word kaizen means change for
better. It involves all employees from the chief executive to the assembly line
workers.

Quality Circles: It is a group of workers who do the same or similar work, meet
regularly to identify, analyse and solve work-related problems. It results in better
communication, personal growth and development, improved motivation,
enhanced decision-making skills, management awareness of employee job-related
concerns.

Reverse Logistics: It includes all operations related to the reuse of products and
materials.

Total Quality Management (TQM): A management approach in which

managers constantly communicate with organisational stakeholders to emphasis
the importance of continuous quality.

3.9 REFERENCES
Blecker, T. Kersten, W. & Ringle, C.M. (Eds.) (2014). Innovative Methods in
Logistics and Supply Chain Management, Current Issues and Emerging Practices.
Proceedings of the Hamburg International Conference of Logistics, Hamburg
University of Technology, Institute of Business Logistics and General
Management. 19(19).

Frazelle, E. (2001). Supply Chain Strategy. McGraw-Hill.

Lambert, D.M. (ed.) (2006). Supply Chain Management: Processes, Partnerships,

Performance. Sarosata, Florida: The Supply Chain Management Institute.

Lee, C. (2018).  Centralized vs. Decentralized Logistics: Which is Better?

Retrieved from https://www.warehouseanywhere.com/resources/centralized-vs-
decentralized-logistics/

Mentzer, J.T. (2004). Fundamentals of Supply Chain Management: Twelve

Drivers of Competitive Advantage. New Delhi, India: SAGE Publications.

3.10 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress 1
1) Your answer should include the following points:
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 Logistics and supply chain management are two into related concepts Logistics and Supply Chain
Management- Inter
that are not separable. They are intertwined and even though both have Relationship
their own functions, they should always be considered together. Supply
chain management revolves around logistics. Successful management
of supply chain increases the value of the organisation. Logistics
management involves many activities including transportation, inventory
and warehousing. It needs efficient management to make better the
logistics activities where planning, coordination and control occupy
critical role. Logistics management also includes functions such as
handling and packaging material, forecasting etc. The logistics system
plays a role in the success of the supply chain.
2) Your answer should include the following points:
Planning
Information
Source
Production
Delivery
Return of goods
Check Your Progress Exercise 2
1) Your answer should include the following points:
Shipping status
Order processing
Supplier management
Managing bids and spending
2) Your answer should include the following points:
Coordination of various activities in product manufacturing.
Data management including analysis for effective supply chain
functioning.
Procurement, focusing on identifying and purchasing the raw materials
needed for products.
Transportation with focus on getting products from the factory to the
consumer.

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