What are Logistics and the Supply Chain

One definition of logistics is "The Management of the total supply-chain". The institute of logistics and transport prefers "The time related positioning of resource". In this case the resource can be people, information, transport, manufacturing capacity, storage, or any other of the resources needed to make a supply chain work well. The expression “time related" is very important to the definition.

The secret of successful supply chains is coordination and integration People and resources have to be available at exactly the right time, and usually they should be available only at the right time. Spare resources of spare people being available when they are not needed will inevitably make for an expensive supply chain rather than an efferent one.

It can be said, therefore, that logistics is a process of designing, managing and improving supply chains so that they do everything that they are required to do at the lowest possible cost.

These supply chains can vary from the simplest movement of goods from a store room to a retail counter to the complex networks required inside multinational manufacturing companies. Since logistics is the process of organizing and integrating all the actions required to satisfy customers it is obviously a core skill required in every business, and many companies employ logistics specialists who spend much of their time improving logistics processes. However, every manager needs an understanding of logistics if he is to do his job competently. For example, a sales man who does not understand the process of getting the goods to the customers may well provide something which is very expensive to deliver when alternative arrangements would have been equally satisfactory.

The manufacturing manager who is not aware of warehouse problems and requirements can easily cause unnecessary expense and loss of efficiency by not working closely with the warehouse manager to improve the supply chain. A typical example of a supply chain is the production of coffee, from beans grown on bush in Africa, to an espresso served in, say, Brussels. In the days before supply chain management there would have been many intermediate stages in the production of that cup of coffee. The beans would have been grown, harvested and then stored. A trader would have bought them and put them in a warehouse ready for shipment. Once on board a ship they would have been taken to Europe and stored in another warehouse until bought by a wholesaler. Finally they would have been sold to a retailer, who stored them before roasting, grinding and selling to the consumer.

No one would have had an overview of that total supply chain and no one would have been aware of how much coffee was in stock at the various stages.

With the aid of information technology, modern food companies are able to manage the total supply chain.

They can foresee a good or bad crop and they have information on the amount of stock held at every stage, including that on board ships at any time. This reduces uncertainty and the need to stockpile coffee at each stage in the chain, and the operation becomes much more efficient.

Most medium sized and large companies have traditionally been run in a functional way with separate specialist departments carrying out different tasks. This was particularly helpful in managing large volumes of routine administrative work, and also in passing on all the detailed expertise that was required. Information technology has enabled a great deal of this administrative work to be done automatically, and also much of the detailed knowledge can now be programmed into software systems so that it does not have to be understood and remembered by every employee,. This has made it possible to organize companies in a different way a so called process organization rather than the old functional model.

Logistically organized companies focus on the process required to satisfy the customer. Individual functions such as sales, order reception, warehousing and distribution are still very important, but the main emphasis is on the total process of satisfying the customer. In order to do this, departments must work together to remove barriers to efficiency, optimize the supply chain and reduce costs, while delivering exactly what the customer needs,. This is integrated supply chain management. It needs logistics skills to o implement it effectively, but it has been shown to make companies more efficient and more competitive.

Those attempting to make supply chains more efficient can use a variety of approaches. Sometimes the whole supply chain will need to be redesigned and major changes made to all processes. This is sometimes called business process re-engineering  (BPR) and could involve totally different ways of doing things, for example buying certain items rather than manufacturing in house, the relocation of factories or ware houses and other major re-configurations of the supply chain. Another approach often in tandem with BPR is the detailed examination of the supply chain for inefficiencies and the removal of waste and unnecessary costs. One exponent of this approach, Professor Dan Jones, refers to waste by the Japanese name of Muda(uselessness) and advocates an environment in which the removal of Muda(uselessness) is an important and ongoing priority to improve the supply chain.

If logistics is seen as such an integral part of company behavior it may raise the question of how can it be "outsourced" to so called logistics companies? The answer is of course that there are many functions within the supply chain, which can be done either in house or by an outside contractor. Transport, ware housing, order reception, packaging and even the operation of information systems can all be outsourced. Logistics service companies will provide these tasks on a contract basis. In some circumstances, outsourcing allows companies to give a quality of service which they would find difficult or impossible to match in house. However the logistics strategy of the company is fundamental and should still remain a matter of prime concern to senior management.

Many companies are now logistically organized and customer oriented. For those that have yet to change, the most important factor will be leadership. Integrated supply chain management requires a "champion" at board level who can ensure that the good of the total company is always put before the interests of individual departments, Supply chains very often run through more than one company.

Few companies are big and diverse enough to cover the total supply chain of their products from raw materials to final customer. This is why 'supply chain partnerships' are much discussed. Such partnerships require trust, openness and cooperation between companies, and are difficult to achieve until they have organized themselves internally or process lines.

The 'supply chain logistics' approach to management is now accepted and used by many of the world's leading companies. As a result there is a very strong demand for well trained logisticians to design, mange and improve supply chains.

All managers are increasingly required to understand logistics so that they can operate in more effective partnerships to deliver integrated supply chains. As professor Martin Christopher of Cranfield University once said, 'competition in the future will be between supply chains rather than between companies' He has been proved right and the demand for logistics managers is evidence of this.