There is a difference between what we now call supply chain management and the traditional concept of logistics. Logistics typically refers to activities that occur within the boundaries of a single organization and supply chains refer to networks of companies that work together and coordinate their actions to deliver a product to market. Also traditional logistics focuses its attention primarily on activities such as procurement, distribution, maintenance and inventory management.
Supply chain management acknowledges all of traditional logistics and also includes activities such as marketing, new product development, finance, and customer service. In the wider view of supply chain thinking, these additional activities are now seen as part of the work needed to fulfill customer requests.
A Systems View of Supply Chain Management
Supply chain management views the supply chain and the organizations in it as a single entity. It brings a systems approach to understanding and managing the different activities needed to coordinate the flow of products and services to best serve the ultimate customer. This systems approach provides the framework in which to best respond to business requirements that otherwise would seem to be in conflict with each other.
The term “supply chain management” arose in the late 1980s and came into widespread use in the 1990s. Prior to that time, businesses used terms such as “logistics” and “operations management” instead. Here are some definitions of a supply chain:
- “A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.” – from Ganeshan and Harrison (Ganeshan, Ram, and Terry P. Harrison, 1995, “An Introduction to Supply Chain Management”, Department of Management Sciences and Information Systems, 303 Beam Business Building, Penn State University, University Park, PA).
- “A supply chain is the alignment of firms that bring products or services to market.” – from Lambert, Stock, and Ellram (Lambert, Douglas M., James R. Stock, and Lisa M. Ellram, 1998, Fundamentals of Logistics Management, Boston, MA: Irwin/McGraw-Hill, Chapter 14)
- “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves…” – from Chopra and Meindl (Chopra, Sunil, and Peter Meindl, 2015, Supply Chain, 6th Edition, Upper Saddle River, NJ: Prentice-Hall, Inc. Chapter 1).
Based on these definitions of a supply chain, we can create accurate yet simple models of any supply chain with just four types of entities:
- Products – things in demand (i.e. requested by customers) at various facilities
- Facilities – places where products are made, stored, sold or consumed
- Vehicles – mechanisms to move products between facilities to meet demand
- Routes – paths taken by vehicles to move products between facilities
There is also a fifth entity built into this model. That fifth entity is time. Facilities have attributes such as product demand and operating costs that are expressed as a rate over some period of time from minutes to days, weeks, or months. Vehicles have attributes such as speed and operating cost that are expressed as distance divided by time. And routes have travel times for the vehicles that travel them based on the length of the route and the speed of the vehicle.
Supply Chain Management is about Influencing Behavior
So, if a supply chain is a network composed of these types of entities, then we could define supply chain management as: The things we do to influence the behavior of a supply chain and get the results we want.
Influencing behavior and getting the results we want is all about understanding how the four entities (products, facilities, vehicles, routes) interact over time and and how those interactions combine to produce results. That’s were simulations are a big help. They let you visualize what is going on. They show you how to create the interactions that deliver the results you want.
SCM Globe simulations are composed of groups of products, facilities, vehicles, and routes. You define them, and drag and drop their entity icons to place them on a map of the world (Google Maps). Put real facilities and routes were they really are, and put new ones where you want them to be. Then click the “Simulation” button and see how these entities interact and the results they produce.
As you see more and understand how the entities interact, keep improving your supply chain design to improve its performance.