Supply chain management: more than integrated logistics.(Readings in Logistics)

Introduction

Logistics as a management discipline originated in the military and later branched into the commercial sector as business logistics. Now, the hottest topic in the commercial sector is supply chain management. With the Department of Defense (DoD) jumping on this latest revolution in management thought, questions arise as to what exactly is supply chain management.

This article examines the historical evolution of management thought to its newest frontier--supply chain management, reviews the emerging practices that define supply chain management in both commercial and military applications, and demonstrates that supply chain management is more than integrated logistics.

The Development of Formal Management Thought

The evolution of management thought began in a formal way with Frederick Taylor's Principles of Scientific Management published in 1911. Taylor focused on issues of worker productivity. In the ensuing decades, research in management practices was directed toward efficiencies in manufacturing and services (collectively referred to as operations). Beginning in the 1950s, work by Harry M. Markowitz and others spawned a thought revolution on capital markets and financial management. During the 1960s, new approaches in marketing emerged as the areas of consumer behavior and the analysis of distribution systems became the focus of much business-related research. During the decade of the 1970s, a trend which began in the 1960s--the migration of military logistics practices to the private sector--accelerated as corporations recognized the need to improve their distribution functions and American universities began to offer degree programs in logistics management.

New attitudes and approaches toward personnel management emerged in the 1980s as organizations recognized the importance of human resource considerations in productivity enhancement and in long-range strategic planning. The term human resource management was introduced. The 1980s also saw a major emphasis on quality management as US business faced increased competition from Japan.

The 1990s was a decade in which logistics management truly came of age in management thought and in private sector business practices. As the emphasis on quality matured and high quality became the standard, firms began to differentiate themselves in terms of their logistics performance. Specifically, the focus of research and practice in logistics was in terms of employing the new information technologies of the 1990s to develop capabilities and protocols for efficient and responsive material flows to meet the ever-increasing demands of customers.

The evolution of management as a discipline during the 20th century generated a body of literature and a set of practices which today define the science of management as effective, efficient planning and control of operations, finance, marketing, quality, human resources, and logistics (see Figure 1). (1)

By the year 2000, this collective maturing of management thought set the stage for a new frontier of emphasis, seeking increased customer service levels, market share, and profits by focusing on organizational interconnectivity in terms of a supply chain.

The Supply Chain Management Revolution

A supply chain is the sequentially-connected organizations and activities (from Mother Earth to the ultimate customer) involved in creating and making a product available. A supply chain can also be viewed as a value chain inasmuch as suppliers, manufacturers, transporters, and all other components of a supply chain add value. Conversely, if one looks in the reverse direction at the same activities, a supply chain can be viewed as a demand chain.

The term supply chain management was coined in 1982 by Keith Oliver, a management consultant at Booz Allen Hamilton. (2) Oliver used the term to develop a vision for tearing down functional silos that separated production, marketing, and distribution. The concept was enlarged by J. B. Houlihan in a 1985 article that expounded upon efficiencies and mutual benefits associated with information sharing and decision coordinating up and down a supply chain. (3)

In the late 1990s an entire culture focusing on the supply chain emerged. Universities introduced supply chain management majors or supply chain management concentrations in masters of business administration programs (Arizona State University, Syracuse University, and the University of Wisconsin, for example). Wal-Mart honed supply chain management concepts by building worldwide communication and relationship networks with suppliers to improve reliable material flows with lower inventories. Indeed, Wal-Mart is viewed by many as the premier practitioner of supply chain management with its demonstrated ability to get a network of worldwide suppliers, warehouses, and retail stores to behave almost "as a single firm with near real-time information...." (4,5)

By the year 2000, the trend for major organizations to establish high-level executive positions with supply chain titles was in full swing. (6) In 2005, the Council of Logistics Management changed its name to the Council of Supply Chain Management Professionals (CSCMP).

The pervasiveness of the supply chain management revolution is skillfully described by Thomas L. Friedman in his 2005 best-selling book The World is Flat. He considers supply chain management and its enabling information technology revolution as being behind fundamental changes in the world economy. (7)

Defining Supply Chain Management

The supply chain management concept seeks utopian performance in commerce: all activities up and down a supply chain orchestrated and coordinated (as though a single entity) to synchronize supply and demand at all levels, the sharing of information and technologies to increase innovation and to shorten product development cycles, reduction in order cycle time, replacing stocks with flows, effectively and efficiently responding to customer demands, reduced costs, and increased customer …