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Logistics and Supply Chain Management

Notes Consider the supply chain shown in Figure 1.5. The component supplier after making the
component sends the material to the material warehouse. From the material warehouse, the
material goes to the manufacturer. After completion of manufacturing operations, the material
goes to the finished goods warehouse, where it is transferred to the customer warehouse on
receipt of an order. From the customer warehouse, the product moves to the retail outlet, from
where it is purchased by the customer.
This is basically what the philosophy of the supply chain management recognizes. Without the
retail store, the supplier does not make any profit and without the supplier, the retail store has
no business. In either case, the customer gets no value. But what does this mean in terms of the
supply chain?
Firstly, every product that reaches an end user represents the cumulative effort of multiple
organizations. And secondly, organizations have to pay attention to what is happening outside
their “four walls” and manage the entire chain of activities that ultimately delivers products to
the final customer in order to maximize profits. This means that the supply chain philosophy
extends the concept of partnerships into a set of beliefs that each firm in the supply chain directly
and indirectly affects the performance of all the other supply chain members. It also affects the
ultimate, overall channel performance.
This philosophy recognizes that the purpose of supply chain management is to improve customer
value and satisfaction. It directs supply chain members to focus on developing innovative
solutions to create unique, individualized sources of customer value.

Did u know? The ultimate objective of Supply Chain Management (SCM) translates into a
philosophy which has the following characteristics:
 Systems approach to viewing the channel as a whole, and to managing the total flow
of goods inventory from the supplier to the ultimate customer,

 Strategic orientation towards cooperative efforts to synchronize and converge intra-
firm and inter-firm operational and strategic capabilities into a unified whole, and

 Customer focus to create unique and individualized sources of customer value,
leading to customer satisfaction.
SCM philosophy drives supply chain members to have a customer orientation. To do this
successfully, you need to synchronize the intra-firm and inter-firm operational and strategic
capabilities into a unified, compelling marketplace force. Therefore, the SCM philosophy suggests
the boundaries of SCM include not only logistics, but also all other functions within a firm and
within a supply chain to create customer value and satisfaction.
This follows directly from Forrester’s early concepts. Forrester recognized the integrated nature
of organizational relationships and argued that these influence the performance of different
functions. He said, “Managements need to understand better the inter-relationships between
separate company functions and between the company and its markets and its industry”. The
‘Forrester Effect’ illustrates the phenomenon that he described. It shows the influence of order
information flow on production and distribution performance for each supply chain member,
as well as the entire supply chain system.

In adopting a supply chain management philosophy, firms must establish management practices
that permit them to act or behave consistently with this philosophy. There are a number of
activities that are necessary to implement an SCM philosophy successfully. In adopting a supply
chain management philosophy, firms must establish management practices that permit them to
act or behave consistently with the philosophy. Previous research has suggested various activities
necessary to implement an SCM philosophy successfully.

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