Page 7 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes Introduction

Supply Chain Management (SCM) maximizes profit by integrating three key flows across the
boundaries of the companies that form the supply chain: flow of value (product/materials),
information, and funds. Successful integration or coordination of these three flows produces
improved efficiency and effectiveness for business organizations. In theory, supply chains can
work as cohesive, singularly competitive units similar to a large, vertically integrated firm,
without significant financial investments by the members of the chain. The basic difference
between vertically integrated firms and a supply chain is that firms in a supply chain are
relatively free to enter and leave supply chain relationships if these relationships are no longer
proving beneficial.
This poses challenges; supply chains are often very dynamic or fluid, partners can change, each
partner will look out for its long term advantage, and this can also cause problems in effectively
managing supply chains. While supply chain management may allow organizations to realize
the advantages of vertical integration, certain conditions must be present for successful supply
chain management to occur. It also creates competition amongst supply chains and supply chain
partners, therefore, supply chains can operate more effectively than many vertically integrated
conglomerates.

1.1 Concepts of Supply Chains

Historically built on Procurement, Operations and Logistics foundations; Supply Chain
Management exceeds these traditional concepts. Supply Chain Management is involved with
integrating three key flows, between the different stages, across the boundaries of the companies:
 Flow of information,
 Product/materials, and
 Funds.
Members of the supply chain act as partners who are “linked” together through both physical
and information flows. It is this that makes an effective supply chain. The flows that involve the
transformation, movement, storage of goods and materials and money are called ‘physical
flows’. These flows are easily visible.
The physical flows are reinforced by information flows. Information flows are used by the
various supply chain partners to coordinate their long-term plans, as well as efficiently control
the day-to-day flow of goods and material to the supply chain. In essence, the supply chain
enables the flow of products, services, and information goes both up and down the chain.
Successful integration or coordination of these three flows produces improved efficiency and
effectiveness for business organizations.
‘Supply Chain Management’ can be defined as the active management of supply chain activities
to maximize customer value and achieve a sustainable competitive advantage. It represents a
conscious effort by the supply chain firms to develop and run supply chains in the most effective
and efficient ways possible. There can be various types of supply chains. There is a basic supply
chain, and an extended supply chain. The definition of a basic supply chain is: a set of three or
more companies directly linked by one or more of the upstream or downstream flows of
products, services, finances and information from a source to a customer.
An extended supply chain includes suppliers of the immediate supplier and customers of the
immediate customer, all linked by one or more of the upstream and downstream flows of
products, services, finances, and information.

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