Page 78 - DMGT525_MATERIALS_MANAGEMENT

Unit 6: Supply Chain Management

6.1 Evolution of Supply Chain Management Notes

The 1990s were a decade that brought in a quantum jump in many areas of management. One
major area of great change was in the fields of Materials Management, Procurement, Physical
Distribution Management and Business Logistics. These disciplines went through several
evolutionary stages.
Traditional Procurement, Physical Distribution Management and Materials Management in the
1970s, evolved into Logistics Management in the 1980s. Logistics Management consolidated the
traffic and transportation activities of the firm. Logistics then evolved into Supply Chain
Management in the 1990s. Supply Chain Management combined the activities of Materials
Management and Logistics.
This change began in the 1960s and 1970s. With growth of computer capabilities new systems to
handle material requirements were devised. The first of these was Material Requirement Planning
(MRP). This was followed by Manufacturing Resource Planning (MRP II). These systems brought
about recognition of the importance of the impact of high levels of inventories on manufacturing
and storage costs. As the sophistication of inventory tracking software grew, it became possible
to further reduce inventory costs.

Did u know? The concept of the supply chain had already been proposed by Forrester in
1958. However, the first widely recorded use of the term supply chain management came
about in a paper published by Keith and Webber in 1982.

Globalization and intensified competition, in the 1990s, finally made organizations realize the
potential benefits and importance of strategic and cooperative supplier-buyer-customer
relationships. The concept of these partnerships or alliances emerged as US manufacturers tried
to compete with the Japanese and experimented with Just-in-time (JIT) and Total Quality
Management (TQM).
This led manufacturers to purchase from a select number of certified, high-quality suppliers
with excellent service reputations. As this strategy became successful, they started giving only
their best suppliers most of their business, and in return, they expected these relationships to
help generate more sales through improvements in delivery, quality, and product design and to
generate cost savings through closer attention to the processes, materials, and components they
used in manufacturing their products. With quality suppliers, firms also found it beneficial to
involve them in their new product design and development activities as well as in cost, quality,
and service improvement initiatives.

The success in the materials function led companies to understand the necessity of integrating
all key business processes among the supply chain participants. This encompassed the
distribution network. As finished goods are the value added products of the supply chain, they
constituted a huge investment in inventory, often greater than that of raw materials and
components. This encouraged the thought of enabling the supply chain to act and react as one
entity, from suppliers to the retailers.
Companies saw the benefits in the creation of alliances or partnerships with their customers.
In time, when market share improved for its customers’ products, the result was more business
for the firm. Developing these long-term, close relationships with customers meant holding
less finished product safety stock (as discussed earlier about the Forrester effect) and allowed
firms to focus their resources on providing better products and services to these customers.
Today, logistics is viewed as one important element of the much broader supply chain
management concept.

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