Logistics Management In The Era Of Supply Chain . - JBMAE
Vol. III, Issue 3May 2014Scientific Papers (www.scientificpapers.org)Journal of Business Management and Applied EconomicsLogistics Management in the Era of Supply Chain Management– A Gap in Academic LiteratureAuthors:Tarvo Niine, Tallinn University of Technology, Estonia; Ott Koppel, Tallinn Universityof Technology, EstoniaThis paper aims to contribute to the decades-long debate about the relationships between logistics andsupply chain management. Although the terminology has developed over time to achieve much higher levelof clarity, the authors of this paper would argue that some of this evolution has also introduced newproblems in reaching a unified understanding of the concepts in academia.When supply chain management (SCM) was first introduced, it proved to be a successful conceptin a short time and was picked up by numerous authors from the fields of logistics, management andbusiness administration. When it became apparent that SCM is here to stay, a number of authorsdescribed it as a new form of logistics, some as a subset of the latter, some as a much wider concept andsome couldn’t decide at all. Over the timespan of 30 years, the academic community has reached a welldeveloped and refined understanding of SCM as a research field, whereas logistics management as adistinct concept has, it could be argued, grown slightly out of fashion.This paper studies the question if separate treatment of logistics management is needed and howis the possible distinction formulated by various authors. Alternatively, is logistics seen fitting mostly wellenough inside SCM? The specific focus of this paper is to observe and analyse the viewpoint of modernliterature in the field of logistics and SCM. The paper presents a literature review of historical developmentand modern understanding of the concepts. In the empirical part, authors present a detailed analysisacross 35 modern textbooks to evaluate the presence of various schools of thought in the debate using thetypology first suggested by Larson and Halldorsson (2004).Our findings point out that even though SCM is commonly understood as a maturing and broadercross-functionally over-arching concept in recent academic treatments, the specific role of logisticsmanagement in relation to it is much less clear as authors have rather varying viewpoints. Authors of someSCM textbooks don’t emphasize or even define logistics, suggesting that the concept of logistics might bein the risk of fading, should such trend continue. It appears many authors that have previously written onlogistics are now writing about supply chain management. Considering typical book of both types, thisentails the switch from more specific treatment to much broader but also more generalised treatment oftopics, thinning the segment of textbooks that would be more oriented towards specific tactical level toolsand skills instead of strategic management issues.In practice, both logistics managers and supply chain managers are in demand, and only a part oftheir competence profile is shared (this is called “intersectionism”). For that purpose, furtherdistinguishing between supply chain management and logistics management is required. In authors’interpretation, if logistics management is to thrive as a concept, it needs to more clearly differentiate itselffrom SCM and embrace intersectionist view. More specifically defined and agreed logistics management isneeded as a concept, competence field and university curriculum, existing side-by-side with supply chainmanagement, to overcome general vagueness on the nature of logistics that can be observed by viewingboth SCM textbooks as well as various SCM and logistics programmes across universities in the world.Keywords: logistics management, supply chain management, logistics competencies, evolution oflogistics, unionism, intersectionism.1
Logistics Management in the Era of Supply Chain Management – A Gap in Academic LiteratureVol. III, Issue 3May 2014IntroductionThe concepts of logistics management (LM)and supply chain management (SCM) certainlyhave a lot in common: people working on andresearching the fields, institutions and evenmany books. However, depending on theviewpoint of management level involved,functional or cross-functional approach,organisational or business network angle therecan be differences – some of them perhapsmore to do with academic semantics, some ofthem substantial practical differences.One viewpoint is that there is enoughroom for jobs, logistics manager and supplychain manager, even though the jobdescriptions and competence requirements metin practice are greatly varying from firm to firm,sometimes overlapping or even completelymatching. Some logistics managers work nextdoor to supply chain managers of the samecompany. While inside a company it is verymuch up to top management to define thestructure, positions, responsibilities andworkflow, the question of terms is morepressing for professional training and universityprograms. In such mess, one input to define theterms should come from academia, whichwould need to consider all practical needs. Themain input and output factors in question arepresentedonfigure1.Figure 1: Main aspects involved in the process of developing common terminology in authors’viewAlternative view could be that LM andSCM are essentially the same so that there is noneed for distinction for most purposes (otherthan perhaps marketing reasons). While this iscertainly in coherence with many practicalobservations of the last decades, such asrenaming of textbooks, curricula, institutions,job titles etc., it does impose a set of problems.First and foremost it could be that SCM in itsentirety of over-arching competencies is toobroad to form a good basis for teaching theconcept in professional training. This couldresult in SCM programmes varying substantiallyin content from university to university(according to authors’ observations this is thesituation in many cases today) and could createconfusion if such programmes are suitable forall kinds of labour market needs concerningmanagement of logistics processes. (Niine,Koppel, 2011)One possible scenario arising from thismismatch is where the market demands callsfor various specialists with narrower skill-setsalong the general SCM approach, but theuniversities offer only SCM assuming that allin-one approach is possible, even if no-one isable to truly meet that promise. Of course thequestion would remain, whether LM would be asuitable package for a more specific approach totraining, perhaps one with more focus onoperational and tactical rather than strategicmanagement level, or should these emerging2
Logistics Management in the Era of Supply Chain Management – A Gap in Academic Literatureniches just be filled with programs on a totallyanother level of narrowed-down detail, such as“warehouse management”, “maritime shippingeconomics” etc. It could also be that if SCMmanages to cover the entirety of generaltraining and niches are covered by morespecific concepts, logistics as an in-betweenconcept is indeed no longer required.Still, there are a great number of“logistics management” programs in existencetoday, even though randomly picked pairs ofthem might lack strong common core.However, shouldn’t it be more agreed upon andstandardized? This brings us back to our mainquestion: if separate treatment of LM is neededor is it all fitting mostly well enough into SCM(and is therefore not needed as a separateconcept from career development andcurriculum point of view).The general aims of this paper are 1) tocontribute to terminology development toreduce misunderstandings between teachers,students and their future employers, 2) to helpidentify, which relationship between LM andSCM is currently dominating and 3) to suggestideas for paradigm development, should it turnout that “Laissez-faire” approach is notefficiently leading academia towards meetingthe challenges of the 21st century businessenvironment.This paper observes the situation frombroad academic point of view and then, morespecifically, turns focus towards recenttextbooks discussing LM and SCM. Theresearch problem is to find out the level ofcoherence of how logistics and SCM are definedand interrelated according to textbook authors.The main goal of such research is to understandthe current state of logistics management as aconcept, which could, on one extreme, provethat the concept is rather sustainable andclearly differentiated from SCM, or, on theother extreme, that the concept is fading in thebackground of SCM. Another goal would be totest the scope and strength of LM against SCM– it could also be, though the instincts mightsuggest otherwise, that logistics is a strongerconcept and it is SCM that has to evolve anddifferentiate to survive instead. As amethodological tool, the typology firstVol. III, Issue 3May 2014suggested by Larson and Halldorsson in 2004,which could be called Larson-Halldorssonmatrix, is used in this paper to map therelationship between the two concepts.Literature review – the essence oflogisticsandsupplychainmanagementEarly approachesThe history of logistics as a business concepthas evolved substantially throughout the last100 years of being used in business vocabulary.A good starting point emphasizing therelevance of the topic comes from Arch Shawfrom Harvard Business School (1915): “Therelations between the activities of demandcreation and physical supply . illustrate theexistence of two principles of interdependenceand balance. Failure to co-ordinate any of theseactivities with its group fellows and also withthose in the other group, or undue emphasis oroutlay put upon any of these activities, iscertain to upset the equilibrium of forces whichmeans efficient distribution.” It is interesting tonote that even though Shaw neither used thewords logistics nor supply chain, the idea itselfis often quoted even today in varioustreatments – so there is undoubtedly a lot ofcommon ground in the concepts.Alongside such general framework ofthought existed the understanding of logistics,or, as it was still mostly called up until 1950sand 1960s, physical distribution, as anoperational area without much strategicimportance. For example, Drucker (1962) isoften quoted in pointing out that distributionwas commonly perceived as “low-gradenuisance” more than anything else and theentire field had great unutilized potential,which he called economy’s dark continent andnoted to be “one of the sadly neglected, mostpromising areas of American Business”.Managing distribution was seen in that eramore as a necessary evil than a source ofbusiness success. In the words of Ballou,“logistics was not considered the function ofstrategy makers” (Ballou, 1978). However, thatwas about to change.3
Logistics Management in the Era of Supply Chain Management – A Gap in Academic LiteratureSnyder has suggested four elementsthat contributed the most to the developmentof logistics in the 1950s: 1) changes in customerdemand patterns towards more dispersednature and higher variety, 2) economicpressures as logistics costs were increasing inshare and threatening profits, 3) technologicalchange relating to electronic data processingand using computer as a business tool, whichput emphasis on systematic business processdesign and allowed purchasing, production,inventory and sales to be better linked, 4)military experience with managing huge levelsof inventory, which served as a best practiceand extensive information base. (Snyder, 1963).In the 1960s and 1970s, numeroustrends and the changes in the general economicclimate contributed to the rise of importance oflogistics both in practice and in theory. On onehand, the oil crisis and the rise of interest ratescontributed to companies dedicating morefocus on all forms of cost control and increasingefficiency. (Soni, Kodali, 2008). Suddenly,distribution costs had become much moreimportant. Secondly, the competition on manymarkets had grown considerably, inducing theneed for larger product varieties and moreextensive distribution networks (Bowersox et al,1968). However, when industries started toreach the point of supply exceeding thedemand, the risks of dead stock came moreapparent. This started the long trend to altersupply chains towards greater responsivenessand shorter lead times. In other words, the roleof logistics was starting to be seen as a sourcefor competitive advantage, or indeed varioustypes of competitive advantages.Vol. III, Issue 3May s, emphasis on lower inventoryetc. being some of the leading keywords. (New,Westbrook, 2004, Mangan et al, 2008)This had an effect both on theperformance expectations and priorities oflogistics in companies as well as how logisticswas treated academically. As Rushton et al(2010) have put it: “Logistics is a function madeup of many sub-functions and many subsystems, each of which has been, and may stillbe, treated as a distinct management operation.Both the academic and the business world nowaccept that there is a need to adopt a moreholistic view of these different operations inorder to take into account how they interrelateand interact with one another.” While it isnothing new in today’s context, such statementwould have probably sounded much moreinnovative 40 years ago, similarly to this one byHesket et al (1973): “Logistics is themanagement of all activities which facilitatemovement and the coordination of supply anddemand in the creation of time and placeutility.”Along rapid changes in logisticsenvironment, the term “supply chainmanagement” (SCM) emerged. The first authorsto use the term SCM, Oliver and Webber (1982),noted: “Supply chain management covers theflow of goods from supplier throughmanufacturing and distribution chains to enduser. . 1) SCM views the supply chain as asingle entity; 2) It demands strategic decisionmaking and system integration 3) It viewsbalancing inventories as the last resort” Sincethen, there has been some dispute over whatSCM is and what it is not, while in someapproaches SCM is viewed as a functional areaand in others as broader management concept.In recent years, however, SCM is mostly treatedclearly as foremost a strategic concept. AsMelnyk et al (2009) put it: “over time, thetheory and practice of SCM has experienced atransition from a tactical to a strategic focus.SCM involves more than simply making a‘better’ buy; it affects the ability of the firm tomake and maintain a sustainable competitiveadvantage.”Concept evolution since the 1980sFollowing into the 1980s, the environment forlogistics continued to be dynamic and pushedthe understanding of logistics forward onvarious fronts with increasing internationalcompetition, emergence of Japanese economyand their management principles, trendtowards higher specialization and outsourcing,technologies such as EDI and MRP-II, newconcepts such as quality management, greatermeans of information sharing, changes in4
Logistics Management in the Era of Supply Chain Management – A Gap in Academic LiteratureOne approach, which in hindsightmight have contributed to constraining theevolution of logistics from functional to holisticcross-functional competitive advantage level,was introduced in 1984 by Porter – the ideas ofvalue chain and value system. According toPorter (1991): “Discrete activities are part of aninterdependent system in which the cost oreffectiveness of one activity can be affected bythe way others are performed. I term theselinkages. The cost of after-sale service, forexample, is influenced how product design,inspection and installation are performed. Suchlinkages can extend outside the firm toencompass the activities of suppliers, channelsand buyers.” Such understanding has over timebecome the core of modern SCM. In Porter’sview, logistics is a functional area contributingto the value system, rather than the systemitself.The debate over boundaries ofterminology is normal for any young conceptand probably never stops to be fuelled bycontinuous changes in practical environment.The long-term growth in importance of SCMcan be, similarly to logistics growth earlier andalso in parallel, attributed to a variety of factorssuch as globalization, liberalization ofinternational trade, outsourcing and increasingcompetitive pressure in industries to offerhigher quality with not only better price, butwith superior speed, flexibility and value-addedservices. It is essential to realize that regardlessof specifics of a given product and it’spositioningonthemarket,alltheaforementioned competitive advantages can beinfluenced not only by logistics performancebut more generally the performance of supplychains. In that sense, while there is much insupply chains, that can be either directly orindirectly linked to logistics, such formulationalso leaves room for issues not related tologistics in managing a supply chainstrategically.Perhaps one of the most importantkeywords in SCM development, in parallel toevolution of logistics, has been integration.Ellram and Cooper (1990) defined SCM as “anintegrative philosophy to manage the total flowof distribution channel from supplier toVol. III, Issue 3May 2014ultimate user”. Another example of a crossfunctional definition is offered by Ayers andOdegaard (2008): “SCM is design, maintenanceand operation of supply chain processes,including those for base and extended products,for satisfaction of end-user needs.” In anotherwording by Lyons et al (2012): „Theconsequence is that supply chains areincreasingly looked upon from an holistic,multi-business, yet integrated perspective and itis from such vantage point that makes feasiblethe development of a supply chain strategy thatcan be meaningful and coherent across a seriesof both loose and tight network alliances.“The idea of integration and holisticview in the supply chains can be dated back tothe ideas of systems theory from the 1950s. Thekey point can be summarized as theobservation that the behavior of a complexsystem cannot be understood completely by thesegregated analysis of its constituent parts(Quayle, 2006). It is notable that in recentdecades, while modern technology hasfacilitated ways to achieve much betterintegration via data sharing and quickinformation transfer, it has lowered thepressure on technology and instead pointed outthat willingness to cooperate within the supplychain, understanding the available gains from itand reaching common ground in negotiations isthe real bottleneck towards higher integrationlevels.The need for developing integrationhas, similarly to logistics, also been widelyaccepted by authors in the field of operationsmanagement, which, not surprisingly have alsostarted to turn more attention towards supplychain topics. In a recent edition of “OperationsManagement – Creating Value along the SupplyChain”, Russell and Taylor (2011) emphasize:“Supply chains require close communication,cooperation and collaboration among membersto be effective. Suppliers and their customersmust share information. It is the rapid flow ofinformation that characterizes today’s supplychain management. Suppliers and customersmust have the same goals. They need to be ableto trust each other. Suppliers and customersmust participate together in a design of asupply chain to achieve their shared goals.”5
Logistics Management in the Era of Supply Chain Management – A Gap in Academic LiteratureSupply chain collaboration has been describedas a process that promotes inter-organisationalcooperation, openness, the creation of intercompany decision-making routines, knowledgesharing and customer-supplier intimacy(Mentzer et al, 2000).Vol. III, Issue 3May 2014This requires increasingly more effort andcooperation in the supply chains. Paradoxically,the more dynamic a market is, the moreprobable it is that supply chains are less stablein terms of participants, making it increasinglymore difficult to develop competitiveadvantages that require long-term commitmentto coordination and collaboration betweenpartners. In short, the challenges of SCM arenever-ending. In comparison, integration insidean enterprise, which it could be said forms thescope of logistics management, is relativelymore easily achievable.To add support to such distinction, arecently emerged and evolving concept in thefield is supply chain alignment. Gattorna (1998)has noted: “alignment with both external andinternal partners in a supply chain should be apriority topic in defining any supply chainstrategy.” Alignment could be viewed as a morefeasible goal in SCM compared to integration.Aligning with supply chain partners is both astrategic and managerial task: strategic, becauseit brings in long-term decisions about howoperations will be structured and managerialbecause it encompasses decisions within anoverall „game plan“ (Harrison et al 2008). Tobetter understand the nature of alignment, the„management” part of the phrase SCM shouldbe interpreted in a widest possible context, inour wording as an act of assembling people toaccomplish goals using available resourcesefficiently and effectively. In our context itmeans that supply chains can be managed viainitiating cooperation even though no singleentity usually fully controls the entire supplychain. Indeed often no single person even has athorough overview about every aspect of thesupply chain of their product.Shouldn’t alignment with suppliersbelong to logistics manager’s scope ofresponsibilities? Probably not according toauthors such as Rushton et al (2010) with a view“supply chain suppliers logistics customers”. It seems that in contrast to preSCM era, when logistics was about to evolveinto such holistic concept, numerous authorsnowadays treat LM as subset of SCM. Forexample Wisner et al (2012) have expressed thatSCM should be viewed balanced upon threeIntegrated logistics vs integrated supplychainsIt can be said there is a difference betweenintegrated logistics and integrated supplychains. Soni and Kodali (2008) haveemphasized it as SCM “introducing the idea ofexternal integration in addition to internalintegration”. Inside a firm, integration meansthat everything is working systematically andproblems are holistically dealt with propermanagerial actions. This applies to SCM onlypartially, as most supply chains are not fullyvertically integrated. Due to different ting power and priorities of variouschain participants, who is to determine theideal characteristics of a supply chain inquestion? However, potential benefits fromintegration should not be discarded: „Thebiggest challenge facing companies today is notthe internet, or globalization but integration ofsupplychainsfromvendorsthroughmanufacturers and distributors to satisfy endcustomers and obtain value. The goal of SCintegration is to synchronize the requirementsof customers with the flow of materials in orderto achieve a balance between high customerservice, low inventory investment and low unitcosts. (Sadler, 2011)It is logically less complex to manageany single company compared to attempting tomanage the optimal output and cost balanceover the entire supply chain. Furthermore, themore dynamic the market, the higherperformance is expected from a supply chain ondelivery speed and flexibility front – which itselfis continuously questioning the status quo inmany industries on a daily basis and makesSCM a truly strategic topic. As Janvier-Jameshas put it, market uncertainty necessitatessupply chains to be easily flexible to changes inthe situation of trade” (Janvier-James, 2012).6
Logistics Management in the Era of Supply Chain Management – A Gap in Academic Literaturepillars: purchasing, operations and logistics. Inthis view, logistics is a key part of SCM, as is anyother function that contributes to perceivedvalue and/or cost to the product, whereaspurchasing, including issues of supplierselection and relationships, cover the interorganizational aspects not covered by logistics.Vol. III, Issue 3May 2014In some interpretations, SCM and logistics aremore roughly split into, respectively, externaland internal domains. According to Christopher(2011): “SCM is the management of upstreamand downstream relationships with suppliersand customers in order to deliver superiorcustomer value at less cost to the supply chainas a whole.” In such context, internal logisticswould not even properly fit the scope of SCM.Probably the most widely knowndefinitions for SCM and LM are provided byCouncil of Supply Chain ManagementProfessionals (CSCMP, 2013) as follows: Logistics management is that part ofSCM that plans, implements, andcontrols the efficient, effective forwardand reverse flow and storage of goods,services, and related informationbetween the point of origin and thepoint of consumption in order to meetcustomers' requirements. Logisticsmanagement activities typically includeinbound and outbound ng, materials handling, orderfulfilment, logistics network ndmanagement of third party logisticsservices providers. SCM encompasses the planning andmanagement of all activities involved insourcing and procurement, conversion,and all logistics management activities.Importantly,italsoincludescoordination and collaboration withchannel partners, which can besuppliers, intermediaries, third-partyservice providers, and customers. Itincludesallofthelogisticsmanagement activities noted above, aswell as manufacturing operations, andit drives coordination of processes andactivities with and across marketing,sales, product design, and finance andinformation technology.Asubstantialcontributiontounderstanding the components of SCM wassuggested by Lambert et al, (1997), according towhich supply chains encompass eight generalLogistics management vs supply chainmanagementThere might be more aspects in which SCM isbroader or different compared to LM.Desphande has recently suggested that currentmethodologies for analyzing supply chains arenot sufficiently comprehensive, particularlywhen it comes to understanding thecomplexities in SCM and organizationperformance. Based on extensive literaturereview, Desphande has identified three crucialSCM dimensions: long-term chasing (Desphande, 2012). Long-termrelationships give businesses a multitude ofbenefits: higher level of trust advances inknowledge and ease of information sharing.(Griffith et al, 2006)Strategic purchasing means thatsupplier selection decisions are not only basedon best product offering with optimal balancein the quality-speed-cost triangle, but morestrategic aspects are considered, such as longterm financial status, strategic positioning andwillingness to collaborate and coordinateactions. According to Chen and Paulraj (2004),the construct of strategic purchasing requiressupplier selection to be aligned with firm’sstrategic orientation, with a long-termrelationship focus and asks if supplier hasadequate understanding of firm’s strategic goalsand vice versa. Finally, concurrent engineeringis focused on involving supply chain partners inproduct design phases. The goal of it is to bettermanagecross-functionalandinterorganizational trade-offs and include a supplychain plan already in a preliminary businessplan. From customer feedback perspective, ithelps to obtain information from the earliestpossible stage (Desphande, 2012).7
Logistics Management in the Era of Supply Chain Management – A Gap in Academic Literaturemanagement processes that are applicable forevery firm in a supply chain: customerrelationship management, supplier relationshipmanagement, customer service cturing flow management, productdevelopment and commercialization andreturns management. In this view, the eightsub-processes are cross-functional and crossfirm by nature, forming a foundationalframework of process integration. According toLambert, a clear distinction was neededbetween SCM and logistics to emphasize thateven the strategic meaning of logistics is only apart of SCM (ibid.)In functional sense, Rushton et al(2010) have suggested a simple model of fivecomponents as composition of logistics:transport, inventory, warehousing, packagingand information. The authors have alsospecifically emphasized four areas in whichSCM is different from of logistics:1. The supply chain is viewed as a singleentity rather than a series g,distribution, etc. This is also howlogistics is viewed in most forwardlooking companies. The real change isthat both the suppliers and the endusers are included in the planningprocess, thus going outside theboundaries of a single organization inan attempt to plan for the supply chainas a whole.2. SCM is very much a strategic planningprocess, with a particular emphasis onstrategic decision making rather thanon the operational systems.3. SCM provides for a very differentapproach to dealing with inventory.Traditionally, inventory has been usedas a safety valve between the separatecomponents within the pipeline – thusleading to large and expensive stocks ofproducts. Supply chain managementaims to alter this perspective so thatinventory is used as a last resort tobalance the integrated flow of productthrough the pipeline.4.Vol. III, Issue 3May 2014Central to the success of effective SCMis the use of integrated informationsystems that are a part of the wholesupply chain rather than merely actingin isolation for each of the separatecomponents. These enable visibility ofproduct demand and stock levelsthrough the full length of the pipeline.This has only become a possibility withthe recent advances in informationsystems technology. (ibid.)Regardless differences in scope, thegoal of logistics management and of SCM areusually stated very similarly. According to aclassic approach: “L
Logistics Management in the Era of Supply Chain Management – A Gap in Academic Literature 2 Vol. III, Issue 3 May 2014 Introduction . The concepts of logistics management (LM) and supply chain management (SCM) certainly have a lot in common: people working on and researching the fields, in
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