Logistics vs. The Supply Chain - What Are We Fighting About?

Ken Ackerman, a noted logistics professional and writer, made several comments recently that raise provocative questions about the relationship between the growing popularity of supply chain concepts and logistics - namely, how are they different, and is it time for the former to replace the latter?

We contend that they are different enough to be recognized individually, and, yet, are so tightly interwoven that they should not be considered separately.

In the Beginning

That the thing we now call logistics exists at all is rooted in fundamental disconnects between sources of demand and sources of supply. There have historically been significant gaps - no, chasms - between market demands and supply capabilities.

"Demand"

• when a product is desired,
• where a product is wanted,
• how much or how many are needed,
• what mix of products is called for, and
• how the product(s) are packaged and handled in use.

"Supply,"

• when a product is made,
• where it is made (or sourced),
• how much or how many are made or acquired,
• what product mix is made or scheduled to be received, and
• how the product(s) are packaged and handled in process.
  

Bridging the Gaps

Here’s where modern logistics comes into the picture. We apply our best thinking and effort to making the gaps invisible to the next demand point in the supply chain. The entire purpose of warehouse/DC location, transportation network structures, scientific inventory management, customer service functions, and their supporting information systems is to get goods to customers when, where, and how they are needed. And, incidentally to find the right cost/service balance of inventory, storage, and transportation solutions while doing so.

Logistics is the key to being able to make daily shipments of products that are only made once every six weeks, of delivering products made in Norfolk, Nebraska to a customer in Norfolk, Virginia, of selling a six-pack that was manufactured a truck-load at a time, and of delivering the shirt along with the trousers.
So, logistics is a good thing. But, when the gaps are large, or at risk of getting larger, there is an increased dependence on flawless logistics performance, logistics costs tend to rise, and customer service levels generally decline. These are not good things.

What About the Supply Chain?

Understanding that logistics is the gap filler may make it easier to see that supply chain management and integration is the process of closing the gaps. To the skeptics who point out that the gaps will never be so closed as to be truly seamless, we point to the old children’s poser, in which it is technically impossible to reach one’s destination by moving half the remaining distance with each move. At some point the minute remaining distance is irrelevant in practical application, for example as in dancing the tango.

It may be that some have become disenchanted with presentations of supply chain concepts that in their most abstract and farthest-out visions seem to expect a universe filled with lot sizes of one, cycle times of zero, no inventories and warehouses, and free transportation. Of course we will never get there. But, if we can continue to halve the distance, so to speak, the remaining gap will get progressively easier to deal with.

What supply chain management and integration is really about is changing capabilities to allow closing the gaps. It deals with supplier relationships: reducing lead times, changing minimum order quantities, upstream value-adding processes, provisioning/replenishment strategies, consolidated sourcing, and capacity procurement, for example. It deals with manufacturing capability and reliability (driving off of restructured supplier processes and capabilities): creating the ability and flexibility to manufacture daily/weekly instead of monthly/quarterly, reducing the cost/time of set-ups, taking lead times from weeks/months to a day or a week, supporting consumption-based replenishment, and slashing order quantity requirement. It restructures tactics and processes in warehouses: shipping tiers/cases instead of pallets/truckloads, assembling store-ready mixed pallets, performing value-adding functions, and planning and executing conscious cross-docking. It plans and schedules all of the above in total, based on real capability and real demand. It understands demand profiles and signals in the customer base, and adjusts planning and execution accordingly.

Logistics capabilities can not, in our view, be separated from how we tune and operate the supply chain. All of the planning, and integration, and new-found capability is for naught without the capability and reliability of logistics operations. The demands for flawless logistics performance are even greater when the gaps are made smaller. While costs might go down, and customer service improve in the brave new world of Supply Chain Logistics, life is not going to suddenly become easy for transportation and warehousing management.

Supply Chain’s Dirty Little Secret

Most graphic presentations of supply chain concept look something like:

Supplier to Customer Supply Chain -

traditional view

It’s clean, it’s straightforward, it’s easy to understand. Never mind that within most every company there are really dozens of supply chains, and never mind that every supplier has a supply chain of his own, as usually do customers, as well. But it tells the basic story in illustrating the elements of the chain that need to be balanced and synchronized. But, how the world really works is a little different.

Supplier to Customer Supply Chain -

realistic view

Warehouse to Warehouse

As the illustration above indicates, a raw materials-to-consumer supply chain entails movement from and to at least five warehouses (six if the kitchen pantry is counted). Far from becoming obsolete, the warehouse and the warehouse manager are critical to synchronized, low-cost, effective integration at every transfer point in the supply chain. But, warehousing in the world of Supply Chain Logistics is not business as usual.

At minimum, the factors to be planned for and managed include:

• reduced inventories
• tighter supplier integration
• smaller, more frequent customer orders
• smaller pick/ship unit quantities
• more frequent, smaller receipts
• virtually 100% accuracy
• SKU proliferation/turnover
• faster customer order turnaround
• faster dock-to-stock movement
• more planned cross-docking
• more process variations for value-adding services
• facility compression/consolidation - doing more with less.

Each of the points above has several important implications, too lengthy to go into here, which might warrant discussion at another time.

Summing Up

In closing, our core messages are that supply chain management and logistics are part of the same solution set, one filling the gaps, and one closing them. It is possible to have passable logistics without supply chain management. It is not possible to have a great supply chain without also having terrific logistics. In either situation, the warehouse has its work cut out for it.

Bruce Strahan is a Partners in The Progress Group, Inc., an international supply chain and logistics consulting firm headquartered in Atlanta. He lead the Supply Chain and Manufacturing practice groups for TPG. Bruce did his graduate work at Georgia Tech, and was previously a Manager in Coopers & Lybrand’s SysteCon division. He may be reached at 770-804-9920 or bstrahan@theprogressgroup.com