Logistics and Supply Chain Management
Chapter 1. Logistics, the Supply Chain and Competitive Strategy
Logistics: the process of strategically managing the procurement, movement and storage of materials,
parts and finished inventory (and the related information flows) through the organisation and its
marketing channels in such a way that current and future profitability are maximised through the cost-
effective fulfilment of orders.
1.1. Supply Chain Management is a Wider Concept than Logistics
Supply chain management: the management of upstream and downstream relationships with suppliers
and customers in order to deliver superior customer value at less cost to the supply chain as a whole.
Supply chain network: a network of connected and interdependent organisations mutually and co-
operatively working together to control, manage and improve the flow of materials and information from
suppliers to end-users.
1.2. Competitive Advantage
Effective logistics and supply chain management can provide a major source of competitive advantage – a
position of enduring superiority over competitors in terms of customer preference.
A simple model for success in the marketplace is based around the triangular linkage of the company, its
customers and its competitors – the ‘Three Cs’.
The source of competitive advantage is found in 1) the ability of the organisation to differentiate itself
positively from its competition and 2) by operating at a lower cost and hence at greater profit.
1. Value advantage: a product is purchased not for itself but for the promise of what it will deliver.
The most powerful means of adding value are differentiation – market segmentation – and
service. Service relates to the process of developing relationships with customers through the
provision of an augmented offer
2. Cost advantage: important are economies of scale, which enable fixed costs to be spread over a
greater volume, and the ‘experience curve’ – all costs decline at a given rate as volume increases.
The higher your market share relative to your competitors the lower your costs should be
,Successful companies will often seek to achieve a position based upon both a cost and a value advantage.
Logistics and supply chain management has the potential to assist the organisation in the achievement of
both a cost advantage and a value advantage.
1.3. The Supply Chain Becomes the Value Chain
Value chain: competitive advantage stems from the many discrete activities a firm performs in designing,
producing, marketing, delivering, and supporting its product. Each of these activities can contribute to a
firm’s relative cost position and create a basis for differentiation.
If an organization does not have a real competitive advantage in an activity, they should consider
outsourcing. The effect of outsourcing is to extend the value chain beyond the boundaries of the business
– the supply chain becomes the value chain.
1.4. The Mission of Logistics Management
Logistics management, from a total systems viewpoint, is the means whereby the needs of customers are
satisfied through the co-ordination of the materials and information flows that extend from the
marketplace, through the firm and its operation and beyond that to suppliers.
,1.5. The Supply Chain and Competitive Performance
Supply chain: the network of organisations that are involved, through upstream and downstream
linkages, in the different processes and activities that produce value in the form of products and services
in the hands of the ultimate consumer.
Vertical integration: ownership of upstream suppliers and downstream customers.
Logistics management is primarily concerned with optimising flows within the organisation, whilst supply
chain management recognises that internal integration by itself is not sufficient.
- Stage 1 – complete functional independence
- Stage 2 – companies have recognized the need for at least a limited degree of integration
between adjacent functions
- Stage 3 – requires the establishment and implementation of an ‘end-to-end’ planning framework
- Stage 4 – true supply chain integration
1.6. The Changing Competitive Environment
The most pressing current issues in the area of logistics and supply chain management are:
- The new rules of competition
o Companies increasingly compete through their capabilities and competencies. This
means that organisations create superior value by managing their core processes better
than competitors
o There has been a trend towards ‘commoditisation’. A commodity market is characterised
by perceived product equality in the eyes of customers consumers are less loyal to
specific brands
o The new competitive model is increasingly supplementing product innovation by process
innovation. Shorter product life cycles demand shorter lead-times
, Lead time: the time taken from the drawing board, through procurement,
manufacture and assembly to the end market
- Turbulence and volatility
o Higher levels of turbulence and volatility bring greater uncertainty, which presents a
challenge to the classic business model which is heavily reliant on forecasts. For logistics
and supply chain management it necessitates an urgent need to transform the business
from a forecast-driven model to one that is demand-driven
- Globalisation of industry
o For global companies, the management of the logistics process has become an issue of
central concern. Globalisation tends to lengthen supply chains as companies move
production offshore or source from more distant locations
- Downward pressure on price
o There are new global competitors who have entered the marketplace supported by low-
cost manufacturing bases and the removal of barriers to trade and the deregulation of
many markets has accelerated this trend
o In order to maintain profitability, companies must find a way to bring down costs to
match the fall in price. The biggest opportunities for cost improvement will be found in
the wider supply chain
- The customers take control
o The order-winning criteria are more likely to be service-based than product-based
Competitive advantage = product excellence x process excellence
Principles to guide the supply chain manager:
1. Responsiveness: the ability to respond to customers’ requirements in ever-shorter time-frames
has become critical
o Agility: the ability to move quickly and to meet customer demand sooner
2. Reliability: unreliable processes create uncertainty and variability
3. Resilience: the ability of the supply chain to cope with unexpected disturbances
4. Relationships: the buyer/supplier relationships should be based upon partnership
Chapter 1. Logistics, the Supply Chain and Competitive Strategy
Logistics: the process of strategically managing the procurement, movement and storage of materials,
parts and finished inventory (and the related information flows) through the organisation and its
marketing channels in such a way that current and future profitability are maximised through the cost-
effective fulfilment of orders.
1.1. Supply Chain Management is a Wider Concept than Logistics
Supply chain management: the management of upstream and downstream relationships with suppliers
and customers in order to deliver superior customer value at less cost to the supply chain as a whole.
Supply chain network: a network of connected and interdependent organisations mutually and co-
operatively working together to control, manage and improve the flow of materials and information from
suppliers to end-users.
1.2. Competitive Advantage
Effective logistics and supply chain management can provide a major source of competitive advantage – a
position of enduring superiority over competitors in terms of customer preference.
A simple model for success in the marketplace is based around the triangular linkage of the company, its
customers and its competitors – the ‘Three Cs’.
The source of competitive advantage is found in 1) the ability of the organisation to differentiate itself
positively from its competition and 2) by operating at a lower cost and hence at greater profit.
1. Value advantage: a product is purchased not for itself but for the promise of what it will deliver.
The most powerful means of adding value are differentiation – market segmentation – and
service. Service relates to the process of developing relationships with customers through the
provision of an augmented offer
2. Cost advantage: important are economies of scale, which enable fixed costs to be spread over a
greater volume, and the ‘experience curve’ – all costs decline at a given rate as volume increases.
The higher your market share relative to your competitors the lower your costs should be
,Successful companies will often seek to achieve a position based upon both a cost and a value advantage.
Logistics and supply chain management has the potential to assist the organisation in the achievement of
both a cost advantage and a value advantage.
1.3. The Supply Chain Becomes the Value Chain
Value chain: competitive advantage stems from the many discrete activities a firm performs in designing,
producing, marketing, delivering, and supporting its product. Each of these activities can contribute to a
firm’s relative cost position and create a basis for differentiation.
If an organization does not have a real competitive advantage in an activity, they should consider
outsourcing. The effect of outsourcing is to extend the value chain beyond the boundaries of the business
– the supply chain becomes the value chain.
1.4. The Mission of Logistics Management
Logistics management, from a total systems viewpoint, is the means whereby the needs of customers are
satisfied through the co-ordination of the materials and information flows that extend from the
marketplace, through the firm and its operation and beyond that to suppliers.
,1.5. The Supply Chain and Competitive Performance
Supply chain: the network of organisations that are involved, through upstream and downstream
linkages, in the different processes and activities that produce value in the form of products and services
in the hands of the ultimate consumer.
Vertical integration: ownership of upstream suppliers and downstream customers.
Logistics management is primarily concerned with optimising flows within the organisation, whilst supply
chain management recognises that internal integration by itself is not sufficient.
- Stage 1 – complete functional independence
- Stage 2 – companies have recognized the need for at least a limited degree of integration
between adjacent functions
- Stage 3 – requires the establishment and implementation of an ‘end-to-end’ planning framework
- Stage 4 – true supply chain integration
1.6. The Changing Competitive Environment
The most pressing current issues in the area of logistics and supply chain management are:
- The new rules of competition
o Companies increasingly compete through their capabilities and competencies. This
means that organisations create superior value by managing their core processes better
than competitors
o There has been a trend towards ‘commoditisation’. A commodity market is characterised
by perceived product equality in the eyes of customers consumers are less loyal to
specific brands
o The new competitive model is increasingly supplementing product innovation by process
innovation. Shorter product life cycles demand shorter lead-times
, Lead time: the time taken from the drawing board, through procurement,
manufacture and assembly to the end market
- Turbulence and volatility
o Higher levels of turbulence and volatility bring greater uncertainty, which presents a
challenge to the classic business model which is heavily reliant on forecasts. For logistics
and supply chain management it necessitates an urgent need to transform the business
from a forecast-driven model to one that is demand-driven
- Globalisation of industry
o For global companies, the management of the logistics process has become an issue of
central concern. Globalisation tends to lengthen supply chains as companies move
production offshore or source from more distant locations
- Downward pressure on price
o There are new global competitors who have entered the marketplace supported by low-
cost manufacturing bases and the removal of barriers to trade and the deregulation of
many markets has accelerated this trend
o In order to maintain profitability, companies must find a way to bring down costs to
match the fall in price. The biggest opportunities for cost improvement will be found in
the wider supply chain
- The customers take control
o The order-winning criteria are more likely to be service-based than product-based
Competitive advantage = product excellence x process excellence
Principles to guide the supply chain manager:
1. Responsiveness: the ability to respond to customers’ requirements in ever-shorter time-frames
has become critical
o Agility: the ability to move quickly and to meet customer demand sooner
2. Reliability: unreliable processes create uncertainty and variability
3. Resilience: the ability of the supply chain to cope with unexpected disturbances
4. Relationships: the buyer/supplier relationships should be based upon partnership
