A contemporary view of the logistics function is that it deals with the management of material and information flows linking the organization’s suppliers and customers. This leads to the use of the ‘supply chain’ to denote the network of agencies (suppliers, functions within the organisation, trade channels and consumers) that process materials and information to add value to them and deliver a package of products and benefits to a consumer. The importance of the supply chain was emphasized by Porter (1985), who took a strategic view of what he called the value chain. Porter’s view was that the activities of the value chain provide an opportunity for the firm to take a competitive stance, with respect to its customers, by focusing on some segments of the value chain.
Peter Drucker (1989) emphasized the importance of a ‘systems’ approach to manufacturing, identifying it as one of the four key managerial foundations of ‘the factory of 1999’. ‘As soon as we define manufacturing as the process that converts things into economic satisfactions, it becomes clear that producing does not stop when the product leaves the factory. By 1999, systems manufacturing will have an increasing effect on how we design and remodel plants and on how we manage manufacturing businesses.
The effect of delays in the supply chain was, however, first pointed out by Forrester (1958). In a study, which remains a subject of discussion more than four decades later, Forrester showed that a simple 10 percent step increase in demand for a product could cause wild fluctuations peaking?
At an amplitude of 40 per cent in production volumes for a year Forrester hoped that in time ‘the company will come to be recognized not as a collection of separate functions but as a system in which the flows of information, materials, manpower, capital equipment and money set up forces that determine the basic tendencies toward growth, fluctuation and decline. ‘
The term ‘supply chain’ was not in vogue then, but today it is widely accepted that the essence of sound supply chain management is to replace inventories of materials with those of information and process skills. The idea, as Ohno (1988) put it, is to continuously shorten the order fulfillment process. This shortening is driven more by a need to respond quickly to market changes than the desire to cut interest costs. Organizations that carry large inventories will naturally need to clear their clogged supply pipelines before implementing product changes.
The integration of the supply chain requires what is called a process orientation. Not surprisingly, this is the foundation of present-day production and information management thought. The key to understanding the process perspective is Shigeo Shingo’s model of production, which was evolved more than three decades before business process re-engineering became a catchphrase. As explained earlier, the key to improving production is to improve processes, not operations.
Scheer (1994) has reflected the same process orientation in his framework for an integrated IT infrastructure. ‘Business functions are linked by decision and process relationships, and when objects (or outputs) are processed, they typically pass through several functions. For example, an order passes from sales through production and purchasing to accounts receivables and is processed further in the controlling and sales/marketing information systems. If each function manages its own data, the object relationship of processes results in redundancy the primary problem is one of logical data consistency An approach of this type overlays a processoriented view across the functions.’ What Scheer has not highlighted is the tremendous impact of integrated systems on visibility across the supply chain. This visibility is what enables leaner supply systems. Scheer’s Integrated Information Systems framework, which is reflected in the architecture of ERP/SCM systems, is shown in Figure 4.2