Abstract
At the beginning of this chapter, SCM and related concepts such as physical distribution, business logistics, and company groups are explained, and the areas of difference among them are clarified. In the middle of this chapter, the framework of a supply chain and SCM are described. Important factors about SCM and drivers changing the supply chain management and strategy are proposed. At the end of this chapter, the case of the pencil supply chain is introduced to illustrate the evolutional SCM and supply chain strategy. The pencil supply chain has a long history and has experienced dramatic changes due to product and process innovations.
TopBackground
Physical distribution is an operation transporting or delivering a product to a location or person/persons. Usually, it includes activities related to transportation or delivery, such as the storage, picking, and packing of products. Sometimes it consists of some finishing work at a distribution center according to client orders or the owners of parcels. However, it does not include conversion or processing work.
Physical distribution bridges the various gaps. Under the division of labor, people consume products at other places and times of production. In addition, harvest or production times and consumption times are different. Workers should store the products somewhere until receiving the orders. Given the time constraints, it is crucial to make plans about the flow and stocking of parcels to maintain related costs reasonably and ensure timely product delivery. Figure 1 illustrates two simple cases. Destination A is very close to the point of product origin. It is reasonable to deliver each time an order is received from Destination A. On the other hand, Destination B is very far from the point of origin. The orders from Destination B are frequent and under severe time constraints. In this case, it is not practical to make deliveries each time. Instead, it would be more reasonable to establish a stock point near Destination B and maintain a sizable inventory before deliveries.
Figure 1. Image of physical distribution
The purpose of physical distribution is to deliver certainty and efficiency based on delivery instructions. Physical distribution by itself tends to achieve only partial optimization because its scope is narrower than logistics and the supply chain.
Business logistics is a civilian application of military logistics. Military logistics has evolved through wars. The word logistics comes from the ancient Greek λογιστικός or logistikós, meaning calculation or rationality. There is a need to calculate the necessary supplies and secure the transportation modes for those supplies to win a war. In military logistics, the provisioning of weapons and necessities of life are just as important as the allocation of soldiers. The purpose is to transport or deliver these items with certainty and efficiency. The grand purpose of military logistics is to win or not lose a war. After the Cold War, the technology and concept of military logistics were used in the private sector.
The Council of Supply Chain Management Professionals (CSCMP) defines and explains Logistics Management as follows in the Definitions and Glossary <https://cscmp.org/ > (Aug 15, 2021):
Key Terms in this Chapter
Company Group: A group of companies with a capital relationship. A holding or headquarter company tightly controls the group. The members are not flexible.
Pull Operation: An act on actual orders. In other words, it is “build-to-order manufacturing” or “made-to-order.” If the manufacturer does not have enough inventory of material and parts to fulfill its orders, it will also have to place orders with its suppliers.
Product Innovation: The creation of a brand-new category of products with added innovative functions. It changes basic design, materials, production system, use, and other features.
Supply Chain Management: An activity to reinforce the interlock in a supply chain. It contributes to increased supply chain performance and profitability.
Business Logistics: A part of the supply chain. It is a broader concept than physical distribution. Its main activity is backup and supplement. It contributes to a company's financial performance directly through increased sales and lower costs.
Process Innovation: A process change that increases the productivity or production capacity in manufacturing, distribution channels, and other areas. It does not contribute to improved product performance directly; rather, it enhances availability and convenience.
Push Operation: An act on expectations. Inventory makes it possible to respond to orders quickly. For example, retailers maintain an inventory of products in anticipation of customer demand. Factories also keep an inventory of products and parts to respond to orders quickly.
Supply Chain: A group of companies and activities related to a product. Every product has its supply chain.