Integration
There is a need to look at the total cost of logistics, and in so doing every aspect of it, via transport to inventory/warehouse must be addressed holistically. In this way, savings can be made across the chain. If we consider that a saving in transportation may mean that more inventories are held further along the chain, then no real savings are made within the product price at the retail end; this could be because the savings via transport will be spent in increased inventory. As a result, there is a need to integrate all of the supply chains into a partnership to enable the total saving to be passed on, with the product, thus allowing it a competitive edge. This is a move away via competition within logistics where the need to save money often brings supply chain links into conflict. The holistic approach is driven by the need to satisfy the larger customers and to enable the product to compete in its market sector.
Principles like Just in Time (JIT), are aimed at such integration. An example of this is the automotive industry where manufacturers are demanding goods at specific times to meet specific production runs. This has led to reduced costs, such as lower inventory costs. Such processes have also influenced the large retailers to reduce their number of suppliers and this, in turn, has reduced the number of logistic channels and enabled more specialisation and integration to take place within the confines of logistic partnerships. The use of IT systems has also made this possible. Tesco, for example, now shares its sales information with its suppliers to enable them to produce what is needed only within the right timescale.
Networks
Often associated with the supply chain is the concept of networks. Networks reduce market turbulence and act as a moderator. It codifies activities and reduces the nonconformist (or rebellious) action. Networks have shared values and emphasise interpersonal relationships, subsequently adding the human aspect. Networks concentrate on people and not the organisation or the market, and sole suppliers get to realise growth opportunities.
However, networks do contain the uncertainty of where the boundaries are drawn when partners consistently underperform. This then begs the question – how far can the partner be trusted? More commonly, big players in the network use the network to increase inventory costs, or push those costs onto the suppliers and maintain the dominance of prime floor space in the retail market.
Push or Pull
Supply chains operate mainly in two flow patterns, pull or push, a Pull versus Pull diagram can be seen in figure 4. The traditional method is the push: this is when the producer makes goods in anticipation of sales and drives them along the chain to the market. While pull is when an order is placed, then the producer will respond and then send it along the chain: it is being pulled towards the market. The implementation of large business and the integration of the logistics chain, with them both linked via information systems, like that of Tesco detailed above; means that most chains now act as demand chains or pull systems. Information about what has been consumed is sent to the supplier who can then meet orders to re-supply an established inventory along with a supply chain.
Figure 4: Push Versus Pull