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Logistics and the Evolution of Supply Chain Management
As business became more international in scope and the MPC system was adjusting to the demands of global trade, a quiet revolution was brewing in a perennially underappreciated area, logistics. In fact, long before the addition of the term "logistics" to the business lexicon, this function was viewed as no more than a necessary evil that bore the domestic label of "transportation" or "traffic." Based on the significance of lead time dependability, landed cost control and inventory accuracy to a global model, logistics was gradually recognized as a legitimate business discipline.
Not long after this discovery, boardrooms around the world were evangelizing the importance of solid logistics to the success of their international endeavors. Prior to that movement in the mid-1980s, the transportation function was viewed as a non-value-adding activity that only served to detract from the bottom line. International business has changed that viewpoint and the very nature of logistics forever.
The reason why logistics has assumed such a vital role in SCM can be summed up in two words: process variation. In statistical terms, variation in any process is defined as the quantifiable difference between a desired outcome and the actual outcome of a given event. Quite simply, an international operation, be it in sourcing, manufacturing, sales or logistics, offers a greater probability of process variation or, stated differently, opportunity for defects than a domestic model. Whereas domestic operations afford a greater margin for error, global operations are much less predictable and the stakes considerably higher.
With worldwide operations and the movement of raw materials, work in process and finished goods in several directions, the possibility for errors in landed costs, lead times and inventory accuracy is overwhelming. The smallest variance from plan can send operations into a tailspin, closing down production lines and vaporizing revenue opportunities. For the exact same reasons why MRP and ATP are so relevant to SCM, logistics joined the pantheon of globally relevant business disciplines.
