Any successful production and service organization integrates a department that is principally dedicated to conducting supply chain management in its operations. Such a department is designed to take charge in “oversights of material, information, and finances as they move in a process from the supplier through the manufacturer, the wholesaler, and the retailer to the consumer” (Houlihan, 2005, p.23).
Supply chain administration ensures synchronization and amalgamation of all such movements to and among various organizations. Many scholars in the discipline of supply chain management contend that the overall aim of the supply chain within an organization is to ensure that there is a limited accumulation of inventories besides ensuring that costs associated with urgent replenishments are cutely mitigated in the effort to guarantee that an organization runs both smoothly and effectively for optimal profitability. For this to happen, effective management of logistics is needed. Houlihan (2005) defines logistics management as “governance of supply chain functions” (p.24).
This argument means that supply chain management and logistics management are related, and must run concurrently within organizations. This study aims at digging into the relationship between the two. It also evaluates their differences, examines the key activities in supply chain and logistics, and finally discusses ethics and social responsibility in supply chain and logistics management. This discussion is done in the plight of the case of supply and logistics management for an international construction company: Turner International Construction Company
Turner International Construction Company
Several international companies established in the United States of America have specialized in the construction industry. One of such companies is Turner International Construction Company. Henry Chandlee Turner initiated the company in 1902 with only an initial startup capital of $25, 000. Since then, the company has grown to become one of America’s largest international construction companies. By 2011, the company had grown to the capacity of managing $8 billion volumes of construction projects across the globe. The company bids for contracts for the construction of a variety of building types including “biotechnology institutions, pharmaceutical buildings, health care buildings, green buildings, public assembly buildings,
aviation, and transportation buildings” (Turner, 2013, Para. 2). Construction of these facilities involves the assembly of materials derived locally and from international markets. Such materials are also of several types. Consequently, arrangements must be made for their sourcing, transportation, storage, and retrieval from the stores before they are utilized at the constructions sites. To enhance these processes, Turner International Construction Company has invested heavily in supply chain and logistics management.
Turner’s approaches to supply chain and logistics management are organized around five aspects. These are “expanding capital procurement options, controlling construction costs, reducing facility costs, streamlining facility equipment demands, and protection of capital investments” (Turner, 2013, Para. 2).
The company believes that these five aspects are central to the determination of whether it succeeds in its supply chain and logistics management endeavor to yield continued success of the organization in its business industry. In this regard, Turner (2013) adds, “our sourcing specialist and our national buying power have created a unique opportunity to engage in the value chain agreements directly with manufacturing partners” (Para.1). This argument implies that both supply chain management and its governance (logistics management) are enormous sources of competitive advantage of Turner International Construction Company.
Relationship and Differences between Supply Chain Management and Logistics Management
Supply chain management and logistics management are closely related terminologies. Supply chain refers to “systems of organizations, people, activities, information, and resources involved in moving products or services from supplier to customer” (Gokhan & Needy, 2010, p.20). Through the effort of the building blocks of such a system, raw materials coupled with natural resources combined with various components that constitute a whole while assembled are processed and assembled to form a final finished product, which is taken to the consumer for consumption. In the context of the Turner International Construction Company, such materials constitute building materials such as roofing tiles, raw materials such as cement, building blocks, and sand among others.
The supply chain at the company consists of people who are in charge of processing the materials besides ensuring that they are availed at the construction sites at the right place and at the right time. As opposed to supplying chain, logistics refers to the “flow of resources from the point of origin to meet some requirements such as the needs of customers” (Wallenburg et al, 2011, p.83). In logistics management, materials, which are ready to flow through the rights channels and at the right pace, are essentially physical.
In the context of the Turner International Construction Company, logistics involve the integration of various flow processes for information to facilitate effective material handling, security, efficient production of the building materials, packaging the materials, transportation, and warehousing among other activities done on the materials before they are ready for use at the construction sites.
The distinction provided above between supply chain and logistics implies a close relationship between logistics management and supply chain management. Indeed, logistics constitute an element of the supply chain whose purpose is to “plan, implement, and control the efficient, effective forward and reverse flow and storage of goods, services and related information” (Wallenburg et al, 2011, p.84). This definition means that logistics comprise the application of concepts of governance to supply chain activities. Working as a logistics manager in an international construction company involves endeavoring to establish a fit between the tasks of supply chain management and principles of governance.
In the application of principles of governance to activities of supply chain management, Turner International Construction Company can provide access to any information that is relevant to help the company effectively execute supply chain tasks. This advantage is critical in helping the company to “optimize the entire supply chain rather than sub-optimizing it based on the local interest” (Gokhan & Needy, 2010, p.21).
Consequently, logistics managers enable supply chain managers to plan the production coupled with the distribution processes in more paramount ways in the effort to ensure minimization of the final costs of products. For Turner Construction Company, it then becomes possible for the company to place lower bids for construction contracts internationally and yet deliver on quality standards preset by the clients. This case has the effect of making the company more successful in the end in terms of profitability.
From the discussions above, it is evident that concepts of logistics management cannot be applied within organizations without the existence of a strong arm of supply chain management. The two concepts are different but related in that logistics management is dependent on supply management. Logistics management is an integral concept rested on the discipline of supplies chain management. The activities in the supplies chain management and logistics management are also different but also related in one way or another as discussed in the next section.
Key Activities in Supply Chain and Logistics
The key activities of supply chain and logistics management are interrelated. However, their concerns are different. For instance, in the case of Turner International Constructions Company, various elements are linked up by the flow of products. These elements constitute the areas or activities of focus by supply chain management and logistics management personnel within the organization. They include customers, inventory and transportation, purchasing, and planning among others.
In Turner International Construction Company, customers are the key initiators of the supply chain and logistics when they place bids for contracts, which while won by the company, will initiate the preliminary steps of supply chain and logistics. Customers set timelines in which they would want their projects to be completed. Based on this information, Turner develops plans for the recruitment of the appropriate number of personnel to meet the customer demands.
Plans are also made on where and how materials are going to be sourced and/or on how they will be transported to the site. Customers are also important elements in logistics. However, in logistics, the goal is to enhance customer satisfaction through customer service. As a logistical element, customer service entails the “customer-oriented philosophy, which integrates and manages all elements of customer interlace within predetermined optimum cost-service mix” (Kouvelis, Chambers & Wang, 2006, p.451).
In the logistical approaches of Turner International Construction Company, customer service ought to be a crucial output of the company’s logistical system. The most credible customer service approach would be the one that ensures raw materials are delivered at the appropriate place, at the appropriate time, and minimal costs so that customers can also pay less for the project. Cost-effectiveness is the main business strategy for Turner International Construction Company.
Another important activity that cuts across both supply chain and logistics is inventory control. From the dimension of logistics management, inventory encompasses the “ trading off the level of inventory held to achieve high customer service levels with costs of holding inventory including capital that is tied up in inventory, variable storage costs, and obsolescence” (Kouvelis, Chambers & Wang, 2006, p.451). Logistical arrangements for the delivery of products (raw material for the case of Turner International Construction Company) are made such that these costs remain minimal.
From the paradigm of the supply chain, suppliers take raw materials to Turner International Construction Company, which upon inspection are transferred to a warehouse from where they are retrieved when required in the building process. Receiving of raw materials is done upon completion of purchasing, which is an important activity in the supply chain. The purchases department is charged with the noble role of recruitment of suppliers as per the specifications made by the production department. Such specifications are arrived at through evaluation of the requirements of building types constructed by Turner International Construction Company.
In both supply chain and logistics, planning is an important activity. For the case of logistics, planning entails “determination of how much of the finished product should be transported or held in each market that the organization serves” (Wallenburg et al., 2011, p.91). This case means that logistics link with manufacturing, planning, and marketing arrangements. In the supplies chain, planning is central in the determination of the number of raw materials for construction required, and how they would be transported to the customers’ site. This process underlines the importance of transportation as an element of both supply chain and logistics.
Ethics and Social Responsibility in Supply Chain and Logistics Management
From the discussions in the previous sections, supply chain and logistics management cover broad aspects, which enhance the ultimate buying process and subsequent delivery of raw material and finished products to clients. Consequently, logistics and supply chain calls for interactions of several administrative sections in an organization including customers, planning, manufacturing, quality control, warehousing, and many other departments or sections.
It is also important for parties in logistics management to coordinate with departments such as business and IT. This extent of complexity of the functions of the supply chain and logistics management arm of an organization calls for the deployment of a specific code of ethics and culture to ensure that decisions made by the personnel in supplies and logistics are informed by the contributions of all entities that must be consulted. Such ethical issues are guided by cultural information sharing.
The arguments raised above mean that every employee in the supply chain and logistics would feel that his or her decision is incomplete and ineffective without its appraisal by other departments, which must contribute towards it. The process of supplies and logistics involves a hefty transfer of funds, which must be used optimally. Hence, it is part of the supplies and logistics management code of ethics for all people working in the discipline to ensure transparency, accountability, and honesty. This argument means that acts of inflations of prices of materials and products procured or service charges, for instance, transportation charges, are unethical within the practice of supply chain management and logistics management as they amount to embezzlement of organizations monetary resources.
Social responsibility coupled with the embracement of issues of sustainability aspects of the supply chain should not be negated by the modern supply chain managers. Such issues are not only crucial for enhancing public relations coupled with compliance but also help in ensuring “competitive opportunities that benefit companies, communities, the environment, customers, and in the case of disaster relief, victims” (Skelton, 2012, Para.6).
In the plight of this augment, the logistics manager at Turner International Construction Company would be ineffective if he or she does not consider the impacts of the materials for constructing clients’ buildings on the society surrounding the site of construction. He or she would be failing to comply with the principles of social corporate responsibility in supply chain management and logistics management.
Supply chain and logistics constitute essential components for an organization seeking to be competitive in the market. As argued in the paper, this case holds because good management of the buying process and all other processes encountered until a product has reached the target customer can incredibly aid in the reduction of the costs of the final product. The paper maintained that the two terms are closely related although different in some ways since they involve similar activities.
However, these activities are approached from different dimensions from the paradigms of each of them. Amid these differences, it is the position of the paper that concepts such as ethics and social responsibility are equally important for both supply chain and logistics whether at Turner Construction Company or any other organization.
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