It’s not possible to talk about logistics without talking about supply chains. One cannot operate independently of the other and both are constantly evolving to meet the challenges of a modern, consumer-driven world.
Evolution of the supply chain
Logistics was originally a military term, with supply chain terminology being adopted during the 1980s as the industry evolved to include tasks such as tracking merchandise, storing products and choosing vendors, says Al Norrie, chairperson of the Supply Chain and Logistics Association Canada.
Even a few decades ago businesses usually dealt with their suppliers directly. If a company had many suppliers, like a pharmacy, then that would mean trucks delivering shipments on a weekly or biweekly basis, says Norrie. Staff had to be available to deal with the deliveries and stock had to be stored on the premises. When a business ran out of an item, there was little choice but to wait until the next shipment.
Eventually, distribution centers were added to the supply chain, reducing the need for businesses to store as much inventory, since they could now order items or materials as needed and on shorter notice.
More recently, companies have extended the supply chain geographically with “lowcost geographic sourcing,” by ordering lower-priced goods from manufacturers overseas, commonly Asia. “But this increases transportation lead time tenfold,” says Norrie. Outsourcing overseas means companies need to carry more inventory or risk running out of stock. Before embarking on such ventures, costper- unit savings need to be analyzed within the supply chain, because other expenses, including warehousing and delivery, will have increased.
Another trend is the greening of the supply chain. Policies like reverse logistics have extended the supply chain to include the reclaiming and recycling of products after they’ve reached the consumer. A good supply chain has “got to adapt for that and find environmentally friendly ways to reuse materials,” says Norrie.
Accountability for the waste created when a product is no longer serviceable is something consumers, investors and regulators are demanding from manufacturers.
An example of visible accountability is Maersk Line’s Triple-E vessels, now in production. When completed, they will be the largest ships in the world, with the first set for delivery in July 2013. In an effort to eliminate waste, the Triple-E vessels (the Es stand for economy of scale, energy efficiency and environmentally improved) will have a “cradle-to-cradle passport” describing the material composition of every piece of the ship. This will help ensure that when the vessels are taken out of service, they will be properly dismantled and each component will biodegrade or be recycled and reused.
Frito Lay Canada has won several awards for its environmental efforts. In 2011 the company reduced the amount of manufacturing waste sent to landfills by 98 per cent. In 2010, they became the first food manufacturer in Canada to use zeroemission electric delivery vehicles. That same year they introduced the first fully compostable potato chip bag.
Steve Collard, senior director of purchasing for Twin Rivers Paper Company, an organization with facilities in New Brunswick and Maine, describes how his company has found an innovative way to both save money and reduce stress on the environment. “We have taken a novel approach that has both quality and environmental implications. Recently, we contracted with a supplier who was putting their high-quality product in a landfill.” Through negotiations, Twin Rivers was able to reach an agreement to purchase the product for their own use. “It was a winwin for the supplier since they were paying disposal costs and are now receiving monies for these products. It was a win-win for Twin Rivers since we are receiving a high-quality product that we can use and by helping to divert this from a landfill, are contributing positively to the environment.”
It would appear that both expertise and creativity are equally important factors in managing a successful supply chain.
Stricter laws governing product safety and quality have also been introduced into the supply chain in a much more significant way than they were decades ago. There are few things sold to consumers that aren’t in some way affected by standards regulations.
Quality of materials needs to be taken into account before choosing supply chain partners, and many companies— particularly manufacturers, must have a system to test component quality every step of the way. When manufacturing or assembling a product for sale, each component is “value-added,” and must meet applicable standards before adding more value-added components. If this isn’t done and a problem is found later, products could have to be dismantled and rebuilt, a costly process—especially if you’re working with big ticket items like cars or planes.