Strategic SCM, Logistics, and Inventory Management Principles

Posted on Nov 10, 2025 in Business Administration and Management (BAM)

Supply Chain Management (SCM) and Logistics Operations

Defining Supply Chain Management (SCM)

SCM involves the end-to-end coordination and integration of all activities involved in sourcing, procurement, production, and logistics. It aims to maximize value to the customer while achieving a sustainable competitive advantage.

  • Objective: Deliver the right product, in the right quantity, at the right time, to the right place, at the lowest cost.
  • Scope: Includes suppliers, manufacturers, logistics providers, wholesalers, retailers, and customers.

Understanding Logistics

Logistics is the process of planning, implementing, and controlling the efficient movement and storage of goods, services, and related information from the point of origin to the point of consumption.

  • Inbound Logistics: Receiving, warehousing, and inventory control of raw materials.
  • Outbound Logistics: Packaging, transporting, and distributing finished goods to customers.

SCM vs. Logistics: Key Differences

  • SCM is strategic and holistic, focusing on the entire network.
  • Logistics is operational and focused on specific tasks like warehousing and transportation.

Core Functions and Performance in Logistics

Key Functions of Logistics

  • Transportation: Selecting appropriate modes and routes for delivering goods.
  • Warehousing: Storage and movement of materials in a controlled facility.
  • Inventory Management: Monitoring stock levels and optimizing replenishment.
  • Order Fulfillment: Efficiently processing customer orders.
  • Customer Service: Managing expectations and improving satisfaction.

Key Performance Objectives (Slack et al., 2007)

Logistics performance is typically measured against these five objectives:

  1. Quality: Delivering defect-free products or services.
  2. Speed: Reducing time between order placement and delivery.
  3. Dependability: Meeting delivery promises consistently.
  4. Flexibility: Ability to change production volume or switch between products.
  5. Cost: Operating efficiently to reduce expenses and provide value.

Modes of Transport and Selection Criteria

Overview of Transport Options

  • Road: Flexible and cost-effective for short distances; common for last-mile delivery.
  • Rail: Economical for bulk and long-distance domestic transport.
  • Air: Fast but expensive; ideal for high-value, low-weight, or urgent items.
  • Sea: Low cost for international bulk transport; slow transit times.
  • Pipeline: Ideal for liquids/gases; low operating cost but high initial investment.

Transport Selection Criteria

  • Transit time
  • Cost
  • Type of goods
  • Distance
  • Reliability
  • Accessibility

Warehouse and Facility Functions

Primary Warehouse Operations

  • Receiving: Accepting and verifying incoming goods.
  • Reserve Storage: Allocating space for stock not immediately required.
  • Order Picking: Selecting items to fulfill orders.
  • Sortation: Organizing goods for different customers or destinations.
  • Collation & Value-added Services: Labeling, packaging, and light assembly.
  • Marshalling & Dispatch: Preparing orders for shipping.

Strategic Objectives of Warehousing

  • Buffer against demand fluctuations.
  • Enable economies of scale in production and transport.
  • Enhance customer service through quicker deliveries.

Inventory Management Techniques

Stock Rotation Methods

  • FIFO (First In, First Out): Ensures older stock is used first—essential for perishables.
  • LIFO (Last In, First Out): Uses latest stock first—primarily used for accounting rather than physical flow.
  • FEFO (First Expired, First Out): Goods closest to expiry are sold or used first.

ABC Inventory Analysis

The purpose of ABC analysis is to categorize inventory to apply different levels of control based on value.

  • Class A: High-value items (tight control, frequent review).
  • Class B: Medium-value items (moderate control).
  • Class C: Low-value items (simple control, infrequent review).

Steps in ABC Analysis

  1. Calculate Annual Usage Value = Annual Units Used × Unit Cost.
  2. Compute total annual usage value for all items.
  3. Determine each item’s percentage of total usage.
  4. Rank items from highest to lowest value.
  5. Assign categories based on set thresholds (e.g., A = top 70%, B = next 20%, C = last 10%).

Logistics and Competitive Advantage

Gaining Competitive Advantage

A well-managed supply chain can be a source of strategic advantage through:

  • Cost Leadership: Efficient operations reduce costs across the chain.
  • Differentiation: Reliable, flexible, or faster logistics improve service and customer loyalty.

Logistics in Porter’s Value Chain

Logistics contributes directly to primary activities in the Value Chain:

  • Inbound Logistics: Receiving and storing raw materials.
  • Outbound Logistics: Delivering the final product to the customer.

Other Strategic Logistics Tools

  • Lean Logistics: Minimize waste in processes and inventory.
  • Agile Supply Chains: Respond rapidly to changes in market demand.
  • Technology Integration: Utilizing real-time tracking, data analytics, and automation for better decision-making.