What’s in a (Supply Chain) Name?

Supply management. Supply chain management. Procurement. Logistics. They're all bandied about these days, but just what is the right name for the profession?

By Joe Sandor and Dave Nelson

Joe Sandor is the Hoagland-Metzler Professor of Purchasing and Supply Management at Michigan State University. Dave Nelson is the former Chief Purchasing Officer for TRW, Honda, John Deere, and Delphi. He is Past President and Chairman Emeritus of ISM.

August 18, 2015

Was Shakespeare right when he composed the line, “That which we call a rose by any other name would smell as sweet”?  Are Supply Chain Management, Supply Network Management, Supply Management, Purchasing, Procurement, Logistics, Operations, Sourcing, Contract Manufacturing, Physical Distribution, etc. etc. equally sweet or simply confusing? It’s a question that we have wrestled with and will try to answer.

In recent years, the term Supply Chain Management seems to have garnered the most currency.  So, we’ll look at that term and decide if we should keep it or use something else. We’ll start by confessing that our bias is in Purchasing.  Invariably, we bias our language toward our comfort zones.  Part of the dilemma in deciding on a name comes from the dominant experience of the person using various terms, whether they are academics, practioners, or professional societies.  To a certain extent, we are all like the proverbial blind men describing an elephant on the basis of touching just one part of the elephant.  We’ll argue that henceforth we ought to simply refer to our function as “Supply.” We don’t need to embellish “Supply” with such unnecessary and confusing adornments as “Chain,” “Management,” “Strategic” or “Global”.

Why should you read any further?  As all millennials know, if you want to know what something means just google it (once a noun, google is now more often a verb) or go straight to Wikipedia.  As you can see, here we find clarity: “Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.” And the definition for Logistics is: “…the management of the flow of goods between the point of origin and the point of consumption.”  Sounds like SCM and Logistics are the exact same thing.  But, when US News and World Report ranks academic disciplines the category it uses is “Supply Chain Management and Logistics.” They must think SCM and Logistics are two different things operating simultaneously together.  Note that there is no mention of Procurement or Operations.  In the case of Operations, the US News folks have a separate and unique category.  Procurement or Purchasing is not even a ranked category. The US News folks must have concluded that not enough schools teach Procurement to rank them. 

Notwithstanding whether or not SCM and Logistics are the same by definition, Procurement seems to be the elephant in the room – Purchasing expenditures are around 20 times those of logistics. And not only is logistics (the purchase of transport and warehousing) routinely acquired and performed by suppliers, more and more of production / operation is being outsourced. Yet, Procurement doesn’t fit into the definitions or ranking categories.  Further complications arise when procurement functions are listed – beyond the commercial negotiation of terms and conditions we see activities like mitigating risk, driving revenue, enhancing innovation, improving quality, reducing time to market, improving design, and on and on.  Most of the value from procurement comes from cross functional and cross organizational activities.  How does one capture the management of assets a firm doesn’t own along with the orchestration of different functions into an integrated whole in a functional name?  And, will this new name add clarity?  Should we simplify and become “SUPPLY?”

Before adopting the succinct term “Supply” as a way out of the current quagmire of names and titles, let’s look at other functional designations.  Of course, there is no standard list of functional names and over the years titles have inflated and gotten fuzzier at the same time.  Despite the fact that we now seem to have “Chief Everythings,” there does seem to be some consensus on major business functions.  These include Finance, Marketing, Engineering, Legal, Human Resources, Operations or Manufacturing, Research & Development, Supply Chain Management, and possibly a few others.  Within major categories there are sub-functions.  For example, Finance can include tax, treasury, controller, and audit while Engineering covers design, manufacturing, applications, customer support, new product development, and capital equipment. Business school academia is likewise confusing with various undergraduate and graduate departments and concentrations.  But, as in the field, there are a few major disciplines.  These include: Accounting, Finance, Information Systems, Marketing, Economics, Management, Human Resources, International Business, Supply Management, Logistics, and Operations.  Note that most functions have either one or two words – Finance, Marketing, Legal, etc.  Also note that only Supply Chain Management includes the word “Management.”  To any outsider, what’s the difference between Supply Chain Management and Management?  And, wouldn’t it be silly to say Management Management?  We don’t see Finance Management, Marketing Management, or Human Resources Management.  Applying Ockham’s razor, why not just say “Supply?”

Why not “Supply Chain” – the term seems to be in vogue?  After all, we have other two-word functions like Human Resources, Information Systems (or Information Technology), and Public Relations?  Does the addition of the word Chain clarify the function and describe reality the way it presumably does for HR, IS / IT, and PR?  With regard to “Supply Chain,” the answer to both questions is, we think, no.  In the first place, there are no literal supply chains in the real world – single, linear links from mother earth to the end consumer.  Instead, what we see are complicated and interconnected networks or webs of buyers, suppliers, warehouses, and transporters.  Furthermore, Chain doesn’t connote a specific meaning as it relates to the Supply Function.  Curiously, when various people or organizations define Supply Chain they often use the word network as in “the network of suppliers, retailers, distributors, and transporters …” or “the networked sequence of various providers of goods and services in the production and distribution ….”  Clearly, the concept involves a myriad of interactions among multiple parties, both internal and external to the firm, in a way that satisfies customers – right item at the right cost in the right place at the right time.  Perhaps it would be better to just replace Supply Chain with Supply Network?  A chain is a series of (usually) metal rings used to haul, support, confine, or restrain.  Finally, although Chain does imply linkage it also has the negative connotation of shackles, bondage, servitude, and inertia.  One sign of transition is that terms are emptied of common understanding or serious meaning.  And, words matter.  Finally, the field is thought by outside lay folk as primarily logistics and inventory management, especially given the popular knowledge of JIT and UPS ad campaigns.  When we explain to folks at a cocktail party or golf course that we have both taught Supply Management classes involved in innovation, risk mitigation, new product development, cost modeling, supplier relationship management, and sustainability, they seem surprised that such topics fall under Supply Management or Supply Chain Management.

Let’s go back a bit.  In Economics 101 we learn the basics of the Supply and Demand Curves.  Essentially, all business can be reduced to these two prime concepts.  A business needs, at a minimum, functions to manage Supply and Demand.  Additionally, a firm has administrative functions that cut across Supply and Demand such as Finance and Legal.  Simply put, Demand is customers – sales and marketing - while Supply is our product design and manufacturing plus our supplier’s operations. (Increasingly, suppliers account for the lion’s share of “supply” costs.)  In broad terms, any and all resources required to develop and deliver products or services for end customers fall under the Supply umbrella.  Obviously, that’s lots of stuff, most of which is different in important respects but all of which is Supply.  The Supply and Demand functions must also be integrated – there’s no value in being the best supplier of buggy whips; and, it’s useless to market goods and services that can’t be provided such as immortality pills. If we start with this basic division between Supply & Demand, and regard Supply as all operational activities required to meet Demand, then we are better prepared to guide as opposed to simply align to or follow Corporate Strategy.

Here’s a few of the major things under the supply / operations umbrella?
• Make versus Buy
• If Buy (and this has been the growing trend)
o Direct Materials
o Non-Product items
o Capital Equipment
o Contract Manufacturing
o IT goods and services
o Outsourced services – admin, advertizing, marketing, legal, etc
o Inbound and Outbound Freight
o Warehousing
Etc., Etc.

Note that all of the above purchases, from the decision to buy vs. make, through the various categories of items are unique.  What binds them is the common body of knowledge around technical and commercial competence, cost / competitive analysis and strategic integrity.  Given this holistic view of Supply, shouldn’t we just call ourselves Supply?  Besides, it would be easier to get into the “C” suite with a 3 letter acronym like everyone else.

Perhaps, before we agree on a name, we ought to determine what are the specific roles and responsibilities that fall under the broad theme of supply.  Generally, we’d find at least the following:

• Inventory Management
• Procurement
• Materials Planning & Production Control
• Operations
• Quality
• Warehousing
• Transportation
• Supply Base Design
• Capacity Planning

Additionally, the supply function is either integrated with or includes direct responsibility for such functions as:

• Forecasting
• Asset Management
• Assurance of Supply & Risk Monetization
• Product Development
• Engineering
• Project Management
• Change Management
• Customer Service
• Corporate Social Responsibility

Now, considering the above roles, what should the expectation of or objectives for the supply function be.  Writ large, the deliverable is effectiveness.  The four principal parts of which are:

• Efficiency - (lean, best cost, best processes, etc.)
• Reliability - (6 rights: items/services, cost, quality, quantity, time & place)
• Flexibility - (ability to cost effectively adjust to change)
• Innovation - (developing and implementing both processes and new products)

Given such a broad directive, we ought to select a name that encompasses a wide range of functional disciplines.  Again, the name that seems most inclusive is Supply – all of the varied activities included in the above bullets fit under the “Supply Umbrella”.