History of Supply Chain Management

This essay comprehensively details the history and evolution of supply chain management (SCM). It begins by tracing the origin of the term, crediting Keith Oliver in 1982, and highlighting its increasing prominence in the 1990s due to the need for cost control and performance improvement. The essay then delves into the core principles of SCM, emphasizing the interconnectedness of organizations within the supply chain and the importance of extending management beyond organizational boundaries. Different definitions of SCM are presented, reflecting the varied interpretations across time and business contexts. The essay further analyzes the historical shifts in SCM focus, from inventory and distribution cost reduction in the 1970s to customer service and logistics integration in the 1980s and 1990s, and finally to the integration of technology and global collaboration in the 21st century. Case studies of Hewlett-Packard, Whirlpool, and Wal-Mart illustrate successful SCM implementations. The essay concludes by emphasizing the importance of understanding SCM's history for successful implementation and highlights the role of collaborative groups like the Supply Chain Council and NISCI in advancing SCM best practices. The overall tone is informative and analytical, providing a thorough overview of the subject for students.

Running Header: HISTORY AND DEVELOPMENT OF SUPPLY CHAIN MANAGEMENT
History and Development of Supply Chain Management
Dr. James A. Bryant
August 05, 2013

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History and Development of Supply Chain Management.
Supply Chain Management is a business buzzword that gained popularity in the
1990s. It describes organization management of processes with a company from
production to delivery of goods or services. The term gained prominence as companies
sought to control costs and improve performance. In order to better understand the
concept behind supply chain management, it will be important to discuss its history and
how it fits in the continued evolution of business management.
The term "supply chain management", used during an interview with the
Financial Times, was developed by Keith Oliver, a consultant at the Booz Allen
Hamilton, in 1982 (Laseter and Oliver, 2003). Oliver attempted to describe a process
based on his vision of breaking down silos within an organization. Such silos include
manufacturing, marketing, distribution, sales and finance.
Since the 1980’s the interest in the supply chain management has steadily
increased. Because of the increase in interest, companies realize they needed to have
collaborative relationships with their own employees and employees outside of their
own organization to grow. Companies have come to realize that they will not be able to
compete effectively without the help of their suppliers or other components within the
supply chain. Given the diverse nature of any business, several types of definitions of
supply chain management evolved.
Success in today’s modern business relies on how well the firm’s supply chain
strategy will be linked to its overall business strategy. Understanding how management

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of the supply chain will improve competitiveness can be seen in how the term “supply
chain” is defined.
The idea behind supply chain in management occurred around the 20th century
with the creation of the assembly line for production. The assembly line was a new
concept in manufacturing which revolutionized production at the time. Further attention
to supply chain management and production occurred with the advent of Japanese
management practices in the 1980’s around the time that Oliver coined the term
(Laseter and Oliver, 2003).
Supply Chain Management Concept
The Supply Chain Management concept is focused on two basic principles. The
first is for every product that reaches a consumer will involve the efforts of the
organizations that are linked together within the supply chain. The second principle is
that the supply chain exists beyond and cannot be confined to just one single
organization. It needs to exist outside the four walls of the organization to maximum its
effort. Success in a business can only be achieved when the entire chain is understood
and managed effectively to deliver the product to the customer (Jacoby, 2009). The
management must have an active role in the supply chain activities for the company to
achieve competitive advantage over the competitors’ and at maximum value. By the
organization making a conscious effort in developing and managing the supply chain
this will enhance the use of them in the most effective and efficient way that will be best
overall (Blanchard, 2010). Activities within the supply chain that management should be
focusing on would include product development/production, logistics and sourcing as

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well as information systems for communication for components throughout the supply
chain.
Organizations making up the supply chain usually are linked to work together by
having physical and/or information flows. Physical flows, being the visible piece of the
chain, will allow for movement, development and storage of the products (Hammel and
Kupczak, 1993). Information flows allows communication between the supply chain
partners allowing them to have the coordination for long-term plans and for control of
the flow of goods throughout the supply chain (Hammel and Kupczak, 1993).
Supply Chain Defined
Supply chain definitions have varied over the past years but the concept of the
supply chain has grown and gained popularity within organizations. Cox defines a
supply chain as “the processes from the initial of raw materials to the ultimate
consumption of the finished product linking across supplier-user companies; however,
enabling the value of a chain through the products and services to the consumer by
using functions provided from within and outside of the organization” (Cox et al., 1995).
A different view will define the supply chain as which materials flows through a
network of entities which includes the suppliers, manufacturing sites, distribution
centers, retailers, and customers (Lummus and Alber, 1997). Quinn (1997) gives a
different definition of the supply chain in which any activities that will be associated with
the movement of the goods from beginning of the raw-material stage to the consumer.
All movement of the goods would entail how the items were sourced, process of
ordering, the production line, how it is stored, transportation, and the customer service

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performed. The most important item that is needed to be able to monitor all of these
activities is the information system. Without the information system there could be no
movement at all. These definitions show the vast ways a supply chain can be seen by
the organization which seeks to leverage its resources and influence.
Definition differences for the supply chain management will depend on the time
period and the interpretation of the author. Given the broadness of the field of business
management as well as the ever changing needs of customers and suppliers, these
differences are understood. Mentzer (2001) describes that in order for organizations
and the supply chain to improve that organizations must have a systematic and
strategic approach in dealing with other organizations functions and tactics in use for
their supply chain. Organizations must also be able to integrate any key essentials that
are needed for the business to process value to the consumers and stakeholders
through the supply chain (Lambert, 2008).
According to the Council of Supply Chain Management Professionals (CSCMP),
supply chain management would include any of the planning and management of all
aspects of the sourcing, procurement, and the logistics management as well as any
coordination of the supplies, intermediaries and customers (Kouvelis, Chambers and
Wang, 2006). The differences in the definitions of supply chain management may
cause confusion, but reflects the breadth of the field and the need for different
interpretations for different business fields. As the supply chain management
developed overtime, the definition meaning also started to change to fit it more
precisely.

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Over the decades since Oliver first coined the term, the concept has undergone
several major developments. It is important to understand its evolution to successfully
engage in the concept today.
According to Monczka and Morgan (1997) they feel that it is that of the supply
chains that compete, not the organizations. They also state that by having an
"integrated supply chain management within the organization that it is about going from
servicing the external customer and then being able to manage all of the processes that
are needed in between to provide the customer with the best possible value in a
horizontal way"(Monczka and Morgan,1997). Those who are the strongest competitors
"could provide the needed management and leadership to a fully integrated supply
chain by including the external customers as well as the prime suppliers and their
suppliers' suppliers" (Ellram and Cooper, 1993).
By reviewing these definitions the supply chain concept could be summarized as:
“it will involve all of the activities that are needed to be able to deliver the product that
will start with the raw material and end with the consumer receiving that product. This
will also include from sourcing, manufacturing, ordering, storage, flow across channels,
customer delivery and the information systems for communication of the activities”
(Lummus and Volkura, 1999).
Integration of the Supply Chain Management.
Supply chain management concept, however defined, is the management of the
supply chain. This is the concept that will coordinate and integrates all of the activities
into a seamless process for the organization (Lummus and Volkura, 1999). The supply

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chain management will act to link all the internal/external partners within the supply
chain also including all the departments throughout the organization. The external
partners would be anyone outside of the organization such as suppliers, transporters,
and communication systems providers. Supply chain managers take an interest in the
success of other companies that are key components of the supply chain. They work
together with external partners to be able to make the whole supply chain work as a
whole. They must know their market, the competition, the customer or end user, and be
able to leverage that information to coordinate their activities with supply chain partners.
Successful supply chain management encompasses the processes that are
necessary to create, source in/out, produce, and to deliver to demand (Lummus and
Volkura, 1999). Technology is used to gather the information on the consumers’
demands and then the information is exchanged between organizations. The main
objective throughout the supply chain management is that the entire process of the
chain must be viewed as a whole system (Lummus, et al, 1999). Inefficiencies that do
occur within the supply chain process must be assessed in a timely manner and
addressed to leverage the full capabilities of the supply process.
Supply chain management became a major issue in the early 1990s. Many
companies realized they needed to become more vertically integrated. Most companies
increased in specialization and because of this have relied more on outside partners as
a consequence. They started to seek partners to supply low cost materials or ancillary
services rather than having to supply themselves in house. It eventually became a
critical issue to be able to manage the entire network of the supply system which in turn
leads to the interest of the supply chain management theory.

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A second reason for the increased interest within the supply chain management
is related to the increased competition. Consumers do have multiple options from which
they can choose from to satisfy their demand; locating a product that will be throughout
the distribution channel with minimum cost to the consumers becomes essential
(Lummus, et al, 1999). Businesses sought to control distribution problems by
maintaining their inventory at different locations within the chain in order to compensate
for any inefficiencies. But holding inventory became expensive and exposed
businesses to unnecessary risk as excess inventory became a liability in a quickly
changing marketplace. Excess inventory may become worthless if demand forces
changes in the final product.
A third reason for the interest in supply chains is the realization that by
maximizing the performance only within one department can cause turmoil for the
organization as a whole and cause the optimal performance to decline. Organizations
must take a hard look across the whole supply chain to be able to access what the
impact of any decisions made, in any one area, would have on the organization
(Lummus et al, 1999). Cost saving in one department may raise costs in another
department for an external partner resulting in no savings in the final production of the
product.
The different decades has brought different shifts in supply chain management
application. Prior to the term being coined, companies struggled with inventory and
distribution costs. In the 1970s, the focus was on inventory levels, lead times, and
controlling internal costs such as fuel and immediate production costs (Kouvelis,

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Chambers, and Wang, 2006). Additional pressures during the time included the high
fuel prices and interest rates which further complicated the business environment.
Supply Chain Focus
During the 1980’s, supply chain management focused on three things. Lowering
operating costs, improving customer service, and integration of logistics were the areas
of concern (Kouvelis, Chambers, and Wang, 2006). The focus changed toward
processes and customers rather than just reducing warehouse or production costs.
Processes and relationships were emphasized during the time Oliver coined the term in
an attempt to describe the larger picture.
In the 1990’s customer service continued to be a key focus. Corporations
expanded that focus to include corporate partners as well as integrating their logistics
systems. This was facilitated by improvements in information management (Kouvelis,
Chambers, and Wang, 2006). Companies could better forecast demand for goods and
services and adjust practices to compensate for change before they happened.
In the twenty-first century continued use of new technology such as Radio
Frequency Identification (RFID) continued to influence the emerging field of supply
chain management. Companies continue to build relationships among corporate
partners leading to global sourcing, cooperative design development and the supply
planning. Increased environmental, social, and security issues also influenced the
marketplace and continue to do so (Kouvelis, Chambers, and Wang, 2006). The impact
of evolution within the supply chain management can also be seen in the development

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of various supply chain management theories and concepts that have been attempted
by industry.
Supply chain management addresses the multiple issues in producing a product
in the modern environment. It helps form and manages distribution networks to include
number, location, facilities, warehouses, and customer bases. It helps in how the
distribution networks should be formed and how they should be run. Supply chain
management also helps in developing a successful distribution strategy. The
distribution strategy deals with questions such as operational control (centralized or
decentralized), modes of transportation, and delivery schemes. Supply chain
management should help a business realize its distribution strategy goals.
Supply chain management must be able to deal with all logistical activities, any
communication, inventory of supplies and the finance portion for the organization. To
be successful the supply chain must be able to execute the means to be able to
manage and coordinate any movement of the supplies, including communication and
the funds needed for crossing the supply chain. The flow is bi-directional and can be
managed in real time to promptly address problems or changes in demand. This can be
established by the use of applications that will manage the flow and information across
the supply chain network.
Examples of Supply Chain Management.
Successful supply chain management examples can be seen starting in the early
nineties by organizations that thrived through their integration of supply chain
management principles. The first adopters where in the apparel and grocery industries,

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but other more diverse examples can be seen with Hewlett-Packard, Whirlpool and Wal-
Mart.
Hewlett-Packard, the computer components manufacturer, linked its distribution
activities with its manufacturing in the early 1990s (Hammell and Kopczak, 1993). They
implemented by making changes to how they physically distributed the product to the
consumer and the new requirements for the way they will distribute through their
planning system. The system is able to interlink the consumers’ orders with the
forecasted demands. Having the ability to forecast a demand is critical in the fast
changing world of technology and this gave Hewlett-Packard a strategic advantage in
production.
Another example is Whirlpool. This appliance manufacturer implemented a new
vision for its supply chain in 1992. It was determined that successful companies would
be those who develop an inter-enterprise pull system which would have a short
response time to the consumer (Davis, 1995). Organizations also needed to establish
cross-functional product teams for key areas. Whirlpool was able to do this by creating
a vice-president logistics position and because of this new position and the cross-
functional product teams they were able to enter into contract agreements with single
source suppliers. This resulted in a significant improvement in product availability,
reduction in inventory, and low lead times. Whirlpool was able to deliver products
quicker at a lower cost.
Wal-Mart developed its own supply chain initiative in the mid-nineties. It began
working directly with key manufacturers to manage Wal-Mart’s warehouse inventory.

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The initiative, called vendor managed inventory, meant that suppliers managed Wal-
Marts inventory for them, making the process more efficient (Johnson and Davis, 1995).
Not long after was other large retailers soon implementing similar programs but Wal-
Mart profited from leading the way.
Recently collaborative groups have been established to research new ideas for
the supply chain management. The study of supply chain management could provide
the best practices examples for the supply chain design in which organizations can
emulate from. The Supply Chain Council is one of those groups, not for profit
organization established to provide services and support for its members. Its goal is “to
establish a framework to enable manufacturers and their suppliers to build a stronger
supply chain and improve management practices” (The Supply Chain Council, 1997).
Another collaborative group was formed to create a new organization, joining
was several leading manufacturers with the National Institute of Standards and
Technology (NIST), calling themsleves the National Initiative for Supply Chain
Integration (NISCI). This group was formed so the manufacturing supply chains would
have a way to improve and standardize communication between each other and their
business processes. The idea was based on a study by NIST that showed a majority of
companies that have supply chain issues are the smaller organizations, in which they
are lacking the resources that the larger firms have. The goal of NISCI is also to create
best practices (Quinn, 1997).
History and Evolution of the Supply Chain Management.
Understanding the history and evolution of the supply chain management includes the