Logistics and Supply Chain Management are two terms that have frequently interchangeable usage in the business world, but they refer to distinct yet connected concepts.
Logistics is basically the process of planning, executing, and controlling the flow of goods, services, and information from the origin point to the consumption point. In contrast, Supply Chain Management is a broader term that encompasses the entire network of businesses and individuals involved in the production, storage, and delivery of a product or service.
In this write-up, we will explore the differences and similarities between logistics and SCM or supply chain management and examine their impact on businesses and the global economy.
Are Logistics and Supply Chain Management the Same Thing?
To put it in simpler terms, logistics is a subset of the supply chain management mechanisms. It is a contributing segment of supply chain management that effectively handles and optimizes how to manage goods. To simplify even further, besides logistics, customer service, sourcing, manufacturing, and procurement, product development and other services fall under supply chain management (SCM).
Thus, while supply chain management and logistics are not the same, logistics is one of the processes undertaken in the SCM.
Supply Chain Management vs. Logistics
Logistics and Supply Chain Management are two critical concepts in the world of business operations. Despite being closely related, they differ in their scope, approach, and objectives.
What Is Supply Chain Management?
Supply Chain Management is a broad term that can be used to define the connection or the network chain between the suppliers to, ultimately, the consumer. It encompasses all the processes that turn the raw material into the deliverable finished goods.
As already discussed, the SCM has different subparts in it. These include the raw material providers, manufacturers and suppliers, wholesale partners, logistics, retail partners, and customers, who are often called end users.
Intra-SCM relationship structures can be different in different supply chains. They can either be horizontal or vertical in nature. Horizontal relationships are often showcased when a company operating at a specific level of the supply chain either acquire another similar company or merges with it. In contrast, vertical relationships have a hierarchical order to them, such as the relationship between manufacturers and wholesalers, and retailers.
Interestingly, SCM can be used to improve supply chain processes, which, in turn, can really be beneficial for businesses and customers.
What Are Logistics?
The supply chain process integrating the movement of capital, services, goods, and information from one end to the other is known as logistics. This includes the execution of a carefully curated plan to store and move goods between the various points within the supply network, right from raw material sourcing till the product has been delivered to the consumer. Through coordination between resources like people, facilities, and equipment, the objective is to provide the right product at the right price and at the right moment with the right quality.
There are two parts into which logistics can be divided:
- Outbound Logistics: These are the logistical services that are concerned with providing the finished products to the consumer.
- Inbound Logistics: Procurement of raw material, transportation, storage, and handling are all part of the category known as inbound logistics.
There are also several other processes and mechanisms under logistics. All these aspects work in tandem to fulfill time and cost, along with ensuring high-quality products are delivered. Such processes include:
- Fleet management
- Demand planning
- Maintaining equilibrium between demand and supply
- Protective packing
- Order fulfillment
- Stock management/inventory management
How Are Supply Chain Management and Logistics the Same?
Supply Chain Management and logistics are terms that are often confused. For example, many in Europe refer to SCM as logistics Management. With the terms Supply Chain Management and logistics often being used interchangeably, there are bound to be some similarities between the two concepts. Some experts go as far as saying that there is no difference between the terms and that SCM is the more modern version of the old concept of business logistics.
In reality, the journey of the product from being a raw material to a deliverable good has different functionalities. Transportation, logistics, and inventory control are among those functions that are often intersecting with each other. Such evolving intersections have led to blurry definitions of concepts like logistics and Supply Chain Management.
Similarities of Supply Chain Management and Logistics
While the terms are indeed different, there are some common aspects of them. The primary similarity between them is that both logistics and Supply Chain Management is concerned with optimized and efficient moving, storing, and delivering of goods. Inbound and outbound logistics can be strategized based on SCM.
It is important to note here that careful coordination between the facilities, labor, and supplies are required to seamlessly move the goods through the supply network.
Some common aspects of SCM and logistics are:
Let us explore some common features of SCM and logistics:
- The flow of goods in both concepts remains the same, beginning with the raw material supplier and ending with the customer through the retailer.
- Both SCM and logistics work in order to increase the rate of customer satisfaction.
- SCM and logistics can help a company grow by being different from the competition.
- Information, services, and goods are the focal points of both SCM and logistics.
How Are Supply Chain Management and Logistics Different?
Although we have discussed some similarities between SCM and logistics, there are far more differences between them.
Supply Chain Management is an inclusive term used to define the connecting link between different processes that helps companies gain an edge in the market. On the other hand, logistics is basically the movement that occurs in channels within the supply chain.This includes determining the flow, movement, and storage of information, services, and goods. However, logistics is not the entire equation. It is simply a variable, albeit a very important one, in the SCM equation.
Key Differences Between Supply Chain Management and Logistics
Let us consider some of the differences between logistics and Supply Chain Management:
|Logistics||Supply Chain Management (SCM)|
|Definition||The flow, storage, and integration of goods in a company or organization.||Maintenance and movement of the supply chains in a company or organization.|
|History||Logistics is an older concept with its roots in the historic military campaigns. Fun fact: Alexander the Great is often thought to be a master of logistics.||Supply Chain Management is a recent concept. The term’s usage was first coined in the 1980s, while it is widely believed that the first company to successfully implement the concept was Ford Motor Company.|
|Division||As already discussed, logistics is a part of the SCM.||Apart from logistics, the SCM comprises various other departments like Purchasing & Sourcing.|
|Number of Organisations||Generally only one organization is involved in implementing logistics.||SMC has several organizations coordinating and handling the different processes within it.|
|Objective||The main objective of logistics is customer satisfaction, with great stress put on meeting the customer expectation and needs.||SCM is implemented with the objective of gaining a competitive advantage through improved operational performance.|
|Focus||Logistics is focused on the cost-effective and efficient transport and storage of goods within a company and from the company to the retailer or customer.||SCM, on the other hand, is focused on the optimal development journey of the goods from its source to the retailers to meet customer demands.|
Logistics is a Subsection of the Supply Chain
Logistics can be described as a component of the supply chain that involves planning, executing, and monitoring the smooth and efficient movement and storage of goods, services, and relevant information from their origin point to the point of consumption. The ultimate goal is to fulfill customer needs and expectations.
Logistics is a Part of the End-to-End Supply Chain Process
Logistics is a distinct aspect of the supply chain and plays a crucial role in enhancing its efficiency. The supply chain can encompass various types of logistics services and providers, each with its unique focus to ensure smooth operation.
However, each one of these logistics operations specializes in providing a specific service and operates as a standalone part of the supply chain, only accountable for their area of expertise.
Logistics Stores Goods Until They Are Needed Elsewhere
Logistics companies offer storage solutions for goods at their destination, utilizing various warehousing options. They maintain these goods until they are required by another supply chain segment or for direct delivery to the final customer.
Logistics Moves Goods from Place to Place
Using a singular mode of transport or intermodal transport, logistics services strive to provide the most time and cost-efficient means of moving goods from one point to the other.
Logistics Plans, Implements, and Controls
Logistics service providers can also help businesses by:
- Planning the transportation, storage, and documentation of goods to facilitate efficient reporting and processing
- Executing the movement and storage of goods utilizing various modes of transportation and offering short or long-term storage options
- Monitoring the flow of goods through fleet management, shipment tracking, technology, and collaboration with supply chain partners
- Adding value to the supply chain by providing additional services and solutions.
Logistics Distributes Products to the End Customer
Various logistics providers offer delivery services to customers. Many such delivery services are specialized deliveries.
Role of Logistics in Supply Chain Management
Various transport methods are implemented within logistics to get stock from one place to the other. As a result, logistics plays an important role in determining how and where the inventory can be stored for the moment they are needed. With logistics being such a pivotal part of SMC, let us further explore its role within the supply chain process.
Why Logistics Are So Important to Supply Chains?
Logistics are primarily important to `supply chains due to tracking and managing the resources required to move and store services and goods. They work with the objective of providing services at an effective and affordable rate and at the right place at the right time. This process is also responsible for keeping records of relevant labels and documents during the moving procedures.
To sum it up, there are different ways through which Supply Chain Management is affected by logistics:
- Increasing efficiency along with lowering costs.
- Increasing customer satisfaction and ensuring customer loyalty.
- Optimal delivery of products as and when required.
Why Is Logistics Training So Essential to Supply Chains?
It goes without saying that with the advent of modern tech, the field of logistics is growing. Add to that the ever-changing landscape of consumer trends. To meet the challenges, it is essential that companies offer training to their personnel. As a result of such training, newer methods and ideas can greatly improve aspects such as distribution strategies.
Why Use Logistics and Supply Chain Management?
Why shouldn’t companies use both logistics and Supply Chain Management? Through these methods, organizations can easily boost their profitability. Logistics is a great way to improve customer loyalty and satisfaction, while SMC helps gain an advantage over competitors.
Logistical Components of the Supply Chain
There are different components of Logistics in the supply chain. Each of these components has its own functions. Let’s take a look:
- Transportation: The most fundamental logistics component is transport. Through planes, ships, cars, and trains, Transportation helps move goods in the supply chain.
- Handling of Material: Proper handling of material while in storage or during the transportation process is an important part of logistics.
- Inventory Control: Tracking and managing the stocks to ensure they are ready for dispatch based on consumer needs is critical in the supply chain.
- Packaging: This logistical component ensures that the goods are shipped at the lowest rates without compromising on their safety and quality.
- Unitization: Related to packaging, Unitization deals with methods in which units of goods can be efficiently shipped without damage.
- Storage and Warehousing: These are vital components of the SCM mechanism. Storage can help prevent under-stock and over-stock situations, while Warehousing deals with daily operations in the warehouse.
- Information: It is fairly evident that information exchange between the different components within logistics and SCM helps companies make informed decisions.
How Both Supply Chain Management and Logistics Are Fundamental to Success
Effective Supply Chain Management and logistics play a crucial role in meeting customer demands and enhancing the purchasing experience. Logistics helps to gather information about customer demand, which is then utilized by the Supply Chain Management to comprehend consumer preferences and optimize production and inventory levels.
A strong and cost-efficient logistics system is the foundation for effective Supply Chain Management. By ensuring accurate and timely order fulfillment, a well-managed supply chain can attract new customers and ultimately increase revenue.