The difference in Supply Chain and Logistics
A supply chain is the network between a company and its suppliers and customers that includes all the transactions involved in transforming raw goods into salable products. The network includes the activities, people, technology, information and resources, while the functional teams involved in the company’s network includes sales, sourcing, procurement, production, logistics and customer service. Logistics and logistics management is a subset of processes that fall under supply chain management that plans, executes, reports and coordinates the movement of goods within an organization’s network of stakeholders.
The goal of logistics is to get the product from point A to point B at the lowest cost with the best service. A supply chain, on the other hand, is the coordination, management and strategy that drives the flow of data, information and logistics to deliver the best product and service to all stakeholders in the process of converting raw goods to the end salable product. When the activities of a supply chain are brought together into a single vision, supply chain management drives a competitive advantage by executing faster, reducing friction through all touch points between internal and external stakeholders, thus bringing more transparency and efficiencies throughout the process to deliver the end product to the ultimate customer in a manner that exceeds their expectations. To sum up logistics and supply chains, think of a football game where logistics is the game on the field of play and the supply chain is the stadium where the game is played. From the game perspective of the analogy, the movement of the ball up and down the field of play to deliver a score is logistics. The stadium, on the other hand, represents all the physical and communication components. Think of the massive amounts of money put into a professional football stadium to deliver the best experience for the buying customers (the fans). There is the stadium itself, plus the communication points between coaches in the box to coaches and players on the field. The communication network allows calls, still pictures and replay videos to execute to the highest levels to score points and have the customers standing on their feet cheering for more. The feedback mechanism of scoreboards, referees, replay screens, and for those really into the game, radio commentators (providing play-by-play and overall game analysis), give feedback all along the way through a scoring drive to assist in delivering the very best results. In the article Logistics and Supply Chain Management - Comprehensive Guide and The Ultimate Comparison Guide on Freight & Logistic Services we take a deeper dive into the topic if you are interested in more on the subject.
What is Supply Chain Management?
More often than not, the freight world deals with two standard terms—Supply Chain Management (SCM) and Logistics Management (LM). These are used interchangeably, and the difference(logistics vs supply chain) is not made very apparent. Logistics management is a small portion of SCM that combines the flow of goods, services, information, and capital right from raw material to its final consumer. Whereas supply chain management is much broader and starts right from the product’s source to delivering it to the consumers. Each of these has different functions and processes and are different in many aspects. Before we start picking out the differences, let’s get a brief overview of both these processes.
According to Supply Chain Logistics Management, a book by professors of Michigan State University, Supply Chain Management or SCM involves collaboration between firms to connect suppliers, customers, and other partners to boost efficiency and produce value for the end consumer. In a broader sense, SCM is a three-part process. It starts from sourcing the raw materials for the product, goes through manufacturing processes, and finally gets dispatched to the end-buyer. The process is complicated due to a lot of factors and needs intense planning and strategies.
What is Logistics Management?
Logistics management is a subset of the more extensive supply chain management process. According to the Council of Supply Chain Management Professionals (CSCMP), Logistics management or LM is a part of the supply chain process that plans, implements and controls the efficient, effective forward and reverses flow and storage of goods, track and trace, services/process, and related information between the point of origin and the point of consumption to meet customer’s requirements. Logistics Management comprises inbound logistics and outbound logistics. Inbound logistics involves internal operations like warehouse management, inventory management, etc. Outbound logistics management consists of the transport of goods through ocean freight, air freight, etc. and product delivery to the consumer/buyer. For an optimized logistics management process, both these processes must work in compliance with each other.
Supply chain management refers to the activities that create finished goods from raw materials and deliver them to the customer. SCM also focuses on improving supply chain processes, which can benefit both customers and business partners. A company can only optimize and continuously refine SCM when it has visibility across its supply chain. This visibility enables companies to track goods and services as they move through each stage of the supply chain, which makes it much easier to see if everything is running as planned. It also gives decision-makers more time to respond to disruptions or other roadblocks. SCM involves overseeing an often-vast network of sub-suppliers (like raw materials providers), suppliers, manufacturers, logistics partners, wholesale distributors, retailers and end users. The relationships between these various stakeholders in the supply chain vary. They can be vertical, such as between parts and materials suppliers, manufacturers and retailers, or horizontal, where a company merges with or acquires a similar business that operates at the same stage of the supply chain. To illustrate how supply chain management works, let’s use a home cleaning products manufacturer as an example. As part of the SCM function, the company sources the chemicals and containers it needs from suppliers, makes the end product and then distributes the finished goods to convenience stores, drug stores and supermarkets. Supply chain management touches on every process involved in the movement of those products.
5 key differences between Supply Chain Management and Logistics Management
Let’s look at some of the fundamental differences between Supply Chain Management and Logistics Management:
- The fundamental difference as made clear from the definitions above is that the SCM involves the planning, implementing, and efficiently storing goods and services between the point of origin and point of consumption to meet customer requirements. Whereas Logistics Management’s main objective is to deliver the right product at the right time with all other attributes in place.
- Logistics Management is targeted towards the satisfaction and happiness of the end-buyer, while SCM emphasizes competitive advantage.
- As highlighted before, Logistics Management is a small part of Supply Chain Management, whereas Supply Chain Management is a new and modern concept.
- Based on the processes involved, Logistics management deals with Inbound and Outbound Transportation, Warehousing, Reverse Logistics (Returns), and Protective Packaging. In contrast, SCM’s processes include Freight Procurement, Supply Planning, Demand Planning, Enterprise Resource Planning, Inventory Management, Manufacturing, Logistics, and Optimization.
Another key difference between LM and SCM is in terms of the software they use to optimise the process. LM includes traditional TMS (Transport Management Systems), WMS (Warehouse Management System), and software to track Inventory. SCM, on the other hand, involves a range of IoT solutions and software like ERP (Enterprise Resource Planning), Radio Frequency Identification for tracking, CRM software, and Big Data Analytics among others. These seven points are some of the crucial differences between SCM and LM. In recent years, both Supply Chain Management and Logistics Managements have grown leaps and bounds. A symbiotic relationship exists between the two, as they complement each other for the effective and efficient distribution of goods and services.
Are Logistics and Supply Chain Management the Same Thing?
Logistics focuses on the movement and storage of items in the supply chain. Supply chain management (SCM) is more comprehensive, covering all of the coordination between partners that have a role in this network, including sourcing, manufacturing, transporting, storing and selling. The ultimate goal of SCM is to find processes that ensure a smooth, efficient flow of goods that give customers an excellent experience and drive the business forward. While supply chain management handles activities between separate entities, logistics focuses on the internal movement of goods. Additionally, SCM supports all purchasing, production and distribution of goods. Logistics, meanwhile, moves and stores goods between different points in the supply chain. To learn more, read our article on inbound and outbound logistics.
Both supply chain management and logistics focus on the flow of goods from the point of origin to the endpoint. Both disciplines require careful coordination of supplies, labor and facilities to make sure items can move through the supply chain as required. Logistics is a key component of supply chain management, but just one piece of the equation.
Similarities of Supply Chain Management and Logistics
Supply chain management and logistics both work to move, store and deliver goods as efficiently as possible. Supply chain management provides the strategic direction that guides inbound and outbound logistics.
Some common aspects of SCM and logistics are:
- Both focus on goods, services or information.
- Both have the ultimate aim of supporting the company’s success and distinguishing it from competitors.
- Both seek to increase customer satisfaction.
- Both revolve around the same flow of goods and services, from the supplier to the manufacturer, to the wholesaler and finally to the retailer or consumer.
Courtesy: Best supply chain management in Karachi
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