The terms "supply chain" and "logistics" are often used interchangeably by both logistics companies, final customers, and third parties. However, these terms actually refer to very different things. In the following article, we’ll ask what is logistics and supply chain management, see how they differ, and how they are similar.
Are Supply Chain and Logistics the Same Thing: Let's Define
When looking at the difference between logistics and supply chain management, one needs to understand that there is a lot of bleed over regarding what each term refers to. This can lead to a lot of confusion, even among supply chain management professionals themselves.
Therefore, let’s start with a simple logistics vs supply chain definition comparison.
Supply Chain – Supply chains are networks of organizations, individuals, processes, and resources required to move products from supplier to customer.
Logistics – The term logistics refers to the part of the supply chain process that plans, implements, and controls the efficient flow of goods, services, and information.
It’s clear from these definitions that logistics is a part of the overall supply chain. And due to its control over how info and finished goods move through storage facilities, it is often considered the most important part.
What is Supply Chain Management (SCM)?
So, what is the difference between logistics and supply chain operations? Well, any comparison between logistics and supply chain management requires that we explain how supply chain management works in more detail. The supply chain encompasses the entire process of delivering a product from the initial sourcing of raw materials to the end customer. It includes all the activities and entities involved in the flow of goods, information, and finances through multiple organizations.
Supply chain management (SCM) involves coordinating and integrating these activities to optimize efficiency, cost-effectiveness, and customer satisfaction. It typically includes various stages such as procurement, manufacturing, fleet management, warehousing, inventory management, and distribution. Improving all of these factors is essential to good supply chain performance. In many cases, supply chain management software implementation allows for improving all these activities.
Role of the Supply Chain Management
Framework for Sourcing, Manufacturing, and Delivering Goods
SCM provides a comprehensive framework for the end-to-end sourcing, manufacturing, and delivering goods. The first stage, sourcing, involves identifying and selecting suppliers who can provide the necessary raw materials, components, or services at the right quality, quantity, and price.
Manufacturing refers to production planning, coordinating with internal teams or external manufacturers, ensuring quality control, and optimizing inventory levels. Finally, you have delivery. This includes activities such as transportation management, warehousing, order fulfillment. In this case, SCM aims to optimize these processes to minimize costs, reduce delivery times, and meet rising customer expectations.
Works Among Several Organizations
Supply chain management involves collaboration and coordination among multiple organizations within a supply chain network. Depending on the size of the supply chain organization and the number of supply chain partners, this can happen in a regional, national, or global supply chain. A successful supply chain typically includes suppliers, manufacturers, distributors, retailers, and specialist logistics providers. These companies often rely on supply chain software development services to perform at their best.
Controlling other Aspects of Supply Chain Processes
SCM helps control and optimize various aspects of supply chain processes beyond sourcing, manufacturing, and delivery. A good example is inventory management, which helps organizations maintain optimal production and inventory levels by tracking stocks, implementing inventory replenishment strategies, and minimizing carrying costs. Other common examples include logistics management, cost optimization, and other activities that confer a competitive advantage or meet new supply chain management requirements.
And What is Logistics?
As mentioned earlier, logistics are just another part of a well managed supply chain. Where the supply chain refers to the entire process of delivering goods, logistics businesses specialize in the physical movement and management of those goods. As a result, a logistics operation will generally include tasks such as transportation planning, freight forwarding, warehousing, packaging, and scheduling.
Role of Logistics
Сontrol and Planning
Most logistics companies offer control and planning services to ensure supply chain management works as intended. This logistics operation involves demand forecasting, inventory management, order processing, and production planning. The goal is to ensure that the right products are available in the right quantities at the right time to meet customer demands while minimizing costs. Over the years, automated systems have become a big part of control and planning.
Transport and Storage
Transportation and storage are key components of logistics. They involve the physical movement and storage of goods from origin to destination. Transportation encompasses various road, rail, air, and sea, while logistics ensures the efficient routing, scheduling, and tracking of transportation activities. Finally, storage involves managing warehouses, distribution centers, and specialized transport.
Distribution of Goods to the Final Consumer
Logistics providers deliver products to the end customer. This is the primary goal of any logistics operation. This stage may involve various distribution channels, including e-commerce platforms, retail stores, or third-party logistics providers. Ultimately, distribution logistics contribute to customer satisfaction, loyalty, and the overall success of everyone involved.
4 Types of Logistics
To better understand the logistics process, it’s necessary to see how the four types of logistics differ from one another. After all, there are many ways in which logistics distributes products from place to place.
Inbound logistics focuses on processes like procurement, transportation management, receiving, and inventory control. Inbound logistics aims to ensure the timely and efficient delivery of the resources needed for the production or assembly of goods.
Outbound logistics encompasses activities such as order processing, picking, packing, transportation management, and delivery. The focus is to ensure that the right products are delivered to the right customers on time and on budget.
Reverse Logistics encompasses the processes and activities associated with handling returned products from customers, managing warranty claims, and refurbishing or recycling items.
Third Party Logistics refers to the outsourcing of logistics activities to external providers. These providers fill the role reserved for in house logistics, handling everything from transportation and warehousing to inventory management, order fulfillment, and distribution. Such businesses can be vital to supply chain wholesalers who want good supply chain performance but do not have a huge team or budget.
What are the Similarities Between Logistics and SCM?
Again, logistics and Supply Chain Management both endeavor to foster a collaborative supply chain network by controlling, managing, and improving the flow of goods. Logistics is a more specific term, focusing mainly on the movement of goods.
Here are the primary similarities between logistics and supply chain management:
Both aim to ensure the efficient flow and movement of goods, information, and resources.
Both require coordination and integration of various activities, processes, and functions across different entities within a supply chain.
Both prioritize meeting customer demands and delivering products or services.
Both involve analyzing and optimizing processes to achieve higher efficiency, cost-effectiveness, and responsiveness.
Both contribute to overall supply chain troubleshooting – identifying problems and then attempting to address them.
Key Differences Between Logistics and Supply Chain
Both SCM and logistics are integral to how and why supply chain management works. But while logistics primarily focuses on the physical movement and storage of goods, SCM encompasses a broader perspective that includes strategic planning, procurement, production, and distribution.
Let’s look at the primary difference between supply chain management and logistics below:
Logistics primarily focuses on efficiently moving and storing goods and materials from one point to another. SCM is a broader concept that encompasses the entire network of organizations, activities, and processes involved in getting goods from providers to users.
Logistics is typically concerned with the tactical execution of operations within the supply chain. SCM takes a more strategic approach, focusing on the overall coordination and integration of processes to ensure good supply chain performance.
Logistics activities are generally short-term and immediate in nature, focusing on operational tasks and meeting immediate customer demands. However, effective supply chain management requires a long-term perspective, though it still inputs logistics where necessary.
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- Are Supply Chain and Logistics the Same Thing: Let's Define
- What is Supply Chain Management (SCM)?
- And What is Logistics?
- What are the Similarities Between Logistics and SCM?
- Key Differences Between Logistics and Supply Chain