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The role of logistics in businesses is significant. It not just helps in optimising supply chains but also enhances customer expectation to a great extent. Successful businesses understand the importance of logistics and supply chain management, how they overlap, and differ, and work towards creating a strong process to ensure that goods are acquired, stored, and transported to the end consumers efficiently and within timelines.
This article will explain about what logistics and supply chain management mean and the relationship between logistics and supply chain management. It will also cover other areas like procurement, physical distribution logistics, operations management, etc. and explain how logistics differs from them.
What is logistics?
Logistics refers to the process of moving resources from one location to another for storage or delivery. Resources can include people, material, inventory, or equipment.
The logistics management process begins with the purchase and delivery of raw materials, and moves to packaging, shipment, and transportation of finished goods to distributors and the end user.
Let us understand the term logistics with an example. In the textile industry, logistics will involve receiving raw materials from the supplier to the warehouse apart from transporting finished products to the destination (e.g., retail stores, direct customers, warehouses etc.).
Logistics can be broadly divided into three types –
The movement of goods from suppliers to production is referred to as inbound logistics. Outbound logistics, also referred to as the order fulfillment process, refers to the movement of finished products from the facility to the next destination. Reverse logistics as the name suggests refers to movement of goods from the end customer back to the concerned seller due to returns from customers or repairs.
What is supply chain management?
Supply Chain Management (SCM) refers to the management of the flow of products, people, activities or information from procurement to the delivery at its final destination. Logistics is a part of the entire supply chain process. SCM is a series of interrelated activities pertaining to conversion of raw material to finished goods and its transportation to the end user. Multiple organisations collaborate to make this chain of activities successful.
Supply chain management comprises software and material handling for the entire set of stakeholders involved in the product creation – including manufacturers, suppliers, logistics providers and retailers. It involves planning, executive, quality control and monitoring of the entire activities involved.
SCM plays a vital part of any business and is responsible for streamlining the entire production and flow of goods and services in a business. It helps organisations achieve operational excellence and helps them gain a competitive advantage.
Relationship between logistics and supply chain management
As discussed above, supply chain involves the entire production and distribution of goods and services. It helps businesses bring value to their customers. Logistics is used to coordinate the storage and shipping of goods/services across the supply chain. While many people use logistics and supply chain management interchangeably, the two terms involve different activities.
Logistics is a component in supply chain management, and its goal is to deliver to customer on time and at competitive prices. It largely focusses on the internal movement of goods and is used for the movement and storage of products in the supply chain. Supply chain management is responsible to provide strategic direction to guide the logistics process. Its goal is to use processes that ensures that the flow of goods is efficient. Here are the similarities between logistics and supply chain management.
How logistics and supply chain management are similar:
- Focus on delivery of goods and services
- Revolve around the same flow – suppliers to the manufacturers, and then final consumer.
- Work towards enhancing customers’ satisfaction
- Support the company to have an edge over competitors.
Differences between logistics and supply chain management
Considering the relationship between logistics and supply chain management, it reveals that while they intersect at several points, they differ in terms of scope and focus. Let us understand the key differences between logistics and supply chain management.
- Logistics involves activities within the supply chain management. On the other hand, SCM activities involve, apart from logistics, production, inventory planning, labour planning, material management, facilities management, manufacturing and delivering goods and services.
- The focus of logistics is on the efficient delivery of goods and services to customers at competitive pricing. On the other hand, supply chain management is responsible for development of raw materials into finished goods to facilitate the delivery process.
- The primary goal of logistics is to cater to customer needs and create satisfaction while supply chain management emphasises on process improvement to create competitive advantages.
Let us put into perspective the difference between logistics and supply chain management in tabular form:
|Supply chain management
|Logistics is one section in supply chain management process.
|Supply chain management covers a wider collection of activities comprising planning, sourcing materials, labour and facilities management, production and delivery.
|The focus of logistics is on efficient delivery of goods and services at competitive prices.
|Supply chain management focusses on enhanced operational performance to give a competitive edge to businesses.
|Logistics goes back to historic times and was used in wars to plan man and equipment. Alexander the Great, born 356 B.C. was believed to have used logistics.
|The practice of supply chain management is contemporary and is believed to have started in the 20th century. Keith Oliver is attributed to be the logistician who coined the term in the early 1980s while the Ford Motor Company fine-tuned the process.
|Logistics is solely focussed on the movement and transport of goods
|Supply chain management targets higher operational performance and involves many organisations to offer a competitive edge to businesses.
Difference between physical distribution logistics and supply chain management
Physical distribution refers to the movement of goods from a company’s production centre to the end user. It involves supply chain activities including warehousing, inventory control, order processing, retail fulfillment, and shipping. SCM is bigger in scope than physical distribution as it encompasses materials management task as well. Supply chain encompassed procurement of inputs, in-bound logistics, physical distribution/ marketing logistics and channel functions.
Another related term is operations management that is concerned with business practices used to maximise efficiency within an organisation. The primary difference between supply chain management and operations management lies in the fact that while supply chain deals with resources from external places, operations management deals in internal processes.
Difference between logistics and procurement
Logistics and procurement are both an integral part of the supply chain management process. Procurement refers to the process of sourcing goods and services whereas logistics facilitates transport, warehousing and other activities related to delivery, maintenance, and return. Procurement can therefore also use logistics services to organise and store orders. This is termed as procurement logistics, and it includes other activities like quality control, inventory management, etc. Logistics is similar to procurement as here you have to “procure” delivery services here as opposed to procure materials.
To sum up: SCM vs logistics vs procurement
Logistics and supply chain management play a pivotal role in the manufacturing process. Each supplement each other to enhance business efficiency and build customer satisfaction. Procurement is a part of both processes as it involves sourcing, storage, and movement of goods.
As a business owner, if you are looking for solutions to ease your logistics challenges, consider nexarc Logistics, a logistics service provided by Tata nexarc, that enables emerging businesses to find reliable logistics partners at affordable prices. Some of the benefits that nexarc Logistics offer include the lowest prices, comparative rates from partners, wide pin code coverage and the availability of the complete logistics cycle on one dashboard.