Logistics and Supply Chain Management, What is the Difference?
Why the Confusion?
Confusion over the terms supply chain and logistics management has grown over the last decade. Research would indicate that today the two terns are often used interchangeably, while others feel strongly that there are distinct differences. The combination of these viewpoints has led to the nebulous grey area where the global transport industry, among others, often finds itself today.
The bottom line is that the terms supply chain and logistics management are inextricably intertwined. While different enough to be recognized as individual terms or processes, the two are so tightly interwoven that they should not be considered separately.
Logistics and Supply Chain functions can and do frequently overlap. Many accept the premise that the term logistics has a narrower focus on activities involving product distribution and the strategic coordination of flows between marketing and production. In the case of the global transport industry this would translate into the relationship between transportation and distribution.
The focus of supply chain, on the other hand, additionally encompasses manufacturing, purchasing and procurement, which by their very nature enhance the focus by including third party suppliers, manufacturers and retailers. Even with these differences it is clear that logistics areas often cut across supply chain functions and vice versa.
Defining Supply Chain Management
Although the complexity and structure of supply chains vary depending on the industry and the organization’s size, in a nutshell it can be said that supply chain management encompasses the entire process from raw materials to the final customer. Effective SCM involves oversight and management of suppliers, buyers, vendors, customers, and any others on whom the organization depends on to deliver a product or service.
As consumer expectations around service speed and quality, cost, and choice continue to rise, an organization will compete to try and meet consumer demand. Successful SCM organizes the process to make this happen in a way that also keeps costs low while turning a profit.
Competitive pressures are intense in the global transport world, and SCM has had to keep up. Technology has evolved to expedite communications as well the flow of information. On board computers and GPS systems for vessels and vehicles, and electronic transmissions for orders and shipping information are just two examples of technologies that have raised the competitive bar and impacted SCM.
Three Levels of SCM Decision Making
Supply Chain Management processes and technology work to ensure the supply chain is operating efficiently at the lowest cost with optimum customer satisfaction. To this end, decisions are made at three distinct levels:
- Strategic: At the strategic level, organizations focus on high level decisions that impact the entire organization. Decisions often revolve around manufacturing site size and/or location, supplier partnerships, sales markets, or the products or services to be manufactured or delivered.
- Tactical: Tactical level decision making focuses on measures to generate cost benefits like adopting best practices, or creating a purchasing strategy with selected suppliers.
- Operational: Decisions at this level are made on a daily basis and impact how products/services move through the supply chain. Examples include production schedule changes or warehouse product movement.
Defining Logistics Management
Logistics Management can be defined in plain speak as the movement of products from beginning to end, and encompasses the activities involved along the way. This includes the planning, implementing and control of the flow (both forward and backward) and storage of goods, services, and related information between the point of origin and the point of consumption to meet customer requirements.
Logistics management begins with the creation of strategies to maintain the most cost effective service levels. As supply chains continue to change and evolve with regards to specific product lines to impact service levels, customer and market segments, so do the logistics strategies.
Three Levels of Logistics Management Decision Making
To develop a successful logistics management strategy decisions must be made on three distinct levels:
1. Strategic: Any successful strategy requires a review of how logistics management contributes to the organization’s high level SCM objectives.
2. Structural: The logistics strategy should examine the structural issues of the logistics organization, such as the optimum number of warehouses and distribution centers, or what products should be produced at a specific manufacturing plant.
3. Implementation: When deciding how to implement logistics management strategies company-wide, plans for an information system, new policy and procedure implementations, and a change management plan must be considered.
SCM v. LOGISTICS
The Case for SCM
If one studies the term Supply Chain Management from a historical perspective, it would appear SCM has become the more commonly used term, particularly with new and old industry associations alike including or changing their name to include the words “supply chain.”
To add fuel to the fire that SCM is the brighter star to that of logistics, Ken Ackerman, a noted logistics writer, has gone as far as to question the relationship between the growing popularity of supply chain concepts and logistics. He challenged the differences between the two and even questioned if it was time for the former (supply chain management) to replace the latter (logistics).
Companies increasingly rely on SCM as a key competitive weapon. Impressive results, including dramatic reductions in cycle time and accelerated cash flows, have been noted as a result of effective supply chain management.
The Case for Logistics
Many global transport organization activities reside under the logistics management umbrella, including warehousing, inventory management, private (i.e., in-house truck fleets) and purchased transportation such as air, water, highway or rail.
Logistics Management is an increasingly important part of competitive positioning from the perspective of the global transport industry. To stay competitive, exporters must make the right amount of product and services available in the right place at the right time.
Organizations Require Both Logistics and SCM to Succeed
Logistics management is concerned with the movement of goods and services from suppler to consumer. SCM shares this concern, but additionally is responsible for the flow of information and funds from supplier to consumer.
Perhaps this is why many in the industry believe that as long as there is a matrix-type relationship between the two, it should be up to the individual organization to decide what emphasis works best to meet its needs.
The verdict is clear. Given common concerns between the two, as well as the clear overlaps seen time and time again as logistics and SCM cross paths, it should be expected that SCM and logistics will both remain intrinsically intertwined and essential to organization success.
Author: Virginia Franco, Industry Contributor for Rasmussen & Simonsen Intl Pte Ltd