ARTICLE TABLE OF CONTENTS
This is about SCM (Supply Chain Management) vs. logistics.
Do you know the difference between the two?
- What SCM is
- What logistics is
- What the differences are between SCM and logistics
- Lots more
It’s time for the first step!
SCM vs. Logistics
If you’re one of the many people who believe that logistics and supply chain management are the same thing, it’s a good thing you’re here.
Simply put, they’re not the same thing.
The two concepts are about as close as neighbors with kids the same age—they’re involved in each other’s lives, but only to a certain extent.
So, if they’re not the same, interchangeable concept, why is everyone so confused?
If you want to know the difference between logistics and supply chain management once and for all, then keep reading.
The Difference Between Logistics and Supply Chain Management
The two terms “logistics” and “supply chain management” (SCM for short) are often used interchangeably.
You even have people like Wayne Johnson of American Gypsum and Steve Park of Norwood Manufacturing claiming that there is little to no difference between the two concepts.
Others argue that SCM is a component of logistics and visa versa.
The point everyone seems to be making is that the two concepts are one and the same, and one cannot exist without the other.
What’s more confusing is that supply chain management in the United States is recognized as logistics management throughout Europe.
Universally speaking, the difference between logistics and supply chain management is one giant gray area.
Or is it?
Poh-tate-oh or Poh-tat-oh?
While the latitude and longitude lines of planes, trains, ships, and automobiles are blurred, each concept involves very distinctive and separate functions.
Supply chain management and logistics hold a similar relationship. However, they each have specific responsibilities and tasks that do not overlap.
In the most simple form, you can think of it this way: Supply chain management works as a network.
That network is comprised of manufacturers, suppliers, retailers, wholesalers, and so on. They are essentially the people in your neighborhood.
All of your neighbors most likely work different day jobs; however, they perform very similar daily tasks, don’t they?
Logistics refers to the immediate action of the SCM network. That action is moving the goods and supplies from point A to point B. It represents the people in your neighborhood engaging in the necessary daily tasks—taking out the trash, walking the dog, washing their dishes, etc.—that keep things moving and grooving. Those actions are just a fraction of your neighbors’ lives, just like logistics is only a fraction of supply chain management.
Supply Chain Management in Detail
Supply chain management is the very network that allows the collaboration between businesses, their suppliers, and their modes of delivery and distribution.
The purpose of this network is to link each process from development to deployment in a way that achieves a competitive advantage.
Supply chain management is important to businesses; its market revenue is expected to grow constantly over the next few years.
By the year 2023, it is forecasted that the SCM software market revenue would reach 8,650 million U.S. dollars:
Each organization within the supply chain network has to do their part and work together to manage the flow of goods and raw materials.
The end game here is to boost a company’s production efficiency and quality by streamlining each process involved, which ultimately provides more value for you, the customer.
Supply chain management is typically a network of the following:
- Innovation and product development
- Purchasing and sourcing materials
- Manufacturing and operations
- Logistics and distribution—there it is!
- Customer service
- Global, national, or local deployment
If each operation in the chain is one of your neighbors, then the supply chain manager is the neighborhood watch.
The neighborhood watchman, or woman, must oversee each neighbor or operation. They also have to collaborate with other multi-functional managers—because there’s more than one person that makes up the neighborhood watch group—to ensure that each operational process is planned and executed tactfully.
The Processes Involved in Supply chain Management
When you break down supply chain management into its tasks, you get the following processes:
- Procurement and purchasing
- Supply planning
- Demand planning
- Resource planning
- Inventory managing
- Logistics—there it is, yet again!
As we’ve mentioned before, the goal here is to gain a competitive advantage in your specific market. That means utilizing the most cost-effective and efficient methods for each operational process within your supply chain.
The typical chain of events begins with the procurement of raw materials or purchasing of whole materials, depending on what your business is.
For example, your business may involve purchasing textiles to manufacture garments, or perhaps your business consists of buying T-shirts from a wholesaler and putting your logos or designs on them.
Once you have your materials or supplies, it’s time to push them through the manufacturing process and make plans for distribution. It’s kind of like you and your neighbors getting together to plan a block party.
There’s a theme, a budget, an agreed-upon date and time, and different people in charge of food, decorations, and entertainment.
Everyone has a job to do, and everyone must work both independently and together to make the party happen.
Unless you’re the neighbor that doesn’t get their invite, then this metaphor doesn’t even concern you.
Logistics in Detail
Logistics is to supply chain management what Lebron James is to every team he gets traded to. In other words, it’s the MVP of the supply chain network. Without it, the entire team falls apart and that competitive advantage is lost.
While that was a bit dramatic, you get the point. Logistics is the science and technology behind each process of the supply chain. It allows for the planning, implementation, coordination, and transportation to happen efficiently from the storage of goods to their delivery.
Shown above are the top 3PL (third-party logistics) providers worldwide based on gross logistics revenue. Taking up the first spot is DHL Supply Chain & Global Forwarding with gross logistics revenue of 27,302 million U.S. dollars.
The goal behind logistics is to synchronize the supply chain processes to ensure that the customer receives the product at the right time and place. It also ensures the right quality and price of said product. It’s the brains behind the block party planning that lost your invitation.
The party planner, or logistics manager, is responsible for planning the policies, objectives, and initiatives concerning customer satisfaction. They create procedures that optimize workflow while minimizing cost, and they monitor the retailer selection as well as the distribution, transportation, inventory, and any business negotiations.
There Are Two Types of Logistics
Logistics is a big job, which is why the term initially referred to the transportation of army personnel and goods.
Of course, today, we use it in different contexts. Logistics doesn’t just concern the selling of products but also the packing and filling of orders, the handling of materials, warehousing, and managing inventory. Therefore, it’s broken down into two sub-categories: inbound logistics and outbound logistics.
Inbound logistics concerns tasks such as procuring, handling, storing, and transporting materials and supplies.
Outbound logistics concerns tasks such as collecting, maintaining, and distributing the final product to the customer.
The Processes Involved in Logistics
When you break down logistics into its overseen tasks, you get the following processes:
- Inbound transportation
- Outbound transportation
- Fleet management
- Handling, warehousing, and storage
- Reverse (return) logistics
- Packaging protection
- Materials handling
- Inventory management
- Order fulfillment
The primary role that logistics plays in the supply chain network is to ensure that the product reaches the customer. After all, if the products don’t reach the customers, then the business will fail.
But that’s not the only role logistics plays. Aside from customer satisfaction, the other goal in mind is to make the business as profitable as possible.
How does logistics ensure profitability?—by increasing the efficiency in which raw materials and supplies are purchased, transported, and stored.
To ensure the highest level of efficiency, logistics allows you to coordinate specific resources for timely delivery and use of said materials and supplies. Without it, your supply chain would get into situations like the product being stuck in the warehouse with no means of distribution.
Imagine the person in charge of the party decorations is late, and the person in charge of the burgers brought buns but no meat.
Now the party is lackluster, and the only thing to eat is bread. Aren’t you glad you didn’t attend now?
The Technology of Supply Chain Management and Logistics
The relationship between SCM and logistics depends almost entirely on technology. There’s different software for virtually any operation involving the two concepts.
Supply chain management relies heavily on software for its enterprise resource planning, tracking, customer service, and market research.
ERP (Enterprise resource planning) software acts as the backbone for the entire supply chain network. It collects the necessary information about the current status of each part of the network. It also tracks the current activity. This information is made available on a platform for all management parties to ensure efficiency.
For tracking packages that move through the supply chain, RFID (Radio Frequency Identification) is instrumental.
RFID works by using radio waves to scan, read, and register on the tags, labels, and postage on different packages.
Because RFID can scan and read the various labels from a distance and without being in the direct line of sight, materials, supplies, and products can be accounted for much quicker.
For the purpose of customer service and information, nearly every business today uses some form of CRM (Customer Relations Management) software.
CRM allows you and your business to manage a broad range of categories, including customer data, customer interactions, information access, and sales automation.
Lastly, there’s the analysis of extensive data sets, which is commonly referred to as “big data.”
Big data software computationally analyzes things like patterns, trends, and associations relating primarily to human behavior.
The Technology of Logistics
Logistics relies on software to create an entire user platform for daily operations such as transportation management and warehouse management.
TMS (Transportation Management System) software is a logistics platform that enables its users to manage daily operational tasks involving the transportation of materials and the distribution of products.
The software also helps to optimize transportation and distribution for maximum efficiency and cost-effectiveness.
In addition to TMS software, WMS (Warehouse Management System) software controls the daily warehouse operations. That means from the time the materials and products enter the warehouse until they leave, they’re under the control and management of the administrative user.
Shown in the chart below are the commonly purchased services from 3PL (third-party logistics) providers.
72% responded that they purchased logistics technology, TMS and WMS from 3PL providers.
As you can see, there’s a lot to manage under the scope of logistics within the supply chain network.
The technology utilized between the two allows for the gathering of data, the management of inventory, the planning and execution of transportation and distribution, and, most importantly, communication.
Supply Chain Management Vs. Logistics: Key Differences
It’s crucial to recognize logistics for what it is—an essential component in the supply chain management network—and one that, arguably, SCM cannot function without (and vice versa).
While it has quite the leadership role, there are certain events within the supply chain where logistics doesn’t necessarily have a place.
The following key differences demonstrate why the two terms should not be used interchangeably:
- Supply chain management involves linking critical business processes together. These processes exist within the business’ own network as well as across other companies. The overall linking of operations is what allows a business to enter a high-performance level by gaining a competitive advantage.
- Logistics involves the handling, storage, and movement of raw materials, supplies, and products. It also gathers information from both inside and outside of the business’ network.
- Supply chain management is primarily focused on gaining a competitive advantage within the business’s market.
- Logistics is primarily focused on the end result, i.e., meeting the customer requirements in terms of satisfaction, cost, delivery, and returns.
- Logistics is a technical component that has recently been implemented into the concept of supply chain management.
It all boils down to creation and tangibility.
The supply chain creates while the logistics put products and services in the hands of the customers.
Why Logistics is Essential to Supply Chain Management
Once the global economy made its way into the 21st century, logistics became a fundamental aspect of supply chain management—and it all has to do with consumer demand and profitability.
Shown below are percentages of the most frequently outsourced logistics services from 3PL providers such as warehousing and domestic and international transportation:
Considering how over-saturated the product markets have become, the focus isn’t just to deliver the product on time but to exceed customer expectations as well. In essence, logistics is what enables the supply chain to gain its advantage in a competitive market.
Once companies began implementing logistics management into their supply chain management, they saw how it influenced product movement. Not only did this make their customers happy, but it also reduced their overhead.
Of course, reduced overhead doesn’t come without strategic planning. It’s also entirely dependant on the partnerships created with suppliers, shipping services, and warehousers.
Once you form the right connections, you can implement an automated system that will connect everyone on a single platform where they can view the same information and work together.
Without logistics management, communication among your industry partners won’t be as efficient or timely, which will affect the overall flow of business.
Supply Chain Management Without Logistics
Today in 2020, we are all constantly connected via smartphones and devices. This is something that has invariably spiked customer demands as well as satisfaction, as we’re using the apps on our phones to place orders. It all happens within a matter of seconds, thanks to information storage software.
Of course, the faster we place our orders, the faster a business is expected to deliver.
A stable logistics management system will ensure that when your products are ordered, everything from data to product movement and delivery flows with top-notch efficiency.
In 2020, without a logistics management platform in place to connect everyone within your business’ network, your entire supply chain would collapse.
64% of retailers were able to adapt their supply chain for e-commerce while 28% suffered from shortages.
Logistics is an invaluable component of your supply chain. In today’s extremely competitive market, if you collapse, you will get trampled by the competition.
Understand SCM VS. ERP & SCM vs. CRM & SCM vs. SRM & SCM VS. PLM
The business community has a serious love affair with acronyms.
Sometimes, it’s virtually impossible to wade through the industry speak to decide if your business needs to focus on ERP vs. CRM or CRM vs. SCM, SRM vs. PLM, or any other configuration of systems for that matter.
Whether you’re an IT professional, barebones startup, a small or midsize business, or a global corporation, it’s incredibly crucial that you can parse through all this industry speak in order to make the most informed decisions for your business and its customers.
This article helps you out and provides you with all you need to know about how SCM exactly differs to other important systems: complete guide to ERP vs. CRM vs. SRM vs. SCM vs. PLM.
SCM as a Career
If you’re wondering whether SCM (Supply Chain Management) as a profession might be a good fit for you, then you have come to the right place!
Supply chain managers are an integral part of small and large companies, and the career path you can take with a degree in SCM is full of opportunities.
Any business that sells goods or services needs a supply chain manager. There are tons of available jobs in the field.
Find out here whether a SCM career suits you: supply chain management as a profession.