Supply chain management and logistics share many similarities, to the point where the terms are sometimes used interchangeably. However, business owners should understand some key distinctions between the two.
Both are needed to ensure the movement of goods, but logistics is a much smaller part of the process. End-to-end supply chain management follows raw materials until they become finished goods.
The most important distinction is that logistics is one part of the supply chain and is essential to good supply chain performance. A supply chain might have many different types of logistics and logistics providers within it, all dedicated to helping the overall supply chain run smoothly.
A supply chain represents the complete framework for sourcing, manufacturing, and supplying products. However, each logistics operation is only responsible for a self-contained part of the supply chain.
Supply chain management (SCM) is the active coordination of goods and services from businesses to their end destinations. It covers the entire global supply chain, from sourcing of raw materials through the production process to the delivery of the finished product to end consumers.
For most companies, the supply chain starts with the procurement of raw materials. Businesses select suppliers based on the quality of the materials and the price. Those raw materials are then transported to a manufacturing or processing facility, where they are turned into finished products. Quality control performs inspections to ensure each item meets company standards.
Next in the supply chain is the sale of the product or service. The final step is the delivery of finished goods to retail stores or an individual buyer. In some cases, supply chain management includes handling product returns and recalls.
Supply Chain Management Example:
The supply chain for a clothing company procures fabric from third-party suppliers. The fabric is then sent to a manufacturing facility to be cut and sewn into clothing items.
Each finished garment is then available for purchase, either directly to buyers through an eCommerce website, or to retailers who sell to in-person customers. SCM systems control these processes until the final product is delivered to the end user.
In the business world, logistics involves the movement and storage of goods from the point of origin to the point of consumption. This process is generally based on internal points within the supply chain. For instance, logistics can control the movement of finished goods to a warehouse or distribution to customers, but may not cover the transport of raw materials to a factory.
Logistics management overlaps with warehouse or inventory management solutions as it records where products physically are as they move along the supply chain. When an item is sold, logistics is used to find its location in storage and track its transportation journey to the buyer.
A home goods company uses a warehouse to store assembled furniture before it is sent to the showroom. Logistics optimizes the storage of each piece for easier retrieval when a sale has been made.
Logistics may also be used for determining how to arrange a truck for product transportation. These two processes are both part of logistics, but remain independent of each other.
Both supply chain management and logistics control the movement of goods along the supply chain. They can also incorporate warehouse management and inventory control software to track where assets or finished goods are at all times. Also, they both use transportation management systems to make shipments as quick and efficient as possible.
Another key similarity lies in how they help businesses plan ahead. For instance, both use forecasting to anticipate customer demand and adjust production. This forecasting helps organizations implement lean or just-in-time manufacturing methodologies, keeping costs down by only producing what is needed at any given time.
Logistics and the supply chain both move products around, yet supply chain management also covers purchasing from partners, manufacturing or assembling goods, and meeting customer demand. SCM is “big picture,” covering every step of the supply network, while logistics only covers the internal movement of goods.
In short, logistics are a component of supply chain management strategies used by businesses. The main logistical components of SCM include:
You can think of the supply chain as internal and external, while logistics is solely internal. SCM attempts to coordinate between all companies involved in \creating and selling goods and services. In contrast, logistics only deals with a single organization.
Supply chain management strategies with logistics helps businesses improve procurement, production, and distribution. Combined with these best practices, companies can cut costs and improve customer satisfaction.
1. Source backup vendors for a steady supply of materials The start of the supply chain is always the same: sourcing raw materials. Supplier relationships are important, but businesses must have backup vendors readily available in case of disruptions. These vendors should be thoroughly vetted to ensure business continuity and material quality.
2. Improve inventory organization to avoid delays A warehouse with overstocked shelves and an unmarked layout can lead to substantial delays when retrieving goods for buyers. Keep the supply chain moving by using logistics to arrange inventory for easier retrieval.
Organizational systems range from digitized to alphabetical or numerical. Other systems might categorize goods based on SKUs or size and color arrangements.
3. Use quality control for better products and happier customers Businesses can ensure customer satisfaction with detailed quality assurance practices. Perform regular inspections and constantly seek ways to improve your processes to create better products.
This extra attention to detail also includes the proper handling of fragile or temperature-controlled assets which require additional care.
Supply chain management software automates end-to-end supply chain processes, including logistics. Streamlining these processes means faster deliveries, lower costs, and happier customers. Cloud-based SCM solutions offer businesses a competitive advantage as global supply networks grow and require faster, real-time responses to disruptions.
Third-party logistics (3PL) software is another solution used by companies that outsource distribution, warehousing, and fulfillment. This is useful for smaller companies which need to coordinate the flow of goods through multiple locations, vendors, or end-retailers.