Logistics and supply chain management are standard business terms, and a day does not pass by without them getting mentioned in a business setting. Some experts believe that the two terms are very similar and can be used interchangeably. However, some differ from this belief.
These two have been used interchangeably in many countries; for instance, we have no other term for the supply chain management in America. However, the Europeans call it logistic management.
Although they seem similar, they differ factually. Let’s take a close look at each.
It is the process where goods are handled and managed within a department or in the organization. It is also associated with any activity that involves the movement and handling of goods. An inventory document tracks the movement and handling of the inventories.
Logistic management involves activities such as warehousing, transportation, packaging, among others. Logistics aims to ensure that the inventory gets delivered to the intended party at the right location and time.
Supply Chain Management
It involves all the activities in an organization and sometimes also includes some logistical aspects. Supply chain management starts from buying raw material to manufacturing and delivering the end product to your clients.
Most of these processes require coordination between various companies to ensure the quality of the inventories. For example, one company mines the raw material and another buys the raw material and manufactures or processes it, and the next company delivers the end product to the consumer.
Logistics VS Supply chain management: What are the differences?
The two refer to the same business practice. Logistics and supply chain management are all aspects of the supply, transfer and management of inventories and people. They all ensure that business operations are efficient.
However, though they may seem similar, supply chain management links the manufacturing, purchasing and distribution of goods into one process. It works with the manufacturers, retailers, suppliers and final consumers. The way it collaborates with the channels of distribution makes it provide efficient quality services. Logistics is critical in supply chain management.
Other differences are;
- Logistics management is the process in which goods are integrated and managed in an organization. In contrast, the supply chain is involved with the management or movement and coordination of supply chains of a business.
- Logistics management is concerned with client satisfaction, while supply chain management focuses more on the competitive advantage.
- Only one organization is involved in logistics management compared to supply chain management, which involves multiple businesses.
Supply chain management is concerned with planning, implementation and storage of inventory to meet consumer requirements. These processes occur between the point of origin of the goods and services and the point of consumption. In comparison, logistics management is only concerned with delivering the right product at the required time.
- Supply chain management comprises many interconnected activities linked and ensures the raw materials are handled until they are manufactured and reached. On the other hand, logistics management is concerned with warehousing, packaging, controlling and managing stock and fulfilling orders.
- Supply chain management is a broad term that involves the connection of supplies and manufacturers to consumers. On the other hand, logistics management is only involved with how goods are stored and managed.
The Five Basic Steps of Supply Chain Management
Before any chain management process begins, you should first plan. Since the aim is to deliver the goods at the right time and place, look for components that will help you, such as delivery models, the business’s location, designing and warehouse, among other essential things. It would help if you also came up with a model of how you will transport the goods and where they will be stored.
After planning, you should identify the vendors or suppliers that will help you obtain the goods and services to meet the demand efficiently and cost-effectively. Since supplies have to meet specific quality standards before operating, they will supply you with quality goods.
You can source for both perishable and non-perishable goods. But if you are sourcing for perishable goods, give the supplier minimal lead time to help you with the minimal inventory approach. Whereas when sourcing for non-perishable products, ensure that the supplier quotes a lead time that is less than the period in which the inventory reaches zero. Doing so safeguards you from losing inventory.
After getting the product, you should transform it into a final product according to the consumer’s taste and preferences. At this stage, activities such as testing, assembling and packaging occur. You can also get feedback from the consumers. The feedback will help you make any necessary product improvement.
Delivering helps with both direct and indirect integration of the business with its clients. It can make or destroy the brand image of your business. When the consumers order a product, they have high expectations in your logistics and delivery channels. Businesses use different freights such as air and road, or rail and road, to have an easy and fast delivery.
A consumer may sometimes return a product after a delivery has been made. This step is concerned with the return of products, and it is often referred to as “Reverse Logistics.” A supply management system should ensure that their relationship with the final consumers does not deteriorate.
The step is also reversed: a business can return inventory to the supplier. Often, low-quality expired or undesired goods are returned to the vendors.
The Logistics Functions Within Supply Chain Management
It is where a buyer sends a purchase order to a supplier. The document contains the details of the product which the buyer wishes to be supplied, its price, the preferred delivery period, taxes, payment terms and any other terms that they have agreed upon.
It is concerned with keeping enough inventories to fulfill client needs and ensure that the inventory carrying cost becomes lower. In short, it is an exercise that ensures that the business does not lose a market opportunity and does not incur huge costs when doing so.
It is a logistic process where the finished goods are stored until they get sold.
Transportation is needed for the products to move from the supplier to the buyer. It is a crucial element of logistics.
Material Handling and Storage System
How fast the inventory moves in a supply chain is dependent on your handling systems. If the business has an improper material handling method, delays, damages and incidental overheads will increase.
It would help if you automated or mechanized your material handling.
It influences the logistical system. Logistical packaging helps in damage protection, economizing storage space and handling of the inventories.
How Logistics Can Help Improve Efficiency and Reduce Costs
If your business uses an automated logistics system, your operational efficiency will increase. Also, it increases scalability and minimizes manual errors.
- Logistics reduces costs since it focuses on;
- Labour costs,
- Preventive maintenance
- Use of systems and tactical technology
- The customer; and
- Suppliers for logistics cost reduction
Supply Chain Management Challenges and How to Overcome Them Through Logistics
An organization should provide its customers with the right quantity of the right goods or services to the right location and the right moment. However, an organization may fail at this. To succeed, set up a stable system or visual channel that updates the customers on how the product is fairing and inform them of any developing changes.
If there is an increase in energy prices, the number of global customers, labour rates and other factors, your operating costs may increase. When this happens, you need to invest in the right technology to reduce logistics and supply management’s additional costs. Also, you should have a plan that you monitor closely and apply change when it is necessary.
Planning and Risk Management
Some changes can appear from nowhere and greatly affect your logistics and supply chain management. Such changes include; new political agendas, launching a new product, sudden consumer demands and credit availability. For your business to be effective and efficient at all times, it should conduct periodic redesigns and assessments.
Supplier Relationship Management
The supplier may sometimes not follow the set standards, which significantly affects your inventory. A business and its suppliers should build a strong relationship that will help each one understand one another’s needs better. And the easiest way of doing this is by using visibility and communication.
Finding someone who is qualified and has the talent to manage inventory is sometimes challenging. And even if you find one, it is tough to groom them for this role.
How Less Platform Can Help Optimize Logistics and Supply Chain Management
The Less Platform will equip you with the route planning software to reduce product delivery time from the supplier. It will also help you;
- Minimize the unnecessary work-hours of your planners
- Use few transportation vehicles for the same purpose; and
- Help you find the most co-efficient route.
Check out Less Platform’s video demo for mobile here.
In conclusion, these two practices are fundamental. Although they are different, they must work together to achieve the bigger goal of providing products to the consumer.
Vardan Markosyan is the CEO at Less® Platform
MBA from the University of Chicago Booth School of Business
PhD in Economics from the Institute of Economy of NAS RA
He spent decades of research and consultancy on business process optimization and system design