Supply Chain Vs Logistics: What Is The Difference?
Updated 22 September 2022
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Companies expand their operations by optimising their supply chains and organising logistics as their businesses grow. This helps turn useful materials into finished products or services, enhancing profitability and meeting the consumer's value proposition. If you want to explore career paths in supply chain management or logistics, it is essential to know the difference between them. In this article, we look at supply chain vs logistics, highlight their definitions and review their importance.
Defining Supply Chain Vs Logistics
Understanding supply chain vs logistics can help professionals and companies enhance customer service and get a competitive edge. To understand the differences, it is important to learn the definitions of each. A supply chain encompasses producing and selling goods and services, while logistics involves storing, transporting, packaging and delivering goods and services.
What Is A Supply Chain?
A supply chain is a network of organisations, resources and activities involved in producing and selling products or services to the end users. Modern supply chains include various steps such as procuring raw materials, manufacturing the materials into basic parts, assembling individual parts into finished products and selling and delivering the products to end users. The supply chain management involves creating, managing and optimising a supply chain. Companies require supply chain models depending on business requirements. Some models include:
Continuous flow model
Continuous flow models offer stability to companies working under high-demand situations with minor variations in products or services. It is ideal for manufacturers who produce the same goods over a long period. Commodity manufacturing is a good example of the sector that benefits from this model.
Related: 8 Supply Chain Software Tools (With Features And Tips)
Businesses that deal primarily with products with unpredictable demand, speciality items or made-to-order products may benefit from the agile supply chain management model. It focuses on the supply chain's ability to amplify during certain occasions while remaining static when the demand is low. This model also concerns processes designed for small batches requiring occasional extra quantities.
Related: 5 Steps To Write An Effective Supply Chain Resume Objective
Flexible models allow businesses to meet the high demand and manage long periods of low-volume work. It focuses on using technical strengths in product and process engineering. This model is capable of stockpiling critical resources and is swiftly configurable.
Efficient chain model
An efficient chain model is ideal for highly competitive businesses, where efficiency and pricing are key factors. This model focuses on maximising machinery utilisation and maintaining the equipment's efficiency. It relies on high accuracy in forecasting, which is crucial to ensuring product availability and delivering orders on time.
Related: What Is A Supply Chain? (With Supply Chain Types And Steps)
What Is Logistics?
Logistics is part of a supply chain responsible for managing and delivering various goods, services and information to the end users. Logistics also concerns the storage and warehousing of products. Incorporating logistics into a company's operations can take many forms. Here are the types of logistics:
Inbound logistics is the network that supplies goods or resources to businesses, which involves raw materials or finished products required for assembly. This requires a steady flow of resources for the production output and the right warehouse capacity required to produce and store products. It is important for companies to optimise their inbound logistics with third-party logistics (3PL) providers to meet their operational objectives.
Related: What Is A 3PL Company? A Guide To Third-Party Logistics
Outbound logistics is the network involved with storing, transporting and delivering finished products to the end users. Companies often store their products in distribution centres and later transfer them to carriers for final delivery. It is important for companies to optimise their outbound logistics by handling the labour, resources and equipment.
Reverse logistics involves moving items or goods back through the supply chain from the end-users back to the company. It is essential for companies to handle product retrievals as part of excellent customer service and as an active measure. The flow of products encompasses activities following the point of sale and occurs when customers return the products or the products need repairs, reselling, refurbishing, recycling, servicing, disposal or recovering. Reverse logistics is common in the automotive, e-commerce retail and electronics industries.
Related: What Are Logistics Skills? (Importance And Examples)
Warehousing providers help companies with storage needs before delivering goods to the customers. Some providers specialise in integrated operations of storage and transportation. Warehousing can assist companies with leveraging seasonal goods and improving production quality and order processing.
Related: What Is An Inventory Manager? (Plus How To Become One)
Importance Of Supply Chain
Here are some reasons supply chain management is key to successful businesses:
A supply chain helps in maintaining inventory levels and enhancing demand forecasting. Companies can take proper measures to purchase, store and profit from inventory through inventory tracking, order management, transfer management, automated shipping and reporting and analytics. This helps fulfil orders at the right time, enhances internal communication, reduces supply chain costs and ensures on-time delivery.
Related: What Is Demand Forecasting? (With Types And Benefits)
Improvement in cash flow
A supply chain can enable companies to build a sustainable cash reserve during disruptions, errors in forecasting and technology problems. Efficient supply chains help them predict the resource and product requirements as per the customer demand. This helps in assessing financial metrics and improving their cash flow.
Related: Format Of A Cash Flow Statement (With Methods And Examples)
Maintain good relations with distributors
The collaborative nature of supply chain management helps maintain good relations with suppliers and distributors. Companies can focus on building strong relationships with them where they can share confidential information, make joint improvements and improve effectiveness and efficiency on both sides. Collaboration also facilitates innovation, an essential component of growth and resilience.
Importance Of Logistics
Companies require improving their logistics to take their businesses forward. Here are some reasons logistics are essential for a company:
Logistics is an essential part of a supply chain. Companies can partner with other companies to assist them with warehousing and transportation, which helps reduce costs. They can also take the help of 3PL providers to outsource warehousing and transportation, leading to a better reputation and improved business efficiency.
Related: What Is Cost Of Production? (With Factors That Affect It)
Customer satisfaction is critical to gaining a competitive advantage for companies. Good logistics can help build a solid customer base, ensure repeat clientele and improve the brand image. Strong logistics also ensures the smooth functioning of service quality and retention of current customers.
Companies can improve on-time delivery by focusing on the right logistics and fulfilment strategy. Logistics ensures that the right products reach the right place and time by analysing key metrics, processes and long-term goals. It provides safe and fast shipping aligned with evolving customer needs.
Related: How To Manage Customer Relationships: A Complete Guide
Comparing Supply Chain Vs Logistics
There are some key differences between the supply chain and logistics, even though people often use the terms interchangeably. Here are some differences between the two terms:
The concept of supply chain management (SCM) encompasses a series of activities that involve coordination between partners involved in the network, including sourcing, manufacturing, transportation, storage and selling. Logistics management encompasses activities, such as stock management, stock control, warehousing and order fulfilment. It is an integral component of supply chain management.
Logistics focuses on meeting customer needs, while supply chain focuses on competitive advantage. In SCM, the goal is to plan, manage and store products and goods between their inception and consumption. Logistics management aims to deliver the right products to the right end users at the right time. The SCM system tracks the progress of raw materials from the producer to the manufacturer. Those goods get distributed to retailers or directly to consumers. Logistics concerns transporting and moving goods within a company.
Supply chain management oversees the conversion of raw materials into finished products. During this process, companies negotiate supplier prices, review production numbers, collaborate with end users and review their logistics. Logistic processes manage the delivery of products with efficiency and at reasonable costs.
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