The discussion between Logistics and supply chain management remains an important topic among professionals, academicians, and researchers. With the supply chain covering a broad range of disciplines, the definition of what is logistics and supply chain, and what is the difference can be unclear. Often SCM can be confused with the term logistics management.
Let us first look at the definition of Supply chain management:
What is Supply Chain Management?
As per the definition given by the Council of Supply Chain Management Professionals, Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.
In layman’s terms we can say that supply chain management is nothing but the management of three flows, that are:
- Flow of information
- Flow of finance and
- Flow of Material
Now let us try to understand supply chain management with an example:
For manufacturing cookies, a factory needs flour, water, sugar, salt, flavorings like chocolate and vanilla and dairy products like butter and milk. The factory can’t produce a single cookie without these ingredients and would usually depend on suppliers for them, which is where supply chain management comes in. The relationship between vendor and manufacturer is a very important one.
One of the best examples of supply chain management can be the supply chain of Apple, coca cola, amazon and Zara clothing which with their unique supply chain characteristics practices have become industry leaders.
Now let us look at what is logistics management:
So, as per the definition Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption to meet customers’ requirements. Or in layman’s terms, we can say that logistics is nothing but scientific management of movement and storage of goods.
For example, in the oil and gas industry, logistics involves managing the pipelines, trucks, storage facilities, and distribution centers that handle oil as it is transformed along the supply chain.
Logistics Vs Supply Chain
Now let us look at the difference between logistics and supply chain management:
- The objective primarily of logistics management is customer satisfaction whereas the objective of the supply chain is a providing competitive advantage.
- Logistics is more operational whereas supply chain is more strategic. So, we can say that supply chain decisions are majorly long terms whereas logistics management
- Logistics management focuses on the movement and storage of products whereas supply chain is an overarching term focusing on three kinds of flows, that is the flow of products, the flow of finance and the flow of information.
- Logistics management evolved from a military and defense background and became more relevant in the business world post second world war whereas supply chain is a term that evolved after 1982 when Keith Oliver in an interview coined this term.
- In logistics management, the number of parties involved is a few whereas in supply chain management multiple parties are involved and coordination and collaboration among suppliers, intermediaries, distributors and customers are involved in supply chain management.
- Some studies also suggest that marketing, sales, product research and development are also a part of the supply chain whereas they are not a part of logistics management.
Hence, logistics is an activity within the supply chain, or we can say that logistics management is a component of supply chain management.
To conclude we can take an example by considering SCM in terms of the human body. All its parts collaborate to keep life going by performing vital and executive functions. Consider logistics to be the circulatory and nervous systems. All the components and processes in the chain (the body) are important, but some are critical.
A human being can function without an arm or a leg, but not without a brain and a heart. If logistics functions similarly to the nervous and circulatory systems, we can conclude that it oversees both essential physical flows (blood circulation) and information flows (brain communication controls).
Finally, a strong supply chain gives every organization involved a competitive advantage. While the overall supply chain is responsible for marketplace success and revenues, logistics is critical in ensuring raw materials, parts, and finished products flow smoothly through the global supply chain.