Understanding Difference between Supply Chain Management and Logistics
Supply Chain Management comprises activities that involve the acquisition of raw materials, manufacturing, and production. This also includes supply to the respective customers or destination.
Logistics on the other hand is the term denoting the method of handling products in a department. It is done in a specific time mentioned in the inventory document. The status and the whereabouts of various inventories are maintained. So, we can safely say that logistics is the process of designing the movement of products in various departments using special methods to increase efficiency.
Both of these terms are not new to the fashionable business world and other areas involving different activities. It has become tough for people to point out if an activity comes under logistical management or supply chain management. It is so prevalent that sometimes some people use these terms interchangeably. However, these two terms are significantly different and have notable differences. In the next sections, we will understand in detail about both these terms and how they are different from each other.
Goals of Logistics and Supply Chain Management
One of the main differences between these two is that their goals and objectives differ within a company. The target of logistics within a firm is to ensure that the customer is in a position of getting satisfactory results while interacting with the organization. The logistical officers ensure that the purchasers are able to easily access their needs.
On the other hand, the objective of supply chain management is that the corporate has a competitive advantage in the effectiveness and efficiency of the whole operation of creating the product and its delivery. Supply chain management ensures that the firm procures raw materials at lower prices and sells fully finished goods at significantly higher or most suitable prices.
Organizations Involved in Logistics and Supply Chain
The number of organizations who are involved in both activities is another parameter to assuage the difference between the two terms. Logistics is involved in activities of a single organization as there are not any logistical activities that need to be done while interacting with other firms. Therefore, it can be concluded that the logistical operations are mostly limited to private organizations.
On the other hand, supply chain management involves multiple point interaction with different corporates on daily basis. The interaction involves meeting with organizations for raw materials, transportation of finished goods, and purchasing/selling finished products.
Evolution of Logistics and Supply Chain
The evolution of logistics and supply chain is also one of the elemental differences between the two terms. If historians are to be believed, logistics has been there since ages and still exists despite technological advancements.
Whereas, Supply Chain Management is a relatively modern technology that emerged within the 19th century. It is developed so much in order that all businesses and government departments have now incorporated it.
Within Departments and Sections
The number of departments/sections involved in these two also shows some significant difference between the two practices. It should be noted that the no. of departments is higher in supply chain management compared to those within the logistical department. This is mostly due to the very fact that the supply chain management process interacts with multiple organizations. The number of the departments/sections includes warehouse, inventory, and transportation.
Relationship between Processes
There is a big relationship between the two processes. Although the differences between the two processes might make some people think they are entirely different, in essence, the logistical department is a section of supply chain management that handles specific tasks.
Further, the supply chain management handles operations without interfering within the services of the administration. This is often the rationale behind some organizations not having an operational or logistical department but have an operational supply chain management department to handle the logistical matters.
Relationship with Other Departments
Just like their interactions with other firms where supply chain management systems are in a position to interact with other companies, they also have a foothold in interaction while cooperating with other departments of the company.
However, the logistical administration of the Companies don’t have a major role in interacting with other departments. With supply chain management there is a high probability of interaction within the operations of entities through research, marketing, etc.
Objectives of Supply Chain Management (SCM)
Maximizing Value Generated
The higher the profitability of SCM, the higher is the success rate of the organisation. Supply chain profitability is the prime difference between the quantity paid by the end customer to get a product and the cost incurred by a firm in its manufacturing and supply to the customer. The other essential objective of SCM is to realize the cost-quality balance and its optimization.
Find Search sources of Cost and Revenue
Customers are the only source of revenue for any organisation. Therefore, there must be appropriate management of the data of customers, products, and funds. It is a key to the success of the supply chain.
Shortening the Delivery Time
SCM aims to downscale the time consumed between ordering and fulfillment of an Order. The SCM aims to satisfy the customer with guaranteed delivery of top quality products at low cost and in a lesser time period.
Managing the demand during a high rush period is also a task associated with management of supplies. The key objective of the process is to fulfil customer’s demands through efficient resources. SCM aims for flexibility in managing the resources at hand whenever the demand is high or low. This incorporates better control mechanisms and flexible planning of resources.
SCM aims to ensure improved distribution for finished goods. It aims to maximize the distributor’s efficiency. Marketers or distributors are able to optimize the level of distribution by using all the resources that are available.
Another objective of the SCM is to scale back the system-wide cost incurred by a company to satisfy service requirements.
There are other sub-objectives which are part of these objectives.
- Reducing inventory with the cost chain,
- Reducing warehousing costs,
- Accelerating money to cash cycle,
- Reduction in delivery times;
- Improvement in reliability of goods delivery;
- Safeguarding supply time.
SCM is an integral part of business operations and is an essential part of a company’s success and customer satisfaction. In the following segment, we will check out the importance of SCM.
Advantages of Supply Chain Management
Boosts Customer Service
Customers expect the companies to deliver proper products and expect them to be delivered at the proper location. They expect the right delivery time and also excellent after-sales support. Customers expect products to be serviced quickly. Therefore, considering all of this, the importance of SCM is critical for any firm.
Reduces Operation Cost
Retailers depend on the supply chain to deliver expensive products on time to avoid holding cost inventories in stores. Manufacturers believe the supply chain to reliably deliver materials to the supply side to avoid material shortages.
Improves Financial Position
Firms value supply chain managers because they assist in control and reduction of supply chain costs. It not only saves costs but also dramatically increases a firm’s profits. Firms appreciate the added value SCM gives to the speed of product delivery to the customer.
Momentum of Production
SCM streamlines everything! From product flow to unexpected natural disasters, an effective SCM can diagnose any kind of problem easily for an organisation.
Integrated and Co-operative Logistics
SCM is the necessity of foundation in all societies. Effective supply chain meets the requirements of producers and consumers easily. It has an integrated approach towards management of resources.
Functions of Supply Chain Management
The functions of SCM include the following:
The first function of SCM is purchasing raw materials. During the manufacturing process, raw materials are needed. It is essential that these materials are procured and delivered on time with a lower cost. Post that, the assembly can begin. So, to carry out this process and avoid delays, strict coordination with suppliers and delivery companies is needed.
Forecasting and demand planning is required before materials are procured because the demand market shall dictate what percentage units are to be produced and the way much material is required for production. This function in SCM is significant as organizations accurately forecast demand to avoid having an insufficient or excessive amount of inventory that might cause revenue losses. Therefore, forecasting and demand planning should be tied in with inventory management, production, and shipping.
Logistics may be the part of SCM that coordinates all the planning aspects, purchasing, production, and transportation to ensure that products reach the end consumer without hindrances. It is essential to have coordination within multiple departments so that the products are quickly shipped to customers.
Resource management ensures that the resources are allocated to the activities in an optimized way. It ensures an optimized production schedule is carried out to maximise operations efficiency.
Sharing information for distribution in an efficient manner is what keeps functions of supply chain management going smoothly. If the information workflow or communication is poor, it can badly impact the whole chain.
Future of Logistics and SCM
The standards set by companies in distribution of goods within a brief span of time has set the bar higher for both SCM and logistics. However, if anyone wants to stay on the path of growth they must be able to embrace the newest technological innovations. Technology is the key to success within all areas of supply chain and logistics management. It relies on the willingness of a company to adopt new technologies and business models.
Differentiating logistics and supply chain management is a crucial thing altogether. It helps in measuring the performance of each department in a good manner. Further, by understanding the role of each department, conflicts of interests can be avoided. Therefore, every business should consider understanding what differentiates these two terms.