Business

Supply chain management vs logistics

Supply chain management and logistics are often considered to be two sides of the same coin. To put it simply, what is considered to be logistics management in Europe is more commonly known as supply chain management in the United States.

What is Supply Chain Management and Logistics?

A supply chain refers to a network or multiple companies that work together and need to coordinate their actions in order to get a product delivered to a market. Logistics on the other hand refers to those activities that are undertaken by a single organisation.

Traditionally, logistics concerns itself with activities such as distribution, procurement, inventory management and maintenance. Supply chain management can be considered to be the combination of traditional logistics and other activities such as new product development, marketing, customer service and finance. In a nutshell, logistics is a subset of supply chain management. 

What is Logistics?

Logistics means fulfilment of 7 R’s which is getting the right product, in the right quantity, to the right customer, in the right condition, at the right time, at the right cost and at the right place.

Each of these services- transport, warehouse which involves the use of heavy duty containers, production planning, purchasing and customer service were earlier classified into different departments, but they have been brought under the integrated logistics department and usually report to the same head.

What is Logistics Management?

According to Paul Schönsleben, logistics management is largely related to the effective and efficient management of the daily activities that a company needs to undertake to produce the finished goods and services.

Difference between Outbound and Inbound Logistics

Outbound logistics is concerned with the finished goods reaching the customers after being dispatched from the company. Inbound logistics on the other hand refer to the movement of raw materials and goods which takes place between the suppliers and the company. 

Warehouse and Purchasing function are known as the supplier facing functions as they involve communication with suppliers. Inventory control function and production planning is the center point of this chart. Similarly, transport and customer service are known as the customer facing functions as involve communication with customers. 

What are Transport and Logistics?

There are two types of activities that transport and logistics refer to and these are the traditional services of transportation by sea/air/land transportation, customs clearance, warehousing and value added services such as consulting and information technology. 

What is meant by Supply Chain Management?

The definition of supply chain management varies greatly as each researcher defines it differently. Following is one such definition by Michael Hugos.

Supply chain management refers to the collective effort undertaken by several companies to coordinate their inventory, production, transportation and location to maximise their efficiency and responsiveness to best serve their market.

What is Supply Chains?

According to Martin Christopher, supply chain refers to the network of companies that work in coalition and are involved in different activities and processes with the common objective of creating value for customers in the form of services and products. 

What is Supply Chain Network?

Different companies have different ways of dealing with supply chain management. Some companies have a dedicated department which controls supply chain activity which means that it is one function for them. Some companies believe that it is a type of management system and that it needs to be part of IT (enterprise resource planning or information system). 

In reality, supply chain management is a network which consists of supplier, manufacturer, wholesaler and retailer. There may be other players involved in real life examples, but for the sake of understanding we have assumed the above four players. 

What is really meant by management is planning, implementing and controlling and therefore supply chain management means planning, implementing and controlling of the network. 

What is information sharing?

Another crucial aspect of supply chain management system is the flow of information, material and finance. Even though it is concerned with three types of flow, the most crucial one is information sharing or information flow.

Let us suppose that the demand data of customers is not shared. This leads to speculation by each player involved in the same supply chain which can go on to become a management issue. If the retailer raises a demand for 100 units and at every step of the process, each player keeps more stock, it can drastically increase the costs that need to be incurred by each player in the supply chain. 

This situation can be easily avoided by transmitting correct information to each player in the supply chain. When the individual teams that handle demand management in each of the players’ organisations from the retailer to the supplier, there is no need for speculating a higher demand and keeping extra stock. This can effectively lower the cost for every player in the supply chain. This is sometimes known as supply chain visibility or extended supply chain. 

Effective information sharing eliminates the need to use solutions such as digital supply chain, supply chain systems, artificial intelligence or predictive analytics. 

What is Supply chain coordination?

In order to share information efficiently, there needs to be a certain level of coordination (integration or collaboration). The earliest examples of supply chain coordination dates back to 1984 when companies in the apparel industry reduced their overall lead-time by working together. A similar trend began in 1995 when organisations in the automotive industry started sharing information by using Electronic Data Interchange.

What is meant by supply chain relationship?

Long term relationship is important for those who want to work as the same team. In the absence of a good relationship, every player in the supply chain is reduced to a separate entity with a different agenda/strategy. For this reason, it is advised that companies must focus on building good and long term relationships to improve the overall efficiency of the supply chain.

Supply chain management and logistics are terms that are often used interchangeably. Some are of the opinion that there is absolutely no difference between them and that supply chain management is merely the ‘new’ logistics.

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