You may have noticed that logistics and supply chain management are often used interchangeably. Does that mean that these two concepts are the same? Well, it might depend on whom you ask. Many professionals will tell you that they are, while others will vow the opposite.
So what is a supply chain? What is logistics? What are their key attributes? Then, what is logistics and supply chain management, and are they different? By the end of this article, you will get answers to all of these questions and have a clear understanding of these complex concepts. So, let’s get started.
Before we get to what supply chain management is, its different features, and how logistics factors in, we should start from the beginning – with the supply chain definition.
A supply chain encompasses all the operations that are involved in sourcing, creating, and delivering a product or service to a customer. A supply chain consists of a network of individuals, organizations, information, technology, resources, and activities that are utilized in conjunction.
To give the simplest of examples, a supply chain encompasses everything from the moment iron ore is extracted to the moment it becomes cutlery and is delivered to a customer.
From the above, it can be easily deduced what supply chain management (SCM) is – managing all the operations that are involved in a supply chain. However, supply chain management is more.
Supply chain management is the efficient management of procurement, production, storage, and transportation operations that connect customers, distributors, manufacturers, and suppliers.
The purpose of SCM is to optimize processes and ensure an effective flow of goods. It includes linking multiple activities:
Procurement and sourcing
We have explained, in broad strokes, what a supply chain and supply chain management are. But there are many more features of a supply chain that you should understand to grasp the entire picture, starting with the different models.
Efficiency and responsiveness are core features of every supply chain. However, although these qualities are integrated into each and every one, there are subcategorizations of supply chains partly based on which quality is stressed. Three other features additionally affect the categorization of supply chains: the industry framework, the business offer, and the management focus.
Consequently, there are 6 supply chain models:
The continuous supply chain – the continuous supply chain model is mostly implemented when businesses expect supply and demand stability. In simpler terms, an established brand that can expect a stable demand with minimal variations will utilize the continuous supply chain model. In this model, goods are continuously flowing and deliveries are regularly scheduled.
The fast supply chain – a fast supply chain model is primarily utilized for the flow of goods that have a short market lifecycle. In other words, a fast supply chain model focuses on the flow of popular, trendy goods, to maximize their value. This model emphasizes efficiency. For example, a fashion brand may implement this model when it puts out a new seasonal clothing line.
The “efficient” supply chain model – the efficient supply chain model is best suited for highly competitive industries, where multiple businesses are targeting the same customers with similar products. Because the inherent value of the products is similar, the competitive advantage is gained through the final price. The purpose of the efficient model is to optimize machinery usage and equipment efficiency to reduce the final cost of products. It also heavily relies on accurate market forecasts.
The agile supply chain model – the agile model is often used by organizations that produce specialty products, often on a make-to-order basis, and charge premium prices. An agile model must incorporate market sensitivity, process alignment, and virtual integration. The agile model should track market demands in real time and be able to respond to market volatility. To achieve this, each party in the supply chain should provide an equal contribution.
The custom-configured supply chain model – the custom-configured model is a combination of the agile and continuous models. The custom-configured model is used for products that can be assembled by combining finished parts in a limited set (i.e. custom configuration). The operations before the configuration itself are managed following the continuous supply model, while the downstream operations are managed under the agile model.
The flexible supply chain model – the flexible model is best suited for companies that expect to have high demand peaks, followed by periods of low demand. Flexible planning and process segmentation are critical for a successful supply chain model. A company utilizing the flexible model should be able to quickly adjust production levels and transport capacity.
Supply chains can further be subcategorized into upstream and downstream supply chains based on the flow of goods.
An upstream supply chain includes all the processes that relate to supplying manufacturers with materials. The upstream supply chain typically has three tiers of suppliers, based on the closeness to the business that sells the product:
Tier 3 – tier 3 supplies are usually those that produce raw materials.
Tier 2 – the tier 2 supplier is the one that procures the raw materials from the tier 3 supplier and delivers them to the tier 1 supplier.
Tier 1 – a tier 1 supplier is a partner, like a contracted manufacturing facility, that produces the end product.
A downstream supply chain includes all the post-manufacturing processes that have the goal of delivering finished products to the end user. The downstream supply chain can roughly be divided into three segments:
It should be noted that the flows (of money, materials, and information) are not linear in a supply chain, be it an upstream or downstream one. Money flows downstream to upstream, so from the customer to the retailers to the distributors to the manufacturers and further upstream.
Materials typically flow upstream to downstream, but the supply chain also needs to process returns, which can reverse the flow. In turn, this can also impact the flow of money. Finally, the flow of information needs to be continuous, both upstream and downstream, for a supply chain to function efficiently – this is where effective logistics and supply chain management is crucial.
By now, it has become clear that the procurement of materials is a key facet of any supply chain (if it was not clear already). But how important is sustainable procurement and what does it entail? In short, the importance of sustainable procurement is up to each company to decide.
However, the motive behind increasing sustainability is not only based on a company’s morals and beliefs – an increasing number of consumers are choosing to patronize companies that follow eco-friendly policies. Consequently, sustainability is quickly becoming a valid business model that can provide a competitive edge.
Sustainable procurement policies are those that align with environmental conservation and social protection. When implemented properly, sustainable procurement can have a number of benefits for a company
A 9 – 16% decrease in supply chain expenses.
Increasing brand visibility and improving a brand’s reputation.
Sustainable sourcing can also increase a company’s profits as many consumers are willing to pay more for sustainably sourced products.
Minimizing waste and the negative impact that a company’s operations have on the environment.
As was mentioned above, there are three types of flows in a supply chain – information, money, and products. Logistics primarily handles one of those flows – the physical movement and storage of goods.
However, logistics also encompasses the flow of information that relates to the movement or storage of goods or services from the point of origin to the end consumer. Thus, logistics handles:
As you can see, logistics plays a pivotal role in a supply chain, but it is not the entire supply chain. Thus, logistics and supply chain management are not the same. Logistics is one category of processes within a supply chain. The ultimate goal of logistics is to deliver the correct product to the end customer at the appointed time.
Broadly speaking, there are two types of logistics – inbound and outbound. Inbound logistics refers to the acquisition of materials, storage, and transportation. Outbound logistics, on the other hand, is concerned with all the activities that lead to delivering goods or services to the customer.
To relate this to the overall supply chain, inbound logistics deals with the logistics of the upstream supply chain while outbound logistics deals with the logistics of the downstream supply chain.
Finally, we can answer the question – are logistics and supply chain management the same? The answer is clearly no. So why then do people use the terms interchangeably? There are a few understandable reasons.
For one, while logistics is only one component of a supply chain, it is the most crucial and visible one. The other is that higher education regarding this topic has long been focused purely on the logistics aspect, while the more comprehensive supply chain management is a new field, relatively speaking.
To further compound the problem, there is also linguistic interference – what is commonly known as supply chain management is still often referred to as logistics management in some parts of Europe (even when it refers to comprehensive SCM as it was defined in this article). Thus, you can see why these two terms are so often mixed up.
But, again, logistics and supply chain management are not the same, at least as they are used in the modern U.S. context. To further elaborate, we will use prof. David Widdifield’s (the University of Texas at Dallas) example:
The supply chain can be represented by the human body. All parts of the body work in conjunction to maintain its functioning. However, some functions are more important than others. In this context, logistics is the circulatory and nervous systems. The human body could function without some body parts, but the circulatory and nervous systems are essential – this is the role logistics plays in the supply chain.
Now that we have discussed many of the features of a supply chain and explained the difference between it and logistics, let us focus a bit on a few less-known jobs a person can have within a supply chain. We will not be focusing on logistics and supply chain management jobs, as those are only a few well-known paths you can follow. There are many other positions, like:
Logistics analyst – the purpose of a logistics analyst is to improve logistics processes by analyzing data from supply chain processes. They are the foundational blocks of the information flow of a supply chain.
Storage and distribution managers – these positions are the boots on the ground of any logistics operation. They oversee the storage and distribution operations of a facility or of an entire company.
Procurement managers – they represent companies in negotiations and help formulate operative policies. They oversee the procurement of materials, goods, or services.
Production, Planning, and Expediting Clerk – this position is primarily in-house. The clerk organizes the flow of work and materials within a company to organize and optimize production.
Logistics is the blood flow of every supply chain. Efficient logistics operations can help you cut costs, improve efficiency, and increase customer satisfaction. If you need a partner you can trust to handle the logistics aspect of your organization, consider UNIVAL Logistics.
We will deliver your goods on schedule and minimize the chance of loss or damage. All of our vehicles are equipped with onboard tracking, so you will know where your goods are at all times. You can integrate your website with Unival’s API to optimize your processes. Finally, we offer full-value insurance for high-value items, so that you can be covered at all times.
Contact UNIVAL Logistics for efficient logistics services at premium rates.
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