The Difference Between Supply Chain Management and Logistics
Although the terms supply chain management and logistics are commonly used interchangeably, there are clear distinctions between them that business professionals should be aware of. Supply chain management covers every process from the sourcing of raw materials to delivery of a finished product to the end customer.
Alternatively, logistics refers to the movement and storage of raw materials and a finished product among third party supply chain organizations. Logistics is a single component of supply chain management, while the supply chain covers a much broader range of activities and processes.
The main objective of logistics is to achieve a competitive advantage and maximize profitability. A core objective of supply chain management is budget optimization. For every supply chain, but especially global supply chains, the two concepts are heavily reliant on one another.
An excellent supply chain management system that incorporates superior logistics impacts a business's productivity, efficiency, and effectiveness. The combination of properly executed logistics management and supply chain management results in increased bottom line profitability and business success.
How Logistics are Used in the Supply Chain
Without the use of logistics management supply chain management would be impossible to successfully perform. Not only would a finished product not arrive at the end customer, but raw materials would have never been shipped to the business to begin with.
Logistics management oversees the important supply chain management processes of-
- The production of data and documentation required for reporting and processing.
- Storage of goods including inventory management techniques.
- Identifying means to drive up business supply value.
- Planning movement of the finished product through different third party providers.
- Tracking the finished product movement throughout the entire transportation process.
While some businesses prefer to handle their logistics in-house, other businesses contract third party experts for their logistics management needs. Regardless of who oversees logistic management and supply chain management processes, consistency and communication are the foundation of both short and long term success.
5 significant benefits that businesses experience when properly using logistics in supply chain management include-
1. Faster Deliveries
Increased information technology products have resulted in more fast-paced consumer demand than ever before. Customers want the ability to order a product and have it delivered as quickly as possible, with sites like Amazon offering their members one-click ordering options and 1-2 day shipping speeds.
With improved supply chain logistics capabilities smaller businesses can accomplish reliable and timely deliveries. Not only do faster delivery speeds create competitive advantage but they also enhance customer service experiences.
2. Increased Accuracy
No matter how fast shipping speeds are, if an order arrives at the end customer damaged, with parts missing, or does not arrive at all, a business will then have to deal with a customer service issue. Customer service problems not only cost companies money but additionally have the potential to damage reputations and decrease customer retention rates.
Information technology tools and supply chain management software allow third party organizations throughout the supply chain to check the condition of a product before it reaches the end customer. Customers can even use supply chain network tools to track where their finished product currently is in the supply chain while anticipating its arrival.
3. Improved Customer Service
Providing consistently positive customer service experiences is foundational for any successful business. Unsurprisingly the processes of marketing, manufacturing, and logistics refer to customer demand forecasts and customer feedback for best practices development and implementation.
The ability to produce a strategy that meets and exceeds the needs of both potential and existing customers relies heavily on effective logistics management and supply chain management. Even after a strategy is implemented, businesses should always look for ways to increase and improve their customer service capabilities.
4. Business Development
Beyond benefiting an existing supply chain, logistics can help businesses to expand their operations or transfer from a domestic supply chain to a global supply chain more seamlessly. Effective logistics avoid disruptions in the supply chain during times of business change and growth.
Supply chain logistics and supply chain management best practices can be updated to meet extended customer demands and increased sales. Especially for businesses that already use a global supply chain or want to expand from a domestic to a global market, more additional third party providers will need to be added into the supply chain than ever before.
5. Resource Optimization
Effective logistics decrease supply chain management costs and as a result, increase profit margins. For example, outsourcing responsibilities involved in inventory management and delivery of a finished product can increase efficiency while decreasing costs incurred.
Labor costs are a large portion of every business's budget. When every third party supply chain organization is working collaboratively there is a decrease in unnecessary labor costs for all parties involved.
- Supply chains encompass all processes from sourcing of raw materials to finished product delivery. Logistics refers to the storage and movement of raw materials and a finished product throughout third party supply chain organizations.
- A business supply chain is heavily influenced by third party logistics. Used correctly together, profit margins and efficiency are significantly improved.
- Benefits of proper supply chain management and logistics management include faster deliveries, increased accuracy, improved customer service, business development, and resource optimization.