There is no doubt that with globalisation, business supply chains are increasing in complexity. Competition is rising and growth targets need to be met. So firms are moving into new markets, sourcing raw materials from new locations, or even moving production.
Understanding supply chain management and its differentiation from logistics is crucial. Both are vital to the success of a business.
In this article, we will explain the difference between logistics and supply chain management. We’ll explore why they get confused and which your company should focus on.
Supply Chain Management (SCM) definition
Supply chain management is the planning and execution of all processes involved in a products entire journey through a business. So, this includes the purchasing of raw materials and their journey into the company. Then they are manufactured into a product and distribution into the hands of the consumer.
Supply chain management also includes the planning of this journey, before making any purchase and continuous analysis of the whole process for potential improvements.
Logistics definition
Logistics is the transportation of all raw materials and products within a business. It includes managing any storage, facilities, equipment, and personnel required to get materials between set points along a supply chain.
How supply chain management is different from logistics
The best way to explain the difference is that logistics operates within supply chain management.
Supply chain management is a very broad term, covering the whole picture for the movement of products through a business.
That includes planning and continually analysing processes for inefficiencies. Key decisions around the sourcing of raw materials, labour and facilities falls under SCM. Ensuring the business has the resources to handle all these raw materials, turn them into products and distribute them.
Meanwhile, logistics only covers the movement and storage of goods between set points. Points which have already been agreed by the supply chain management. When people talk about logistics and organising the moving of goods, it’s the supply chain management which set the framework.
So, there is crossover between the two terms. Let’s look at a pen company as an example.
Logistics would cover organising the shipping of ink and plastic from suppliers to the manufacturing plant. Responding to disruption along the routes when it appears. Ensuring there is a continuous flow of these raw materials into the plant and staff are in the right place at the right time to load, unload and manufacture. Then booking warehouse space to store finished pens. Before arranging their distribution to chosen sales markets, including completing relevant customs documentation.
Supply chain management would cover all that, plus additional business critical decisions. Such as, where to source the ink and plastic for the product. Assessing whether there is a better transport method to use. Making sure the company has enough qualified personnel and the right machines on site to move and manufacture pens. Evaluating whether the best commodity code is being used.
Then packaging up and choosing where to store the finished pens until distribution to the chosen target market. Finally, assessing the transportation method used for their distribution.
Continually weighing up the positives and negatives of all these tiny steps to maximise returns, is where supply chain management is different to logistics. Always analysing for inefficiencies.
Could we source plastic from closer to our manufacturing plant? Are we utilising all our factory space? Is our transportation as eco-friendly as it could be? Can we get a cheaper storage rate elsewhere? Could we slimline our storage and distribute pens immediately? Are there any changes that could be made to the customs declaration which could save time?
All those big, analytical decisions fall under supply chain management, but outside logistics, which is only the day-to-day management.
Where does the confusion lie between SCM and logistics?
Distinguishing between supply chain management and logistics has become blurry, due to the overlap between the two. Ultimately, they are both terms are describing the movement of goods around a business.
Supply chain management is all encompassing. It includes everything which goes on as part of logistics. But adds the planning, analysis, and improvement of every stage.
Logistics is the processes of moving items around the business. So that does include arranging transportation, and organisation of staffing to keep things moving. But, key decisions on recruitment would be supply chain management level.
Both terms are a large part of whether a company achieves its objectives. Both are aiming to drive costs down whilst satisfying customer expectations. It's just SCM is a bigger picture term.
Which should you focus on?
The reality is that you will be extremely focused on logistics already. It's a vital part of the framework of any business. Whether in consultation with external partners, such as a freight forwarder, or via an internal logistics department, or both.
So, the question is whether you are focussing on supply chain management as well? Continual analysis of every aspect of your supply lines is an increasingly essential part of business. Do you have the right data available to make decisions on product sourcing, all the way to finished product? That is an essential part of turning your supply chain into a competitive advantage in 2022.
How do you improve supply chain management?
There are several ways you can boost your supply chain management capabilities. Let’s look at some of the most significant ones:
- Building relationships
- Better relationships with all your logistics partners, or forging new ones is likely to improve your entire supply chain.
- You’ll pick up information, advice, and guidance from specialists in the field.
- Visibility tools
- On the market these days there are countless visibility tools at your disposal. The aim of these is to provide a complete picture of your business's supply chain, which can drive SCM improvements.
- We have a separate article on the importance of supply chain visibility linked below.
- Consultancy
- Like building relationships, recruiting some consultancy from a supply chain expert can improve SCM.
- Their experience in the field will provide a new perspective on your supply chain.
- Inventory level management
- Monitoring stock levels can give you a good indication of whether there is excess storage in your supply chain.
If you're looking for guidance on improving the inbound and outbound logistics in your supply chain, then read our article here.
The benefits of a greater focus on SCM
Reduced costs and an improved bottom line is the principal benefit of focusing more on supply chain management in the long term. Although it will likely need some up-front investment, over time there should be savings.
Other benefits of supply chain management are the inefficiencies that can be found and eliminated. Wastage is money in business. Visibility tools can give you access to data, which was previously impossible to aid key decision-making.
Furthermore, a greater focus on SCM can lead to higher customer satisfaction. Product lead time is reduced, and supply lines are more robust to external shocks.
Essentially, business cogs fit altogether more succinctly, and the company runs better.
The WTA Platform, our visibility tool, can dramatically improving supply chain management. It allows users to view the complete picture of their supply lines from one online portal, accessible from any computer or mobile device.
Over time our tool tracks cost and time data to give you crucial insights that can transform your supply chain management.
Smooth logistics are crucial to the success of any business. Incorrect decisions can be financially costly and give an edge to your competitors. But it is supply chain management that involves the vital steps of planning, analysing, and improving to give you a competitive edge. That is how to build a robust supply line in 2022.
