A quick online query into the latest supply chain news will no doubt pull up numerous links with logistics in the title. While issues related to supply chain management often involve logistics and vice versa, the two industries are, indeed, separate. Let’s take a look at some of the key differences, and why the distinction matters.
Terms of Confusion
The definitions of supply chain management and logistics have become a bit murky over the years. Logistics is a military term that has been used to describe a distinct industry for decades. The term supply chain management, however, only started to become popularized in the mid-1990s. But, by 2005, the Council of Logistics Management (CLM) had changed its name to the Council of Supply Chain Management Professionals (CSCMP). This contributed to the intermingling of the understanding of the two terms. Elijah Ray, former president of CLM explained the reason for the name change saying, “People in our profession now have an expanded and more critical role within our companies than we did ten or even five years ago. We interact with more people within and outside our organizations. Our roles have evolved, which is why CLM is changing to reflect what’s happening in the supply chain. The organization will also become more inclusive to others that play important roles in the supply chain.”
Adding to the confusion is the fact that in the U.S. what is referred to as supply chain management is known in Europe as logistics. It doesn’t help that both industries share similarities. They both intersect with many of the same areas of business like storage, inventory control, and transportation, but they have separate functions and different goals.
Supply Chain Management Explained
The overall goal of supply chain management is to gain a competitive advantage by making sure all internal processes are optimized and external communications are streamlined. Supply chain management is a system that is responsible for monitoring and controlling every aspect of a product’s lifecycle. It makes sure all the necessary steps are taken in order to bring a product to market. A well-tuned supply chain management system is one that oversees procurement, customer service, sales forecasting, and yes, logistics. It facilitates smooth collaboration with manufacturers, retailers, wholesalers, and suppliers. These collaborative relationships help keep consumer prices low and lead to the development of new technologies and improved processes. But, what about logistics?
Logistics falls under the umbrella of supply chain management. It’s just one facet of SCM. It works within the supply chain to control the product movement. It’s the aspect of supply chain that focuses on activities related to the actual tracking of inventory and handling of a product from manufacturing to delivery. These activities include transportation, warehousing, and distribution and other similar functions. Shipping companies, transportation providers and logistics partners are all considered to be in the logistics category.
There are two categories of logistics: inbound logistics and outbound logistics. Inbound logistics deals with the transportation, storage, and delivery of goods as they come into a business. Outbound logistics refers to storage, transportation, and activities that move the product from the warehouse to the end user.
Pamela Ton, Procurement Analyst at Northrop Grumman Aerospace Systems summarized the distinctions perfectly when she said, “Logistics is just one component of a supply chain. Logistics has to do with the coordination and movement of goods. Supply chain involves multiple facets such as operations and procurement that keep a company running smoothly.”
Supply chain management and logistics work together and support each other. But, they cannot function independently nor can the terms be used interchangeably. To avoid costly misunderstandings and wasted time, special care should be made to clarify that you and your suppliers, buyers, and partners are on the same page when it comes to the correct term. For more information contact JIT Services. JIT Services is a recognized industry leader in providing supply chain management solutions with warehousing, fulfillment, and distribution centers in Huntsville, Alabama, Indianapolis, Indiana, Nogales, Arizona and Guadalajara, Mexico.