Before reading this section write down in a separate piece of paper as to what your understanding of logistics and supply chain management is all about as that knowledge is further going to be enhanced post this reading. The simplest explanation going through your mind all over these days as what would the major difference be between logistics and supply Chain Management then you will get an answer to get a better clarity on that. In fact we have seen a lot of people use these 2 terms interchangeably without getting to knowing that they are different and related.
The simplest explanation that can be given about logistics and supply chain management is provided below and this based on the definition given in book authored by Michael Hugos in one of his books “Essentials of Supply Chain Management” and according to that: "Logistics would take into account all those activities within a single organization & supply chains shall connect to the networks of companies that work together. If we are to understand logistics and supply chain management then traditionally logistics laid focus on those activities related to procurement, distribution & inventory management. Supply chain management also includes marketing, new product development, finance, and customer service".
So from the above definitions of logistics and supply chain management it becomes clear that logistics management is primarily concerned about optimising the flows within the organisation and supply has to do with integrating all the partners along the value chain. So to say that logistics acts as a framework to create a unified plan to integrate those parts of the business like the flow of products & information would be an apt thing. The supply chain further builds this framework that logistics has created and seeks to strengthen the linkage and the interaction between the processes of other entities like the supplier & customer and the organisation itself.
To better understand the way both logistics and supply chain management work lets us drill more into either of them in detail.
Logistics-Structure in an organisation
During the olden days logistics related tasks were spread over under different departments but now has been refined in most cases to come under the ambit of one department called “the logistics department” and all these persons to be detailed below are to report to the logistics head.
• Inventory: At the lowest cost the optimum amount of products shall be available with the capability to satisfying the customer becomes the vital aspect of inventory. Though excess inventory may be beneficial in making up for deficiencies in network design in the bigger picture it results in higher total logistics cost. The best outcome in terms of efficiency is when there has been a higher turnover satisfying customer commitment.
• Network design: Becomes the logistics manager to ensure the facility and structure is being used for provision of products to the customers. Through the network design the type of inventory to be stocked is determined also must consider the geographical variations. The network of facilities must also include information and transportation as a part of entire structure from where the logistical operations such as inventory handling, customer orders and material handling happen. The geographical variations are also considered in network design. The factors that play a vital role in influencing the modification of network design are: Assortment of products, change of supplier source & demand & supply in addition to the requirements of manufacturing.
• Production Planning: This is closely linked with the Pareto’s principle that 20% of the marketed products constitute about 80% of the overall profits. So plan to have higher consistency in availability and delivery of more profitable products while maintaining the less profitable items also in stock to service the customer better. So the planning shall be that the slow moving items are available in the central distribution warehouse and service the core customers with a higher reliable transport service.
• Warehouse, packaging and material handling: The products to reach the customer need to be warehoused at times, loaded onto the transport vehicle and unloaded from packed cartons with utmost care. The various activities related to warehousing are sorting, sequencing of the products, order selection based on the indent raised for processing, transport consolidation & product despatch. Internally within the warehouse the products have to be received, moved, sorted and assembled based on the customer requirement. Fragile handling products are packed into cans, boxes or bottles and then placed in master cartons. These master cartons are then loaded into larger pallets or containers and then shipped.
• Information: The management of order & forecasting are the 2 major areas of logistical network that have this connect to information. Forecasting aids in inventory planning to satisfy customer requirement & order management deals with the specific customer requirement both internally & externally. External customers are either traders that purchase the products for resale and internal customers are the units of the organisation that require logistical support. Order management ranges from receipt of initial order, invoicing the requirement, delivery followed by collection of payment.
• Transport: Transportation provides for geographical position of the inventory and this is accomplished by companies through the presence of private fleet of vehicles, contracts with other transport service providers, case to case engagement of different shipping companies based on needs. The transportation performance can be affected by the consistency, cost and timely delivery of the product.
Impact of Logistics-Customer Service on Marketing
The age old methodology in marketing was primarily focussed on end to end customer to promote the brand values from the firm and create a demand pull in the market place for these products from the company. Due to the paradigm shift in the way marketing had to move ahead we are at this stage where the companies are taking efforts to build stronger relationship with intermediaries like retail store outlets to have a customer and consumer franchise. This strong effect creation can be enhanced with the effectiveness of supplier’s logistics system as a whole.
Supply Chain Network-Structure
A supply chain network consists of the following entities:
So if we are to see the difference overall then logistics and supply chain management will look like this: SCM comprises cross-functional and inter-enterprise logistics processes. For example forecasting which a part of logistics is shall lead to supply chain manufacturing strategies going beyond individual business. Initially the practitioners of logistics focus on the supply chain applications that interconnect with immediate suppliers, customers and the intermediaries. This way the relationship of logistics and supply chain management is established. More to understand the logistics and supply chain management better we have this: SCM, in its varying constructions & perceptions, is made a reality through its relationships among various business partners, reengineering, advancements in technology, and value analysis. All such innovations continually change the overall perception of Supply Chain Management and a relationship in logistics & supply chain management is born. This way though logistics and supply chain management are different are different their linkages are also now clearer to interpret.