What is Logistics and Supply chain management?
“Logistics typically refers to activities that occur within the boundaries of a single
organization and Supply Chain refers to networks of companies that work together and
coordinate their actions to deliver a product to market. Also, traditional logistics focuses its
attention on activities such as procurement, distribution, maintenance, and inventory
management. Supply Chain Management (SCM) acknowledges all of traditional logistics and
also includes activities such as marketing, new product development, finance, and customer
service” – Michael Hugos
Supply Chain Management
As you saw in the video, supply chain management is the process of managing the
movement of the raw materials and parts from the beginning of production through
delivery to the consumer. In many organizations, operational supply chain decisions are
made hundreds of times each day affecting how products are developed, manufactured,
moved, and sold.
The complexity of the supply chain varies with the size of the business and the intricacy and
quantity of items manufactured, but most supply chains have elements in common, such as
the following:
Customers: Customers start the chain of events when they decide to purchase a product
that has been offered for sale by a company. If the product has to be manufactured, the
sales order will include a requirement that needs to be fulfilled by the production facility.
Planning: The planning department will create a production plan to produce the products
to fulfill the customer’s orders. To manufacture the products, the company will then
have to purchase the raw materials needed.
Purchasing: The purchasing department receives a list of raw materials and services
required by the production department to complete the customers’ orders.
Inventory: The raw materials are received from the suppliers, checked for quality and
accuracy, and moved into the warehouse.
Production: Based on a production plan, the raw materials are moved to the production
area. These raw materials are used to manufacture the finished products ordered by the
customer and then sent to the warehouse where they await shipping.
Logistics
When used in a business sense, logistics is the management of the flow of things between
the point of origin and the point of consumption in order to meet requirements of
customers or corporations. The resources managed in logistics can include physical items
such as food, materials, animals, equipment, and liquids, as well as abstract items, such as
time and information.
The logistics of physical items usually involves the integration of information flow, material
handling, production, packaging, inventory, transportation, and warehousing. There is often
confusion over the difference between logistics and supply chains.
It is now generally accepted that logistics refers to activities within one
company/organization related to the distribution of a product, whereas supply chain also
encompasses manufacturing and procurement and therefore has a much broader focus, as
it involves multiple enterprises, including suppliers, manufacturers, and retailers, working
together to meet a customer’s need for a product or service.
Supply chain management vs logistics
While logistics is a rather large part of supply chain management, it is still only a part of an
even larger picture. The key difference is that, while logistics is concerned with supply chain
processes in a vacuum, supply chain management takes a holistic and contextual
approach. Think of it like this ….
Logistics asks, “The customer wants [product]. How do we get it to them?”
Supply chain management asks, “How can we improve our supply chain processes to
provide more value to our customers and outperform our competition?”
Logistics are vital to your overall supply chain management efforts. After all, if your
company literally isn’t able to physically move your products from Point A to Point B, there’s
no way you’ll be able to succeed as a business.
But, supply chain management involves much more than physically delivering your
products. In involves improving the intertwining and tangential aspects of manufacturing,
storage, delivery, and fulfillment in a way that maximizes your organization’s productivity
and allows your business to truly soar.
The Functions Of Logistics Within Supply Chain Management
If we systematize all areas of logistics that need to be developed for the rational
management of production resources, we can single out the following functions:
Warehouse design and management. This role of logistics in supply chain
management covers several tasks at once: from the design of storage facilities to the
requirements for storage of products and ending with the introduction of various
automation solutions (for example, for machinery intended for transporting goods within
warehouses);
The formation of packages. Packaging, tracking and accounting – all of these tasks allow
for end-to-end control of goods on the way to the customer/distributor;
Transportation of products. This includes work with cargo carriers and vehicles listed in
the company’s fleet: planning their routes, calculating fuel costs, etc.;
Working with customs. When an enterprise plans international delivery of goods, it is
very important that during their transportation the goods fully comply with customs
requirements and contain all the necessary documentation;
Working with intermediaries. Intermediaries in logistics are all third-party, non-company
resources that are directly involved in the implementation of supply chains. In turn,
finding intermediaries with the most acceptable ratio of quality to cost of services, as
well as establishing long-term, reliable relations with them are also included in the list of
tasks for efficient logistics management