Even people studying in the fields of “logistics” and “supply chain management” may be a little unclear over the differences and similarities between the terms. Let’s have a look at these business topics to help achieve clarity.
Logistics and Supply Chain Management
Logistics and supply chain management are concepts that both apply to supply chains. So, what is a “supply chain”?
A supply chain is a system by which good or service is brought to a customer. The system transforms raw materials, energy, information or human inputs into products delivered to customers.
The term “chain” reflects that the process can be conceptualised as a series of steps. The supply chain starts with initial inputs and early suppliers and finishes with the distribution of a product. Each distinct business activity required for the process to work could be considered a link within the supply chain.
How logistics relates to supply chains
Logistics refers to “the careful organization of a complicated activity so that it happens in a successful and effective way” (Cambridge Dictionary). Within a supply chain, many complicated activities exist. Logistics is how the inter-connected links within the supply chain are consistently maintained.
Supply chain management
Supply chain management literally refers to the act of managing a supply chain. Since we imagine a supply chain as consisting of a series of steps, the term refers to managing the flows of goods and services from one business activity to the next.
Similarities and Convergence
With good reason, “logistics” and “supply chain management” are often used interchangeably. The terms are very similar and, in a sense, converge and become indistinguishable.
Remember that logistics refers to the careful organisation of a complicated activity. A piece of a supply chain can be a complicated activity. But so can a whole supply chain. Therefore, “logistics” may refer to managing a piece of a supply chain or the whole chain itself.
Supply chain management refers to literally managing a supply chain. But is it the whole supply chain? No.
Modern supply chains are extremely complicated. The computer device you are looking at now probably contains inputs and parts from many countries across the world. Each part was produced on the back of a complex supply chain as well.
When we talk about “managing a supply chain”, we almost always only mean a segment of a supply chain. Therefore, just like “logistics”, “supply chain management” refers to managing a piece of a supply chain. Only in theory could the whole chain be managed.
Many people treat the term “logistics” as an inwardly focused, introspective function. But logistics can be as limited or as broad as you like. Logistics, although a noun, tends to be a doing word or an action or planning process.
“Supply chain” was coined to describe the actual links and linking of the processes from inputs to customer. Consequently, many might argue that, while logistics is introverted, supply chain management is extroverted — looking outwards, expanding. It encompasses customer service, e-commerce, working capital — not only in terms of inventory but also payables and receivables — and information exchange.
My stance is that “supply chain management” defines the functional links involved in managing the flow of products, information and services from our supplier’s suppliers to our customer’s customer. The activity depends on where in the supply chain our business is placed. “Logistics” is the process that makes it all happen.
Study Logistics / Supply Chain Management
Logistics and supply chain management is a field of study in business. As with fields such as “marketing” or “accounting”, you can major in it as part of a business program. You could, for example, get the major as part of a Bachelor of Business or Master of Commerce degree.
It’s an interesting study area that produces job opportunities. As well, you gain analytical skills that are valued by industry in general. For more information, see the courses page.
History of the Terms
The debate over the terms “logistics” and “supply chain management” is an interesting one that will continue to grow as evolving technologies give us new methods of conducting business, especially online.
To debate the issue, we should look at where the terms originated and assess whether they will they serve us in the future. As an industry, we should decide if the term “logistics” describes what we do or if a newer description would serve us better.
Evolution of manufacturing
In the 1970s and 1980s, business structures were broken down into their functional areas such as warehouse management, purchasing, manufacturing and inventory management.
With the transformations of the manufacturing industries by the introduction of Material Requirements Planning (MRP) technologies, came the need to coordinate many functions which were previously separate “silos” jointly organised. This created internal interface issues.
Along with MRP, came the term “materials management” — which took into account the inventory, warehousing and purchasing functions, but fell short of the complete picture or process.
Birth of the term “logistics”
As the MRP philosophies embedded deeper into organisations, the role of materials management expanded, in some organisations to the point of controlling all but the manufacturing functions. At this stage, the term “logistics” was born.
Logistics began to analyse and massage the supply chain and encroached on the hallowed turf of manufacturing. This became a tug-of-war, “war” being the operative word, between the analytical theories of logisticians and manufacturing doctrine: of bigger machines, longer runs, masses of inventory, a thirst for capital and an internalised view of cost reductions based on unit costs.
The logisticians also battled the warehouse and distribution managers who wanted bigger warehouses to hold the masses of inventory, and the distribution managers who wanted bigger fleets and bigger trucks!
Sales were also at loggerheads since they believed that to achieve 100% DIFOT (delivery in full and on time) masses of inventory were required. It seemed that logistics was alienating itself from the whole organisation.
Fortunately, dare I say, it was the accountants and business managers, convinced by the numbers, who sided with the logisticians giving them the power to start rebuilding the supply chain.
Emergence of the term “supply chain”
The further up the chain the logisticians looked, the savings increased. The further down the chain they went, the customer service levels increased. Of course, we needed a term to describe the functions which linked raw materials to finished goods and the customer, hence the “supply chain”.
The question is, should logistics professionals continue to change the title of their positions and professional bodies as newer, so-called all encompassing terms evolve?
I liken the term “logistics” to that of accounting (some may burn me as a heretic for this). As every new accounting evolution has occurred, accountants have assimilated the changes both in function and title. Accountants have evolved from those backroom historians who relentlessly told us what happened two months ago into today’s diverse body of individuals specialising in cost accounting.
Likewise with logistics, we should assimilate the changes. Therefore, the terms should become “supply chain logistics”, “e-commerce logistics” and “web logistics”. Ah, it is all so clear!