Supply chain management (SCM) is one of the main ways to optimize the budget of enterprises producing goods and/or services. It is an area of enterprises where innovations and digital disruption could radically transform the ordinary way of doing business. On the other hand, it is quite complex for transformation and needs narrow expertise.
At the same time, a great role in the supply chains is played by logistics - the management of physical, informational, and human flows to optimize them and avoid unnecessary waste of resources.
Below we will talk about the critical role of logistics management in supply chain management that includes many suppliers, transit points, as well as points of departure and destination. A deeper understanding of SCM can shed light on how to automate the routine processes and what objectives we should put before developing the proper software.
What is the Difference Between Logistics and Supply Chains?
Logistics and supply chain should not be confused. Logistics is a rather narrowly focused concept (narrower than the SCM), which simply means globalization of resource management — from every local unit to the entire network of production points.
In turn, supply chain management is a more complex category. Supply chain management involves logistics and thus performs end-to-end optimization - that is, not only within the enterprise but also when working with counterparties.
The purpose of efficient logistics management is to achieve maximum competitiveness and profitability of the company, as well as the entire network structure of supply chains, including the end-user. In this regard, the integration and introduction of innovations into the processes of supply chains and logistics should be aimed at increasing the overall productivity of all their participants.
Let’s take a closer look at the differences between logistic and supply chain management:
One is a subset of another
Probably the most significant difference that will help you grasp the concept of logistics and supply chain management is that logistics is a part of supply chain management. Supply chain management involves various tasks such as production and inventory planning, materials management, manufacturing, and delivery. At the same time, logistics is only about timely and optimized goods delivery and transportation, including tasks like stock management, warehousing, and packaging.
Logistics is a part of supply chain management involved with meeting customer needs and delivering products and services in the most efficient and accessible way. The supply chain focuses on the bigger picture and strives to enhance the business processes to create competitive advantages for a company.
Finally, considering logistics as a part of supply chain management allows us to recognize the difference in complexity of both terms. Logistics has been around for centuries and addresses activities associated with transportation management in the supply chain. Supply chain management came around in the modern world when the complexity of business processes and interactions became too high.
Nowadays, companies deal with suppliers, intermediaries, distributors, and customers, which is why the supply chain became an integral part of modern business.
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 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 function of logistics management;
- Working with written off and returned goods.
There is also such a thing as “reverse logistics”, which establishes the rules and routes for transporting the returned/discarded goods, as well as ways to dispose of them.
Challenges Logistics Helps to Overcome in Supply Chain Management
Given the above list of tasks that logistics performs in supply chain management, we can single out several advantages provided by its correct implementation:
- Minimization of enterprise expenses.
The main function of logistics in supply chain management is primarily to increase the overall value of each delivery, which is identified by customer satisfaction. This means that the reduction and optimization of labor resources must be tied to keeping up a certain level of quality customer service. This problem is solved both by reducing the total labor resources (primarily by eliminating unnecessary chain links) and by introducing automation solutions;
- Consolidation of traffic volumes.
Transportation costs are one of the largest expense categories in logistics management. They generally increase depending on the distance, batch size, and product exposure to damage. On the other hand, the transportation cost per unit of weight decreases as the lot size increases in the long run. Thus, the maximum consolidation of transportation volumes can help reduce transportation costs. Enlargement can be achieved by combining small lots into a single large one, intended for a long run (i.e., for a longer distance);
- Improving the quality of service.
Concerning the quality of service, it is primarily influenced by the speed of delivery of the goods to the end-user, as well as its transportation in proper conditions (for example, many products today are supplied with RFID tags so that both the manufacturer and the end customer could track whether all storage conditions are being observed during the transportation of the goods) and within the allowed time limits (this refers primarily to perishable goods);
- Reduction of actual losses and reduction of possible risks.
As you know, a business is profitable if the value it creates exceeds the costs associated with the implementation of activities. To achieve a competitive advantage, a company must either carry out these activities at lower costs or carry them out in a way that will lead to differentiation and price increment. The first thing to be done to effectively solve this problem is to reduce the losses that are associated with the return of goods.
It is very important to plan not only the routes on the way to the distributor or the end-user but also the routes by which the goods are delivered back to the warehouse or to the establishments for their disposal. The second factor affecting risk reduction is the correct planning of enterprise resources, which minimizes the likelihood of damage or loss of goods or manufacturing components on the way from the extraction of raw materials to delivery of the finished product/service to the end-user;
- Minimization of the need for intermediary services.
Intermediary services (transportation, storage, marketing, recycling, etc.) take up the lion's share of the cost of implementing supply chains. Experienced logisticians plan routes to minimize the need for involving third-party services for efficient logistics management;
Supporting goods with the necessary documentation. Insurance and support of documentation are two fundamental tasks of logistics, solving which helps to eliminate any problems associated with legal restrictions in the storage, transportation, and marketing of goods;
- Timely response to changing market demands.
Advanced logistics scenarios also help to quickly adapt to changing market requirements and, thereby, maintain top positions against the backdrop of competitors and remain in demand for the target audience.
Values Logistics Provides to the Supply Chain Business
Supply chain management with the help of logistics tools helps to ensure a consistently high level of customer service with some reduction in the cost of extracting raw materials, storing, transporting, and selling goods/services to end-users. Thus, the role of logistics in supply chain management is to carry the following values:
- ensuring the smooth operation of all parts of the supply chain.
Continuity of workflow is a rapid step towards both reducing the expenses and increasing overall customer satisfaction. Usually, this is achieved through proper planning and the formation of a fault-tolerant scheme of interaction between the individual links in the supply chain;
- release of labor resources.
On the other side of fault tolerance is the elimination of redundant elements (intermediaries), the participation of which entails additional costs. Thus, it is very important to find a balance in which the reduction in labor resources does not entail forced downtime during the implementation of supply chains;
- coverage of a new target audience.
Increasing overall customer satisfaction is a rapid step toward popularizing your brand by means of word of mouth. An additional advantage is a fact that such advertising (which is also one of the most effective methods) comes absolutely free for you;
- net cost reduction.
By eliminating many intermediary links in the supply chain, you will be able to reduce the net cost of a product or service and thus increase its availability to the end-user.
Let's sum up the role of logistics in supply chain management. As you can see, supply chain management and logistics are two inseparable concepts that help reduce the company's overall costs for producing goods and services and improve the overall impression of the level of service for your target audience. The choice of the right software also plays a significant role in optimizing logistic tasks. After all, automation today is at the head of the progress for industrial enterprises.
If you are interested in developing a customized solution for your business, particularly for optimizing supply chains and solving logistics problems, feel free to contact us at Artelogic. We will create budget-friendly but at the same time scalable and reliable products that you can customize to the specific needs of your company. Artelogic is a supply chain software development company that delivers high-quality solutions with custom features tailored for specific needs and requirements.
- What is the relationship between supply chain management and logistics?
Logistics is an essential part of supply chain management that deals with goods transportation, warehousing, stock control, and management, as well as efficient packaging. Although logistics is a large area that handles many tasks, it is only one part of a complex and diverse supply chain management system. Supply chain management addresses the entire production flow of a good or service, from raw materials to end-product delivery.
- What are the functions of transportation in supply chain management?
Transportation within the supply chain management scope refers to moving goods from one location to another. Transportation management in this context incorporates movement activities starting from delivering raw materials to manufacturers and ends with delivering end-products to customers. Applying proper strategies and know-how will help you to decrease costs through optimization and automated tasks.
- Importance of logistics in supply chain management and business
Logistics handles various tasks, including goods delivery, stock and inventory management, packaging, etc. Companies that manage to build a professional logistic department benefit from lower costs, higher production rates, efficient storage space usage, enhanced customer experience, and flawless inventory management.
- How the logistics activities contribute to the supply chain management processes
Logistics is an integral part of the supply chain management processes that can increase productivity and lower costs. Considering logistics as a part of supply chain management and looking at it systemically helps businesses reduce overhead costs and streamline delivery processes. Using strategic planning and collaborating with other departments allows companies to increase visibility and build transparent business processes.