Within the transportation industry, the terms “logistics” and “supply chain” are often used interchangeably. Understandably, this can lead to a great deal of confusion amongst people who are trying to define their targets, especially because these are very much distinct areas. Each of them involves different responsibilities, duties, and processes.
The confusion in separating between logistics and supply chain may be explained by the fact that most people consider logistics to be a subcategory of supply chain management. The primary difference between logistics and supply chain is the fact that logistics is simply a specialized part of the entire supply chain process.
Understanding the basics – logistics
Normally speaking, logistics will focus on the actual storage and transportation of goods. It deals with things such as warehousing, storage, communications during transit, reverse shipping, and inbound and outbound freight. In addition to that, logistics also deals with fleet management, coordination among third-party carriers, the delivery of goods and freight, and the actual transportation of goods from one point to another. Depending on that specific company’s needs, logistics management may also include customer service, communications, technology, party integration and procurement, price negotiation for different aspects of transportation, and manufacturing and packaging.
Understanding the basics – supply chain
Most of the time, when talking about supply chain, we mean everything that is involved in the bigger picture. You can look at supply chain as the umbrella that encompasses all aspects of the procurement and sourcing of goods. Essentially, supply chain management manages and forms business-to-business links that enable the company to sell its goods to its consumers. Logistics meanwhile is about getting your freight from one place to the next, a function that is only a single part of the entire process, despite falling under the wide umbrella of supply chain management.
Supply chain management is an integrating, broad process that combines many other aspects besides logistics. These aspects may include inventory control, packaging, storage, manufacturing, negotiating pricing, finding and obtaining the goods that you are going to sell, and more. Supply chain management also includes the management of supply and demand, third-party negotiation and collaboration, cost allocation and control, and distribution.
The broad umbrella of supply chain management
One of the reasons that much of supply chain management has split off into different subcategories is because supply chain management covers such broad territory. Examples of different subcategories may include such things as demand planning, which is a related but separate area of expertise, just as logistics is.
Overlap can occur – variations are possible
It is important to realize that the precise definitions and details for both logistics and supply chain can vary from company to company. In fact, they may even overlap to a certain degree. Because of their essential nature, both the responsibilities and duties that are standard for supply chain management will cross over into logistics management, and vice versa.
Depending on the specialization and size of your particular company, the two may even be joined together as one. In some smaller companies, it is possible for the same person to be responsible for both logistics and supply chain management.
This is one of the reasons that it is important that if you get involved in logistics management or supply chain management for a new company, you have clear parameters of what your responsibilities are going to be. Otherwise, it might lead to a very confusing and frustrating experience. Even though it is clear to see why some still continue to use these two words interchangeably, there is no denying that there is a clear difference between both definitions.