Supply Chain Management and How SCM Differs From Logistics

Supply chain management is the management of upstream (basic commodity) and downstream (finished product) relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. It involves the planning and controlling all of the processes that link partners in a supply chain together in order to serve the needs of the end-customer. Supply chain management focuses on managing relationships for a profitable outcome in the entire chain as opposed to some narrow interest of an individual. The definition of supply chain management has evolved over the years with the phrase supply chain management being replaced with demand chain management to reflect the fact that the chain is driven by market forces instead of suppliers. Subsequently; the word chain is replaced by the network to reflect the totality of the system totality with the inclusion of multiple customers and clients Logistics on the other hand is managing the procuring of materials and storage of inventory in a way that will increase the current and future profits of the firm.

Logistics largely differs from supply chain management in that it’s largely a planning network that creates a single plan which will facilitate the proper flow of product information while supply chain management focuses on this network to achieve a proper link between the different entities of the organization. A major concept of supply chain management is the planning and controlling of all processes from raw material production until it’s purchased by the end user to recycling of the used product. It should be structured efficiently to meet the logistics need of material and information flow.

The value chain is a concept brought by Michael Porter that emphasizes competitive advantage. The term originates from the various activities the firm undertakes from production, marketing and support for its products. All these activities are essential in enhancing a firm relative cost position. The value chain separates a firm into relevant activities in order to comprehend the performance of costs and the present and potential sources of segregation. A company gains a competitive advantage by performing these strategically important activities that cut across the traditional functions of the firm. Competitive advantage can also be enhanced by executing these activities in an exceptional and more effective manner than your competitors. Value chain activities can be categorized into two; primary and supporting activities. The primary activities include logistics, marketing and sales, and operations while supporting activities can be broken down into infrastructure development, human resource, technology and procurement. A firm should look at each activity in the value chain and assess its competitive advantage or outsource it in order to extend its value chain beyond the boundaries of business.

Logistics is an integral part of a business organization. Logistics is an essential component during the planning and coordination to achieve the required levels of quality and service delivery at the least cost possible. Logistics is therefore a link between marketplace and supply base. The scope of logistics spans from the proper utilization of raw materials to delivering the ultimate product where the requirements of the consumer are satisfied through harmonization of the resources and information which flows from the market, to the company and its operations and finally to the final merchant. Logistics is key for the success of any firm and the procurement officers must be attentive to avoid stock out.

Find out your order's cost