Every business needs to rely on effective management of its operations, of its product flows and of every link in its supply chain. This deals with two key concepts – logistics and the supply chain – which are often used interchangeably. However, they refer to distinct notions with strategic differences that are important to understand in order to optimise a company’s operational performance and profitability. Let’s look at how to best distinguish them.
Logistics: Definition and objectives
Logistics refers to managing physical flows (stocks, people, equipment, etc.) through methods, processes, and tools. More specifically, it involves coordinating and moving goods from a production site to the point of delivery, including the storage area (i.e. the warehouse).
The main objective of logistics is to optimise costs, space, and time to ensure efficient distribution of goods and services. The key focus is guaranteeing product and service availability under the best possible conditions (lead time, quality, cost) to meet customer satisfaction. With this in mind, businesses typically rely on warehouse management systems to improve stock management, boosting accuracy and efficiency in product storage, picking and packing processes.
Logistics management focuses on operations internal to the organisation, seeking to improve each step of the process. This encompasses a multitude of product-related operations as soon as they are manufactured, from receiving goods to managing product returns, including warehousing, storage, materials handling, packaging, loading and transportation. Some companies choose to fully outsource this service to specialised players in order to benefit from their expertise in this area.
Supply chain: Definition and components
The supply chain encompasses entire networks of interconnected organisations working together to deliver products or services to end customers. Also referred to as the logistics chain (hence the confusion between the two terms), the supply chain includes production plants, suppliers, distributors, business partners, wholesalers, vendors, logistics service providers, etc. In other words, all the entities involved in providing a given product or service to an end user. It consists of several physical, informational, financial and administrative flows circulating between the various players in this chain.
As you will have understood, the supply chain extends beyond company borders, involving multiple structures to meet market demand. Its main objective is to maximise customer value while reducing costs and lead times in order to develop a competitive advantage.
The supply chain includes both the planning, execution and control of products and services. The process starts when an order is generated and ends once the product or service is delivered and paid for, encompassing a multitude of operations:
- Research and development;
- Quality;
- Procurement;
- Sourcing;
- Warehousing and storage;
- Materials handling;
- Demand management;
- Transportation;
- Customer experience;
- Customer service…
Logistics activities form an integral part of supply chain operations.
Supply chain activities are particularly complex processes that can be facilitated through digital management tools such as ERP (Enterprise Resource Planning), CRM (Customer Relationship Management) or SRM (Supplier Relationship Management).
Organisations can also leverage innovative approaches like blockchain to improve supply chain management, ensuring security, transparency and traceability of data across the supply chain, thereby strengthening trust between trading partners and reducing risk from disruptions.
Logistics and supply chain: What are the differences?
Consulting firm PwC reminds us that for many companies, logistics and the supply chain account for over 10% of total combined costs. So, this represents tremendous opportunities for cost reduction and market differentiation. However, it is important to make a clear distinction between logistics and supply chain in order to tap into their full potential, as these two concepts differ notably in scope, main objective and strategic vision.
Scope
The main distinction between logistics and the supply chain lies in their scope. Logistics focuses on a company’s internal operations, whereas the supply chain covers a broader field of application. It takes into account the entire supply network, striving to coordinate all these players with each other. The supply chain is so broad that, according to a study conducted by Geodis, only 6% of companies claim to have total visibility over their supply chain.
Main objective
Logistics and the supply chain also have specific objectives that feed one another. The objective of logistics is customer satisfaction through optimal order management.
Meanwhile, the supply chain aims to gain a competitive edge and optimise profits by enhancing agility, transparency and collaboration between partners.
Strategic vision
Logistics concentrates on optimising processes around stock management, freight transport, materials handling and distribution. The goal is to streamline each step of these operations to reduce costs and improve efficiency.
The supply chain, on the other hand, takes a broader, more strategic approach. Rather than focusing solely on specific processes, it seeks to integrate all links in the supply chain through a collaborative approach. The aim of the supply chain is to maximise customer value by efficiently coordinating planning, sourcing, manufacturing, logistics and distribution activities.
In short, while logistics and the supply chain share similar ambitions in performance, sustainability and profitability, their scope and outlook make them distinct yet complementary components in corporate strategy. One thing’s for sure: to support business activities and success, they need to be perfectly aligned.
