We’d like to have a look at the role of Logistics in Supply Chain Management and examine the relationship between the two elements.
Supply Chain Management involves the planning, design, control and implementation of all the business processes that are related to the procurement, manufacturing, distribution and sales order fulfilment functions of a business organization.
All these activities involve multiple networks of vendors and service providers that are integrated and co-coordinated by the organization’s supply chain experts to move raw materials and finished goods from and to all distant locations across the globe. This movement – Logistics – is the backbone on which supply chains are driven.
Logistics refers to the management of the flow of goods and supplies; it involves information, data and documentation between two entities or points. Logistics plays an important role in the post-procurement function of delivery of raw materials from the supplier to the point of production. It is also crucial in the Supply Chain Management of finished goods from the point of dispatch from the factory to the point of delivery to the customer.
The flow of goods passes through a network of transportation by road, rail, air or ship, and also of intermediary warehouses that hold inventories before moving on to the forward locations. The entire activity involves multi-tier suppliers, agents, and agencies that include freight forwarders, packers, customs departments, distributors and logistics service providers, and so on.
Logistics therefore is an integral component of Supply Chain Management. The Supply Chain is often referred to as Logistics and vice versa but though they are intricately linked, they do not both mean the same.
On the one hand, supply chain design in an organization details and plans the procurement strategy and manufacturing location selection; it designs and develops the distribution network and strategy for finished goods, and so on.
On the other hand, logistics planning deals with the details of procurement logistics, finished goods distribution, sales order fulfilment, inventory management, and so on.
Logistics planning drives the strategic direction and framework for its design planning from SCM strategy.
A few examples
Take the case of production procurement: SCM strategy will define the process, selection of vendors, procurement strategy and the mode of order fulfilment coupled with cycle time and lead time to supply to the production floor.
Logistics in this case details the mode of transportation from the vendor, the consignment planning, the process for triggering the order, the consolidation of shipments, selecting transportation modes and vendors; it defines transit times and the documentation process. It also implements the plan, controls and monitors the flow of goods from point of origin up to the point of delivery to the plant for production.
In the case of finished goods distribution, SCM strategy will define the overall network design for stock holding and other channels of distribution.
Logistics deals with the entire gamut of designing the transportation network, partnering with third party logistics providers to establish distribution centres and warehouses, planning inventory management and operations process (including packing, promotional bundling, and so on). It also deals with the primary and secondary distribution network and vendors, and, finally, the complete documentation and information process for the entire chain of activities.