What is Logistics and Supply Chain Management?

What is the difference between Logistics and Supply Chain Management? Many people use 2 terms interchangeably but what is the correct way to use them?

One of the most confusing thing is the difference between logistics and supply chain management. The simplest explanation about the relationship between logistics and supply chain management can be found as below,
"Logistics typically refers to activities that occur within the boundaries of a single organization and supply chains refer to networks of companies that work together and coordinate their actions to deliver a product to market. Also traditional logistics focuses its attention on activities such as procurement, distribution, maintenance, and inventory management. Supply chain management acknowledges all of traditional logistics and also includes activities such as marketing, new product development, finance, and customer service" from Essentials of Supply Chain Management by Michael Hugos

In the past, various logistics tasks are under different departments but now they are under "logistics department" and report to the same logistics head as below,

Basic Supply Chain Management Concept
SCM concept can be traced back to the intense competition in textile industry worldwide.  Prominent figure in US apparel industry formed the “Crafted with Pride in the USA Council” in 1984 (then become Kurt Salmon Associates in 1993). They were commissioned to conduct the analysis. The results revealed that total lead-time in apparel industry took 66 weeks long from raw material to consumer; 40 weeks were spent in the warehouse or in transit. So, Quick Response strategy (QR) has emerged to make suppliers and retailers works together to shorten lead-time.

In 1993, group of grocery industry leaders formed a task force to examine grocery industry (ECR Working Group). They identified best practices and take an implementation of SCM concept into action. They projected an overall reduction in pipeline inventory of 37 percent.

According to APICS Dictionary, Supply Chain is 
"The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash". 
Simple structure of supply chain network can be depicted as below,

Advanced Logistics and SCM Concept
Logistics and SCM is the crossroads of diverse subjects, covering various branches of business, management and engineering. The below infographic will show how Logistics and SCM evolves and its relationship with other disciplines,

Breif explanations about related concepts, tools and techniques are listed below,

- Mass Production: a method of production of standardized products at large scale

- Postponement: producing work-in-process instead of finish goods so products can be customized quickly when customer places the order

- Forrester Effect: the problems that downstream raw material manufacturers can't catch up with the demand at upstream retailing level due to the lack of demand information

- Material Requirement Planning: a system used to determine the demand of finish goods and required raw materials

- Travelling Salesman Problem: the way to use mathematical model to find the shortest travelling route from origin to destination

- Reverse Logistics: a process of returning goods from customer back to seller

- Theory of Constraints: the assumption that company works as a whole. To improve the operations, it's better to find bottleneck instead of improving everything at the same time

- Cost Service Trade-off: you gain something at the cost of something else

- Third Party Logistics: the way to outsource logistics operations to outside companies

- Lean Manufacturing: the concept originated by Toyota to reduce non value added activities

- Reengineering: the way to create radical change to business process

- Efficient Consumer Response: the kind of initiative in retail industry to improve product availability to consumer

- Bullwhip Effect: the problems that supplier doesn't know the demand of customer so they have to keep excessive stock level

- Continuous Replenishment: the initiative that supplier maintains and replenish stock for retailer

SCM in Formal Education
Each researcher defines SCM differently. Johnson and Pyke (2000) then compiled the contents taught in many management and engineering schools then develop a framework for Supply Chain Education consists of 12 components as following,

1) Location strategy considers how to choose facility location quantitatively and qualitatively. Decision at this point has the impact on the structure of Supply Chain which includes transportation cost at particular location, government incentives or promotion of foreign investment, taxes & duties and country differences. Then strategy will be more tactical.

2) Transportation and logistics includes all aspects of material flows through the supply chain including issues in transportation and warehousing such as  vehicle routing, fleet management and material handling.

3) Inventory and forecasting includes various techniques used to develop the good forecasting models for both existing and new product forecasting. Reducing inventory cost by providing right amount of stock level is the basic concept that can lead to more understanding about other issues.

4) Marketing and channel restructuring explores fundamental structure and the use of relationship management to enhance the coordination among each members. This area encompasses mainly the activities from manufacturers to end customers.

5) Sourcing and supplier management pays much attention to determine source of products, whether they should be produced internally or bought from vendors. Managing supplier networks can prevent raw material shortage, material quality problem and delivery reliability.

6) Information and electronic mediated environments addresses application of information technology in many aspects such as to reduce inventory, to better communication between trading partners, integrated software system (ERP, MRP,WMS) and electronic commerce.

7) Product design and product development handles the method used to design the new products and how to introduce them to customers successfully.

8) Service and after sales support deals with the tasks to provide support, spare parts and repair service after the purchase of customers. This area helps to retain customers.

9) Reverse logistics and green supply chain examine the best way to return products back to a manufacturers to repair, reuse, recondition and disposal. Information obtained from returned products will help makers to diagnose production problem to avoid possible defects. Environment related issues are also determined.

10) Outsourcing and strategic alliances consider what kind of activities we should ask specialists to handle and how to create a firmed relationship with service providers. Outsourcing is the great way to reduce capital investment because important assets will be shared.

11) Metrics and incentives control the business performance between trading partners to ensure that every members do their best to provide products and services to customers. Economic incentives from performance compliance will be explored as well.

12) Global issues and global supply chain examine how well each company operates in multiple countries. This category is the widest span of supply chain management.