What are the differences between supply chain and logistics?

Supply chain and logistics are two terms that can easily be mixed up. Although they’re inter-related concepts, however, they’re quite distinct activities and serve different purposes. In this article we’ll examine what each of these terms means, and what the differences are between “logistics” and “supply chain”.

What is the supply chain?

In e-commerce, the supply chain is the sequence of steps beginning when a customer places an order and ending when the order is paid and delivered. Schematically, we can identify the three main steps as:

• Supply.
• Production.
• Distribution.

There are, however, a multitude of intermediate steps, the most important of which are:

• Choice of supplier.
• Reception of raw materials.
• Assembly and manufacture of the product.
• Storage.
• Transport to the point of sale and then reception of the goods.
• Purchase and payment of the product by the end customer.

A supply chain is made up of many actors, including manufacturers, commercial service providers, suppliers, carriers, distributors etc. Each actor - usually a separate company - represents a link in the chain.

Supply chains in today’s world are extremely complex mechanisms involving a large number of actors, sometimes in different countries, each having to respond to consumption patterns that are constantly evolving and vary from one country to another.

They’re managed by IT tools that allow coordination of the different actors involved, control and follow-up of goods and orders, and optimization of processes to constantly improve efficiency.

This is what we call supply chain management (SCM): accurately estimating the needs, availability and capabilities of each link in the chain to optimize and synchronize them and thereby achieve the best results. An SCM strategy is essential to improve the management of workflows  and reduce processing times while controlling costs.

People often get “supply chain” and “value chain” mixed up too, but here again these are two very distinct terms: the more steps products take in the supply chain, the more value they gain.

For example, they might be transformed from a raw material into a final product that contains a number of such processed materials, and then into a finished, customized, packaged product ready for delivery to a customer. That’s what we talk about when we talk about value chains; as it moves along the supply chain, the product gains value.

What is logistics?

Logistics is an integral part of supply chain management, but not the only part. It relates more specifically to the management of stock and the transport and distribution of goods.

To understand the difference between logistics and supply chain management, take the example of a company selling clothing:

• Its supply chain will cover every step from the manufacture of the fabrics to the design of collections, quality control, distribution to sales outlets, and home delivery. There are many steps between the purchase of the raw material to the delivery of the final product to the customer (and its return, should this happen).
• Logistics is only one step in the supply chain: the acquisition and storage of the clothes, and its transportation to a specific destination. No supply chain without logistics, then, but the two terms designate different activities.

Supply chain vs logistics: points of difference

According to the latest report of France Logistique 2025 (French Ministry of Ecological Transition),

the logistics and supply chain sectors alone account for 10% of national GDP, representing 200 billion euros in turnover and 1.8 million jobs. 

These already impressive figures are increasing every year, driven by globalization and changing consumption patterns. Logistics (including transportation) and supply chain management are essential in today’s market, which is why we have to clearly understand what these different sectors do, what brings them together and what tells them apart.

The principal differences between logistics and supply chain

The three principal differences between supply chain and logistics are:

• Logistics is one of several processes integrated in the supply chain. It may relate to activities outside company premises, as it includes the movement of goods.
• The supply chain is a group of processes: similar to an economic model, supply chain management aims to optimize all the processes involved. It is an internal company process.
• Logistics have been around for many years, while the supply chain concept is more recent. Some observers say that supply chain management is nothing more than a new form of logistics, but that would be to deny some of the important differences between these two terms and what they address.

Supply chain and logistics - different objectives

Supply chain and logistics are associated concepts, but each serves a different purpose:

• With supply chain management, it's about obtaining a competitive advantage.
• With logistics, the main objective is to implement and optimize all the processes necessary for guaranteeing maximum customer satisfaction.

Obviously, these two objectives go hand in hand: efficient logistics that ensure total customer satisfaction is essential if the supply chain as a whole is to become more competitive.

Similarly, good supply chain management is definitely an asset when it comes to optimizing logistics. So while the objectives are different, each serves the other.

Logistics or supply chain: separate operation

Another difference between logistics and supply chain is in the way they work.

Logistics occurs within the perimeter of a single organization, and can be managed entirely by a single company. Its scope is limited to just a few departments in the company, as it primarily concerns storage, stock management and distribution.

Conversely, a supply chain typically requires input from multiple organizations, given the large number of links in the chain. It also requires input from various departments in the same company, such as quality control, customer services etc.

Logistics is one of the structures that configure the supply chain. Note that there may be several different logistics structures within the same supply chain, each managing a specific sector.

Supply chain and logistics: a common evolution

As we have seen, supply chain and logistics are two different but related activities. Good management of one directly impacts the other. Their evolution is therefore linked.

Logistics and supply chain management are gradually evolving towards an ever faster, more flexible and personalized ecosystem. The needs of one company are not the same as another’s, and now more than ever it’s essential to be more responsive so we can anticipate and constantly adapt to the many contingencies that may arise.

The health crisis caused by Covid-19 and its impact on trade and industry is the perfect example. Companies had to adapt to the crisis in a very short time.

Naturally the best-prepared companies have found it easier to emerge from the crisis. This responsiveness has been enabled by the use of advanced technology that looks set to become standard in supply chain management:

• Digital technologies for collecting, processing and analysing more data in real time, and for foreseeing and avoiding the risk of shortages or delivery delays.
• LCoordination between the different actors: every supply chain requires various partners to work closely, and therefore good coordination is essential. This requires process standardization and joint business planning. Here too, emerging technology and digital tools are facilitating this coordination and enabling effective communication in real time. Contingency plans can be created upstream and automatically deployed in case of problems with one of the actors in the chain, thereby saving time and maintaining operations in every situation.
• Process automation: automation concerns supply chain management as a whole and logistics more particularly. Automation is deployed in warehouses in the form of computer systems such as ERP or WMS, automated goods to man robotics systems such as the Scallog solution, and the calculation of transport routes.

Supply chain and logistics are two different activities, but they work together. To manage a supply chain effectively, it's essential to optimize the logistics. Similarly, optimized and highly efficient logistics will have little benefit if there are structural weaknesses in the supply chain as a whole.

To make sure every metric is managed to its maximum capacity, you can conduct an audit and/or track different KPIs. This will enable you to identify and optimize every weak link in the supply chain.