LOGISTICS v/s SUPPLY CHAIN

You can say that logistic is basically a subset or a portion of the supply chain. Let’s
understand the basic difference between them with the help of the following
comparison table-

Criteria Logistics Supply Chain

Objective Customer Satisfaction Competitive Advantage

Concept Evolved Earlier Modern Concept

Number of Organisations Single Organisation Multiple Organisation

Involved Involved
Process Flow and Storage of Control and Management
Goods
 Basis of
Distribution Logistics Supply Chain Management
difference
It is the overall management and It is an integrative concept of managing
synchronization of movement of goods and the entire flow of distribution channels
Meaning services and the protection, processing and from the supplier to the final consumer.
storage of raw materials and final products.

It is concerned only with outbound It is concerned with both inbound and

operations outbound logistical operations along
with the activities of suppliers and
Scope customers.
 Basis of
Distribution Logistics Supply Chain Management
difference
The decision making in distribution Decision making in SCM is at the
Decision Making logistics is at the operational level strategic level

It is oriented towards creating time and Emphasis is on creating time, space

Creation of utility space utilities form and possession utilities

Aims at ensuring cost effectiveness and Aims at ensuring competitiveness

Cost minimisation minimising costs of distribution and minimising overall costs.
 LOGISTICS COSTS
A logistical cost refers to any expense incurred by a
business to manage its logistics. Knowing how to reduce
them is key to being more competitive. Logistics costs
include expenses related to resource acquisition, product
distribution and other expenses that make up a company
chain of production, sales and delivery.
 LOGISTICS COSTS
Shipping logistics is the process that involves handling, managing, and
transporting goods. The term “logistics costs” encompasses all of the expenses
associated with this process. Your overall logistics costs include everything from
purchasing raw materials to paying a third-party logistics company to help
facilitate distribution.

4 Main Types of Logistics Costs

There are many moving pieces within the supply chain. As a result, there is a
wide variety of costs associated with logistics management. The specific costs
may vary depending on your business and industry, but generally, you can group
costs into four different categories: Warehousing, Transportation, Labor, and
Equipment.
 LOGISTICS COSTS
Warehousing and Inventory
You need a place to store your inventory, whether you create your own
products in-house or rely on a third-party manufacturer. And the larger your
inventory is, the larger the space you’ll need.
Unfortunately, rising warehousing costs and limited availability make finding a
rental space more difficult than ever before. Rental renewals across the
United States increased by an average of 25% this year as the growing
number of ecommerce businesses creates a shortage of available
warehouse space.
To avoid this, you could purchase your own warehouse space outright, but it
likely won’t be cheaper.
 LOGISTICS COSTS

Renting or buying a warehouse isn’t the only cost that fits in this category—you’ll also
need to account for other costs like:

Insurance
Utilities
Security
 LOGISTICS COSTS
Transport and distribution

Whether you use third-party logistics service providers (3PL) like a reverse
logistics company or rely on an in-house team, transportation and distribution are
the largest logistics costs for all businesses. These costs include a variety of
tasks, including:

Transporting raw materials to your manufacturing base

Moving products from manufacturing to your warehouse
Delivering packages to customers

Inbound logistics, such as transporting products from the manufacturer to your

warehouse, are cost-effective transportation tasks that involve moving large
shipments to a single location. However, outbound logistics, such as last-mile
delivery, are much more expensive.
 LOGISTICS COSTS
Last mile delivery
“Last mile delivery” refers to delivering products directly to your customers. It
is typically the final stage of distribution. These deliveries take up the most
time and resources because drivers must make many stops to deliver small
quantities of product to customers.
Drivers may face security gates or reception desks that each have a unique
process for reception, which can slow down deliveries even more. This
makes last mile delivery the largest expense in your supply chain, accounting
for half of the total cost of shipping.
 LOGISTICS COSTS
Labor
The staff that produces, manages, and transports your products is a logistics
cost that can vary greatly. But exactly how much you’ll spend depends on
where your staff is located and what the average rate of pay in that area is.
For example, if you operate in Texas, then you can expect to pay delivery
drivers the local average of $15/hour. But if your deliveries take place in New
York City, then you’ll need to pay drivers slightly more to compete with the
average pay in the area, which is closer to $20/hour.
You’ll also pay team members different wages depending on their job title
and level of experience.
 LOGISTICS COSTS
The specific positions you hire for may vary depending on your business and
industry, but you’ll likely need:
Warehouse staff to receive new inventory and prepare packages for
delivery
Delivery drivers to transport materials and products
Managers to oversee employees as well as warehouse operations and
logistics processes
Administrators to manage human resources, including processing payroll,
and hiring new employees
 LOGISTICS COSTS
Equipment and supplies

The equipment and supplies you need to keep your operations running smoothly
also impact your bottom line. This category of expenses encapsulates the cost of
a wide variety of items from all aspects of your supply chain. If you manufacture
your own products, all of the tools you use for manufacturing will fit into this
expense category. Within your warehouse, some of the equipment you may need
includes:

Shelving Pallets Forklifts Boxes Tape

Inventory software

For in-house delivery and transportation teams, your equipment costs will also
include maps, routing software, driver uniforms, and delivery vehicles. There are
also recurring costs associated with in-house delivery, including fuel, insurance,
 LOGISTICS COST ACCOUNTING SYSTEM
There are two approaches followed in the business to determine the logistics
cost:
The Financial Accounting System:
• Financial accounting system provides reports such as balance sheet,
income statements like profit and loss statement, and cash flow
statements which are required by outside stakeholders such as investors
and stockholders as well as statutory authorities.
• In this system, the logistics cost often gets merged with other operating
costs of the business and loses focus, as logistics cost elements are not
differentiated and isolated to draw managerial attention to understand the
reasons why, and therefore, the system may fail to meet the needs of the
managers.
 LOGISTICS COST ACCOUNTING SYSTEM
The Managerial Accounting System:
• The logistics accounting system is a type of managerial accounting
system which addresses the typical parameters and more particularly
various cost parameters of logistics activities within the company and
compares those with the budgeted numbers as well as determines the
variance against previous year’s actual costs incurred, giving reason
thereof.
• It can help managers to plan, implement and control logistics system.
• Logistics accounting statements are not standardized like financial
accounting statements because the integrated information needs of one
manager often differs from those of another.
 FACTORS INFLUENCING LOGISTICS COST
1. Geographical situation:

• Logistics cost would increase or decrease in relation to geographical situation.

• Usually, countries that are close to ports, airports, economic hubs and logistically
developed countries have better logistics systems with lower logistics system with
lower logistics cost.
 FACTORS INFLUENCING LOGISTICS COST
2. Logistics infrastructures:

• This area is about the development and maintenance of logistics infrastructures to

support full range of logistics services and transport modes.

• Distribution network and communication network are important components of this

part.
 FACTORS INFLUENCING LOGISTICS COST
3. Human resource:

• Availability of skilled labour as a strategic source can play an important role in

promoting logistics activities and reducing logistics cost.
 FACTORS INFLUENCING LOGISTICS COST
4. Technology:

• Technology is an important factor in all parts of logistics.

• Sometimes, technological development makes fundamental changes in logistics

activities.
 FACTORS INFLUENCING LOGISTICS COST
5. Business legal rules:

• Customs, taxes, and insurance laws are components of this part.

• Compatibility of these rules with logistics processes and activities could affect
logistics cost.
 FACTORS INFLUENCING LOGISTICS COST
6. Energy Price:

• Global trend of increasing energy prices is another important factor that affects
logistics cost.

• This increase especially in fuel prices that is used in logistics activities makes
inflation in logistics costs.