Monthly Archives

October 2018

supply chain management vs logistics

Supply Chain Management vs Logistics: What Makes SCM Different from Logistics

By | Purchase Order Plus | No Comments

Supply chain management includes many different elements. One of them is logistics. Despite this, there’s often a lot of confusion when talking about the two and even wrongly considering them as one and the same. They are not. In this article, we’ll get into the difference between supply chain management vs logistics and why it’s important not to think of them as the same thing. One reason is certainly not embarrassing yourself in a conversation.

SCM and logistics have many similarities, but they have different meanings. The biggest difference is in what each one represents. Logistics covers the flow of goods and their storage within the SCM On the other hand, supply chain management itself is a much wider concept and consists of several processes, of which logistics is but one.

To understand the difference between supply chain management vs logistics, we need to understand them better individually.

What is SCM?

Supply chain management includes connecting customers, suppliers and partners and that way offering value for the end user and improving efficiency within your own company.

Think of supply chain management as being the central thing that connects the manufacturer of the product, the wholesaler, supplier, retailer and finally the customer and making life easier for them all. As you can guess, that includes a number of functions and people in order to work well (like a well-oiled machine), logistics is just one of those functions.

What is Logistics?

Logistics, according to the Council of Supply Chain Management Professionals is a “part of the supply chain process that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customer’s requirements.”

The goal of logistics is that the customer gets the product they ordered at the right price, the right quality and at the right place and time. To achieve this, logistics itself includes warehousing, packaging, transportation and more.

Logistics itself can be divided into two sub-categories:

  1. Inbound logistics includes activities and processes such as acquiring, handling, storing and transporting goods.
  2. Outbound logistics deals with collecting, maintenance and finally getting the product to the end customer.

Supply Chain Management vs Logistics: Key Differences

SCM and logistics need each other, but don’t fall into the trap of using the terms interchangeably. Here are the key differences you need to keep in mind:

  1. Logistics is one of many activities in the supply chain
  2. SCM connect the supplier, wholesaler, retailer, manufacturer and customer, improving business efficiency and getting the product to the customer.
  3. Logistics involves the flow and storage of goods within and outside the business
  4. The end goal of SCM is competitive advantage
  5. Logistics is focused on meeting the customer’s requirements.

Conclusion

There you have it! Hopefully this helped you better understand the difference between supply chain management and logistics and getting more efficient with them. If you have any thoughts or questions, we’d like to hear them in the comments below. Also, don’t forget to sign your email to get a free trial for our Purchase Order Plus. Purchase Order Plus is a mobile app for Xero that allows you to get better control of tour POs.

most common supply chain management mistakes

5 Most Common Supply Chain Management Mistakes You Need to Avoid

By | Purchase Order Plus | No Comments

It’s never a good idea to make mistakes in business. But while some mistakes are not that big of a problem, other mistakes can really hurt your business. Mistakes in the supply chain management fall into that category. Here are the five most common supply chain management mistakes that you should avoid.

1. You are Rushing with the Launch

The idea of launching their new product “now or never” has hurt numerous companies. In their zeal to put their shiny new product in front of the customer, they neglected a number of things, while entangling themselves into huge deals.

Before you launch a new product or protocol, be sure to check if your ordering and distribution system can cope up with it, especially if you expect a high demand, like during big holidays.

2. You are Prioritizing by Spend

Prioritizing or quantifying functions by spend made sense back in the 1990s, but not any more. At the time, it was common to have a single supplier for a certain product or item, but that’s no longer the case.

Today, supply chain managers realize that means that having 1 supplier for 1 item means walking on thin ice so to offset any disruptions, they bring in additional suppliers. The bottom line here is never put all your eggs into one basket.

3. Your Risk Management is Short-Sighted

Supply chain management is nothing if not full of risks. This is why you need to prioritize risk management and make sure your managers are ready and able to deal with all kinds of risks in a proactive and efficient way.

This way, you’ll be able to better react to any problems that arise, whether they have to do with increased demand, not having enough items in stock, poor quality, vendors or something else.

4. You Don’t Know Who is Responsible or Accountable

Who is responsible for the disruptions in the supply chain? The upper management will hold the Chief Procurement Officer or CPO accountable, but who can the CPO hold accountable? When no one is accountable, it creates confusion and lack of clarity when actions are needed.

5. Lack of Security

Security breaches are no uncommon, especially if you are operating online. These days, newspapers are filled with news about one company or other that got hacked. Your supply chain is at no lesser risk in that regard than other areas of your business and you need to ensure that you have sufficient security control. This goes for not just physical, but also (and perhaps more importantly) cyber security.

Additionally, make sure that your vendors don’t disclose sensitive information about your company or customers or do anything else that can harm your business. As well, be sure to monitor the security of your product throughout the entire chain to prevent any theft, or tampering, all the way to the end user.

Conclusion

These were just 5 supply chain management mistakes that you should be aware of. Of course, there are many others, so if you know of any that you think should be included here, let us know in the comments below and don’t forget to sign up for a free Purchase Order Plus trial.

supply chain management tips

5 Supply Chain Management Tips to Get You On the Right Track for 2019

By | Purchase Order Plus | No Comments

A supply chain is only as strong as its weakest link. To develop one that works for your company, you need to take a lot of things into account. That’s not as easy as it might sound, so here are 5 supply chain management tips that will help you streamline your SMC and be ready for 2019.

1. Don’t Rely on Just One Supplier per Product

“Don’t put all your eggs in one basket” is a really nice saying and more than applicable here. You should never rely on just one supplier per product. No matter how good they are or how good of a raport you have with them, there is always a chance that something will go wrong.

For instance, perhaps you have a supplier in a country overseas and that country gets hit with a natural disaster or war. In that case, they will be unable to deliver your product. This is why you need to have a plan B or a backup supplier.

2. Integrate Supply Chain Management with Other Systems

Adding an integration layer to your SMC, will allow you to share vital information between systems owned by yourself, your partners, suppliers and finally  customers with much more ease and efficiency. As every transaction goes through a number of systems, such as finance, ERP, manufacturing and sales forecast, integrating it will make things quicker.

3. Be Sure to Train Your Personnel Accordingly

Don’t assume that your employees will know exactly what they need to do. Often, you’ll be in a situation where you are introducing a new software suite or welcoming a new team member and you won’t be able to just point them in the right direction and say “go”.

Don’t think of internal training as a waste of time. Think of it as an investment instead. By investing a little time and effort here, you’ll be saving a lot of time and money in the future.

4. Use the Latest Technology

Stuck in the stone age? Don’t be! Look at all the successful supply chains companies use today. They all use the latest technology to help them handle their inventory, logistics, manpower and more. So, while you’re stuck there, doing things “the good, old way”, they are using the latest technology and software to be miles and miles ahead of your company.

In other words, if you are still using spreadsheets, stop. You know how we talked about the weakest link in the supply chain management? Much too often that’s the humans and their guesswork. Good technology can help you eliminate that (guesswork, not humans, of course).

5. Make Sure Your Business and Supply Chain are in Perfect Alignment

Your supply chain should take top priority in your business. Unfortunately, too often the upper management has other things in mind and forgets about the supply chain. A good supply chain manager is there to remind them and to put them back on the right track as far as an effective supply chain goes.

Do you have any other supply chain management tips that you’d like to share? Let us know  about them in the comments below and don’t forget to sign up for a free Purchase Order Plus trial and improve your PO processes.

what is LIFO inventory valuation method

LIFO Cost Flow Assumption Method – How Does it Work?

By | Purchase Order Plus | No Comments

In the previous post we explained one specific method for cost flow assumption called “first in, first out” or simply FIFO. In the same article we also touched on another method called LIFO. It’s time to explain what it is.

LIFO stands for “last in, first out” and it differs from FIFO in that it expenses the most recent (latest) cost of items bought as the cost of sold goods. What this basically means is that the oldest cost of goods are in turn reported as inventory.

For example, the company buys three air conditioners. One for $200, another for $250 and the last one for $300. Under LIFO, the company will ship the item bought for $200. However itt it can report the cost of sold item as $300 (under FIFO it would be $200). This will be the first cost the company reports. The inventory will report the older ones of $200 and $250.

What are the Uses for LIFO?

LIFO is a very popular method, particularly in times of price inflation. That’s because it works under the assumption that the inventory cost gets bigger over time. In that case, the cost of the newest purchase is always higher than the ones before it. This means that the cost of goods sold will be shown as the most recent cost, while the final inventory balance will be calculated at the earlier cost.

For a company, LIFO allows it to report a lower profitability and postpone its recognition of income taxes. This leads us to probably the biggest issue with LIFO. As it is only allowed for income tax deferral, LIFO is banned under the International Financial Reporting Standards (IFRS), but it is still in use in the US. However, you need to get the International Revenue Service (IRS) approval. Otherwise, companies might use it for tax evasion.

Another problem with last in, first out method is that such a scenario rarely happens in practice, only in theory. For instance, if a company is using LIFO, that likely means that a good portion of its inventory is old or even obsolete.

Conclusion

Despite its problems, LIFO is still a popular cost flow assumption method (although probably not as much as FIFO). I hope this post helped you better understand it. If you have any questions or comments, let me know in the comments below and don’t forget to sign up for a free Purchase Order Plus trial.