Some people ask, what is logistics? They already know the basics, even if they do not know the logistics industry.
Most searching for information about logistics management are sure to know that goods get shipped, organized, stored in warehouses, and sent between sellers and buyers. But in this article, we will go a bit deeper to describe some of the details of logistics as well as some of the more subtle nuances of this vital industry.
What is Logistics?
Logistics started as a military word because any army must coordinate the movement of massive supplies and equipment to soldiers in the field.
Today, militaries still do the same thing, but huge logistics operations have grown up around industries such as eCommerce. Goods and people get moved by air, land, and water. Some goods end up in warehouses, while others get sent directly to buyers.
Logistics operates across the entire supply chain, from manufacturing and raw materials to deliveries at all points along the line. Products include people, goods, and services that all rely on logistics to link together a successful supply chain.
What is Logistics Management?
Logistics strategy is an essential aspect of management that requires a deep understanding of the subject.
It primarily involves decisions made by management roles, which is why having highly qualified managers is crucial. Obtaining relevant certifications is often mandatory before assuming such a role.
Logistics management is tasked with trying to account for everything that could go wrong and will be necessary to ensure successful delivery. For example, teams might have to plan around a war zone, poor roads, natural disasters, or environmental challenges.
Logistics management also encompasses non-shipping-related concerns like suitable warehousing. The decisions usually avoid changes at the expense of customer satisfaction.
Modern logistical organization is only be possible with modern computing power. Software programs can log and track everything.
Automated tasks keep track of an amount of information that would require armies of workers to do, ranging from updating ledgers to choosing shippers who are offering the best rates.
What are the Functions of Logistics?
Imagine if before you could go buy something at the store, you had to clear an obstacle course first. Logistics is comparable to you clearing the obstacles.
Logistics involves bulk shipments of raw materials to manufacturers as well as individual shipments between a buyer and seller in an online market.
Moving materials, goods, or products requires logistics to plan transportation, storage, and any other handling that may apply. Logistics is the blood that moves everything around if you look at the supply chain as a living body. The organism cannot function without blood.
Well-planned logistics require several steps that should serve as the framework of every plan:
- Product Sourcing
- Inventory Management
- Order Fulfillment
On its face, product sourcing is simple. Find the cheapest product supplier, make the purchase, and save money. However, much more goes into making the purchase and who to buy from than you might think.
Imagine the cheapest supplier is in a highly-regulated location. All the cost advantages vanish after the product gets fees slapped on at every turn.
Shipping costs increase with distance. Therefore, a more expensive product in a better location might be cheaper than something less expensive but farther away.
Warehouses have fees too. Sometimes products sit on shelves longer than expected. Backorder delays happen and are common around the holidays.
Logistical product sourcing is highly strategic and has to look at the entire field of play. Logistics teams must make purchases at advantageous prices where regulations, distances, and extra fees do not wipe out the gains.
The planning and sourcing can only happen with a deep knowledge of logistics.
To re-use the former analogy, if the supply chain is a body, transport is the beating heart and every blood vessel. All of the other plans and concerns exist to enable transport.
Transport begins with selecting or combining modes of shipment over land, sea, or air. One carrier may be enough, or multiple carriers may have to handle shipping.
Managing transport requires finding the best carriers at the lowest prices. You must know routes, distances, laws, regulations, tariffs, and expected costs to achieve the desired results.
Skilled managers will combine analytics, shipment documentation, tracking, and billing to plan effectively.
Inbound refers to all the necessary products, materials, and parts going into a manufacturing plant, facility, or warehouse. Inbound logistics must transport everything from the suppliers to the manufacturers.
Just as inbound means transporting to manufacturers, outbound logistics means that completed products come off production lines and are ready to go to customers. In addition, some items go into warehouses for future transport to customers.
If you have ever ordered a defective or damaged product from a supplier and sent the order back, you participated in reverse logistics. These items go in reverse through the same supply chain that made the delivery. Travel often stops at retailers or manufacturers.
Sometimes a fulfillment or distribution center is the final destination, but these places can be extensions of large retailers. These centers may also take products back and deal with retailers or manufacturers separately.
Logistical planning in warehouses has to account for short-term storage, long-term storage, bundled items, and perishables. These considerations only cover the inside of the warehouse. Logistics also has to think about the location of the warehouse and forms of transport nearby.
In the warehouse, goods are closer to the front according to how soon they ship out. Therefore, you will find the long-term items pushed toward the back. Similarly, cold storage with perishables gets organized so that newer perishables are in the back, and the older items are in the front and go out sooner.
Managing inventory is the practice of organizing goods according to location and seasons of high and low demand. Some products trend and fade away, while others reliably trend according to the season.
By getting the timing right, inventory management knows when to discount certain products or move them to a different location with higher demand. As a result, more money gets freed up for investment in high-demand items by getting the balance right, which attracts the best prices.
Other times, the goods are no longer in the part of the world where they are likely to sell. In those cases, management may decide that they will turn a better profit elsewhere despite the costs of transporting goods.
All of the business logistics, warehousing, and everything else that happens exists to fulfill orders when the time to do so arrives. A transaction happens, and the item is often sitting in a warehouse.
The only steps that remain are to package, wrap, or box the item properly. The last step is shipping.
Suppliers may handle the logistics in-house or outsource order fulfillment to third-party logistics support.
Why is Logistics Important?
After placing an online order, many people may not realize the amount of logistical planning involved in ensuring the timely delivery of their package to their doorstep a few days later.
To ensure profitability, the supply chain system depends on the seamless flow of products from manufacturers to customers at the end of the chain.
However, various risks, such as breakdowns and delays, can hinder this process and make the venture unprofitable. Slow delivery of goods is one of the major risks that can affect the overall efficiency of the system. That’s why logistics are important.
Many online orders have an estimated delivery time of 3-5 days. The time frame only works if logistics operates on every level without breakdowns that disturb the supply chain.
A deep understanding of logistics keeps costs down for customers while maintaining the profits companies need to survive.
What is the Difference Between Logistics and Supply Chain Management?
The first thing to understand is that logistics and the supply chain have a close relationship but are slightly different.
Logistics is the lifeblood that makes the supply chain work. The supply chain is everything from sourcing raw materials through factories and manufacturers. The shipping, warehousing, and retailers are all in the supply chain. Even the smallest street vendor is part of the supply chain.
Every company either handles logistics or outsources to a third party that takes over. Logistics applies to every part of the supply chain to optimize all processes, procedures, and transport.
Everyone from market vendors to huge retailers relies on logistics to make products available to customers at prices that benefit everyone. However, when logistics break down, pricing falls apart, and the weak links in the supply chain need to be repaired.
What are Third-Party Logistics Companies, and How Do They Fit Into the Equation?
Third-party logistics, or 3PL, are logistics companies that partner with other companies in need of support in their operations.
The partnership offers better logistical services than the company can manage alone. These services can include warehouse storage, inbound, outbound, and reverse logistics.
Most 3PL services concentrate on the facets of order fulfillment. Goods require proper warehouse storage in the right section so that fulfillment functions efficiently.
When shipping to customers, there are several aspects to take into consideration, such as warehouse retrieval, packaging, labeling, courier selection, and shipping to customers.