Logistics is the process of moving goods within the supply chain and ultimately, to consumers. It includes the packing, transportation and storage of goods and managing inventory.
Comprehensive planning is required for smooth logistics operations. When done correctly, it can improve efficiency, lower costs of production and increase customer satisfaction.
Efficient and effective logistics management is crucial for many industries including manufacturing, retail, pharmaceutical, and medical.
Types of Logistics
There are 3 types of logistics and they can be categorized as follows:
Inbound logistics is the transfer of goods and raw materials from a supplier or manufacturer to a company. It includes processes such as transportation (e.g. via air and sea freight), storage and inventory tracking.
Outbound logistics is the transfer of finished goods from a company to its consumers through various distribution channels such as retail shops, vendors or wholesalers.
Reverse logistics is the transfer of goods from consumers back to the company. This may occur due to reasons such as product refurbishment, recycling or disposal. It is also an integral part of e-commerce businesses as it allows customers to return or exchange their purchases.
Key Logistics Functions
There are 6 main functions of logistics. They can be done in-house or by companies specializing in logistics services.
1. Order picking
When an order is placed, a pick list is generated. It includes information regarding the stock to be packed and where it should be sent to. Order pickers will retrieve the goods accordingly, based on the pick list.
2. Inventory management and monitoring
With a constant inflow and outflow of stocks, it is imperative for companies to manage their inventory well and predict demand in a timely manner. This ensures that the supply would be able to meet customers’ demands.
Additionally, while it is good to have more stocks on hand, overstocking can reduce cash flow for companies as unsold inventory ties up cash.
Hence, having a good inventory management system in place will allow companies to be kept updated on their stock levels and adjust production accordingly.
Warehousing is the process of storing goods including raw materials and finished products before they are shipped to other locations.
For businesses with global markets, strategic warehousing allows them to store their products closer to their customers, thus reducing delivery times and shipping costs.
Logistical packaging involves packing products in a safe manner to prevent damage during transit. Goods should be packed in a way that optimizes space as the cost of shipping increases as the amount of space required increases.
This function involves moving goods and raw materials through the supply chain efficiently. Businesses will need to assess the different options to find the most cost-efficient method while considering the nature of the cargo. For example, perishable goods would require a faster method of transportation.
The primary modes of transportation are air, sea and land (which includes truck and rail transport). If one or more of the above modes are required, it will be known as intermodal freight.
Importance of Logistics Management
Proper logistics management can significantly reduce production costs and improve overall business efficiency.
On the other hand, poor management could result in:
If inventory levels are not kept up to date, there might be delays due to the lack of raw materials or stocks.
- Increased production costs
Delays, over or under supply of goods, poor packaging and inefficient warehouse management can all lead to an increase in production costs.
- Decrease in customers’ satisfaction
Delays in delivery and damages to goods during transit can lead to a decline in overall customer satisfaction. As a result, this can adversely affect their loyalty to the brand or business.
- Impact company’s profitability
When production costs increase and customers’ satisfaction decreases, the company’s profitability can be negatively affected.
Logistics vs Supply Chain Management
Supply chain management (SCM) is the overall management of the production of goods and services from raw materials to the final product.
It includes processes from sourcing to purchasing, manufacturing, managing facilities and even delivering goods. The main objective of SCM is to increase the competitive advantage of businesses.
On the other hand, logistics is a subset of SCM and is responsible for the flow and storage of materials and goods. It focuses on increasing customer satisfaction by ensuring that the different functions are carried out efficiently.