In the grand scheme of business operations, you cannot fail to look at logistics and supply chain.
A company or organization that needs to operate with effectiveness and efficiency must get its logistics right. Here we look at logistics and how it relates to supply chain management. Find out the types of logistics, activities, and 7Rs that every company needs to know. Logistics supply is important to the success of every aspect of the supply chain process.
What is Supply and Logistics
Supply and logistics bring together that network of intersecting components that help companies or organizations get or move materials, people and products.
In global trade, supply and logistics involve anything from purchasing, transportation, logistics, storage and warehousing, inventory management and supply chain management.
For an efficient supply chain, the logistics must be right.
For instance, companies must find the most cost-effective shipping methods, employ the best warehousing and inventory control systems, and get other logistics strategies spot-on to be able to deliver for their customers.
What is Logistics in Supply Chain Management?
According to the Council of Supply Chain Management Professionals (CSCMP), logistics is a “part of the supply chain process.” It involves the planning, implementation, and control of how goods, services, and information flow from and between a point of origin and consumption- be it at production or end consumer.
In supply chain management, logistics comprises of several activities that together help make for an efficient and synchronized supply chain.
When you have a network of suppliers and distributors, proper logistics management ensures that products reach customers at the right time. More than that, these products will be of the right quality and in the right condition.
The processes in logistics can be handled on two fronts:
- Inbound logistics
- Outbound logistics
- Reverse logistics
Inbound logistics involves the process of procuring materials, handling their inventory, transportation to (and storage in) company warehouses and so on.
Outbound logistics concerns product collection, storage and transportation to distribution centers or to end point consumers.
There is also reverse logistics which involves the movement of products from their typical final destination back to the company. Reverse logistics may be necessary in case of recalls, servicing, decommissioning or recycling.
What does logistics mean?
Logistics in lay language means what a business does to facilitate the smooth flow of materials and information. It also includes a clear understanding of what management and control systems add to the efficiency of the business.
The overall aim is to improve the movement and storage of goods- whether within or out of the company.
What Are the Types of Logistics?
There are several types of logistics, each type referring to the core activities in that field. While these types appear distinct, they are all interlinked.
- procurement logistics
- transport logistics
- production logistics
- sales logistics
- information logistics
- recovery logistics
It relates to the process of obtaining raw materials from suppliers. What follows is a flow of information and procured materials via transportation, warehousing, and production. Production logistics has evolved to see manufacturers focus on cost-saving on inventory through an approach called “just-in-time” production.
This part of logistics often revolves around how an organization manages its transportation systems. Transport plays a key part in logistics and covers all areas that involve the movement of raw materials or products. Transport links warehouses, suppliers and distributors, and customers. It is a multimodal logistics component and can involve third party providers.
As the name suggests, production logistics relates to the coordination and executing of plans towards conversion and product management. What happens and how- from raw materials or goods to internal distribution, packaging, and storage within the factory.
It also covers the distribution channels. Sales logistics is the flow of product from delivery to warehouses and distribution points. It also covers wholesalers, retailers, and customers. A smooth interlink between sales logistics and other aspects of logistics can aid in achieving higher efficiency towards customer satisfaction.
Recovery logistics is also called reverse logistics. In recovery logistics, the focus is on aspects like product recovery, recycling, repackaging or decommissioning.
This is a part of logistics that emphasizes on how to best link other aspects of the company logistics. It is critical to procurement and supply, product management, transport, and marketing.
Is Logistics the Same as Supply Chain?
Often, people talk of logistics and supply chain as though they are the same thing. It is easy to get confused as functionally, logistic and supply chain intertwine.
That has often led to one big question: Is logistics the same as supply chain?
The answer is no, it’s not. The fact that you can use these words interchangeably doesn’t take away the difference in what they mean and the role each has in business and global trade.
Logistics mainly focuses on the efficient movement of materials and information to increase cost-effectiveness. It is a part of supply chain management (SCM).
Supply chain or SCM broadly encompasses all activities of the firm, inclusive of logistics. It is how separate organizations or companies connect to a network of suppliers, distributors, third-party providers, and customers.
How then do you distinguish between logistics and supply chain? Think of logistics as a component of supply chain that is geared towards customer satisfaction. Supply chain management, on the other hand, aims at giving the company a competitive edge.
What Are the Key Activities in Logistics?
Logistics comprises interdependent components that also make up what we call logistics activities.
There could be several activities within a firm’s logistics activities, but the most common ones are:
- costumer response
- inventory planning and management
- Information processing
- Demand forecasting
Various organizations or companies draw from any number of activities to accomplish their key focus. For most firms, the key is to have a logistics management system that helps provide satisfaction to customers.
They may also want to integrate activities that keep them ahead of the competition- a factor that sees many adopt additional functions within their logistics system.
Let’s look at five of these activities that are core to any firm or business.
Customer response logistics involves the development of a customer service policy (CSP). This links to customer feedback, order entry (OE), and order processing (OP), with the aim being to have a CSP that reduces lost sales to a bare minimum.
Inventory Planning and Management
Inventory planning and management (IP&M) is a function of logistics that seeks to keep inventory costs as low as possible. Through strategies like forecasting, and service level optimization, IP&M works towards satisfying what the firm has in its CSP.
Supply involves inventory building via procurement or production. Here the firm wants to meet its inventory planning targets through activities like sourcing and purchase order processing. In logistics, supply is about cutting total acquisition costs (TAC) to a minimum.
Transportation forms a key aspect of logistics and essentially links the various functions. We use our transport strategies to link CSP to inventory, supply, and warehousing.
A transportation plan comes into play once the other aspects are in place and will focus on shipment methods, last-mile delivery, and freight and fleet management among others.
Companies plan their logistics around many activities and warehousing forms one of the key components. This function can be handled internally or outsourced. Proper warehousing management always cuts costs and compliments the achievement of the targets set in the CSP.
What Are Some Terms Used in Logistics?
Logistics has some unique terms that you’d do well to learn if you are looking to understand the industry. Here are a few that you are likely to encounter more often.
Bill of Lading (BOL) – a contract that legally-binds a shipper and a carrier and often stipulates everything that concerns the shipment.
Consignee – that individual that is supposed to receive a shipment and is under obligation to pay for the shipment. A consignor would be the sender (also the seller) while consignment refers to the goods.
Inbound Freight – any shipment coming into a company from a vendor.
Landed Cost – it’s the total cost of a product. It includes the base cost, transport, taxes, and insurance.
NVOCC – stands for “non-vessel operating common carrier”. An NVOCC is also called a freight forwarder.
3PL – “third party logistics” is a service provider who outsources their solutions to other companies.
Intermodal – refers to the use of two or more transportation methods. Examples could be truck and rail or truck to air.
White Glove Delivery – in logistics, a White Glove Delivery refers to a premium service meant for the transport of fragile or high-value goods.
Final Mile Delivery – used to refer to shipping goods to their final destination. It’s also called last-mile delivery.
Cross Docking – it is a distribution system that involves receiving a shipment from a supplier at the dock and then loading them onto outbound trucks to distribute directly to the customer.
What Are the 7 Rs of Logistics?
Logistics is about moving goods, services or information in a way that there is effectiveness and efficiency in delivering them to their final destination. And because it is about satisfying customers, the Rs of logistics come in very handy for companies.
As such, the 7 Rs of logistics involve the “right” of what a company should focus on to meet requirements in their customer service policy. The seven Rs are:
- Right product
- Right quantity
- Right condition
- Right place
- Right time
- Right customer
- Right price
Right Product – a good logistics management system must work towards delivering the right product. It helps in being cost-effective.
Right Quantity – in logistics, getting the right quantity is crucial to customer satisfaction. Companies now employ sophisticated technology to track shipments and ensure customers get the right goods in the right quantity.
Right Condition – it’s paramount to deliver goods or products in the right condition. Things like product specifications should meet standards and be maintained in the finished product delivered to the consumer.
Right Place – a company must deliver the product to the right place. Synchronization of the transport system and customers will help achieve this.
Right Time – logistics needs to get the goods delivered on time. Consumers are quick to note delays in delivery.
Right Customer – put simply, the product should be tailored and delivered to the right customer or market. This is how you gain leads and forge a competitive edge.
Right Price – A company must get its pricing right not only to meet customer needs but also factor in company expenses and revenue projections.
How Does 3PL Logistics Work?
Third-party logistics, or 3PL, is a service that allows companies or organizations to outsource some of their operational logistics.
A company will often identify aspects of its logistics that it doesn’t want to handle. The firm gets into a contract with a 3PL provider who will offer the services required only when needed.
The services a 3PL can provide include warehousing, order fulfillment, transportation, and packaging among others. 3PLs allow companies to focus on their core business of product development.
Another benefit comes in the form of cost savings in terms of reduced expenses on hiring staff.