What is Logistics? Meaning, Definition & Management

5 Key Areas in Logistics Management

The following areas of logistics management contribute to an integrated approach to logistics within SCM

1. Inventory Management

At the heart of this network is Inventory Management, which refers to the process of ordering, storing, and using a company’s inventory. It’s about having the right product in the right quantity, in the right place, at the right time.

2. Transportation Management

Many modes of transportation play a role in the movement of goods through supply chains: air, rail, road, water, pipeline. Selecting the most efficient combination of these modes can measurably improve the value created for customers by cutting delivery costs, improving the speed of delivery, and reducing damage to products.

3. Warehousing

When inventory is not on the move between locations, it may have to spend some time in a warehouse. Warehousing is “the activities related to receiving, storing, and shipping materials to and from production or distribution locations. It is a very important factor, we need to consider to know the logistics meaning.”

4. Order Fulfillment

Order Fulfillment is the process that ensures that customer orders are processed and delivered most efficiently, maintaining customer satisfaction and loyalty.

5. Demand Planning

Demand Planning is about forecasting the demand for products accurately to avoid overstocking or understocking, ensuring that the right product quantities are available at the right time to meet customer needs.

Logistics Management VS Supply Chain Management

While logistics management and supply chain management are often used interchangeably, they represent distinct aspects of a company’s operations. Here are some key differences:

Examples of Logistics Management

1. Amazon’s Prime Delivery

Amazon’s Prime Delivery is an excellent example of effective logistics management. They have mastered the art of quick and efficient delivery, providing their customers with a seamless shopping experience. The company has a vast, well-organized network that allows for same-day or even two-hour delivery in certain areas.

2. Walmart’s Cross-Docking

Walmart employs a logistic strategy known as cross-docking. With this method, products from suppliers are directly distributed to stores, reducing the need for storage space and hence, minimizing storage costs. This efficient strategy enables Walmart to keep low prices for their customers.

3. Domino’s Delivery

Domino’s Pizza is renowned for its effective management, specifically its impressive delivery system. The company’s logistics infrastructure allows it to deliver hot pizzas to customers in a very short time, a key factor in its success.

Types of Logistics

Logistics is a broad field, encompassing a variety of operations that ensure the smooth flow of goods and services from the point of origin to the point of consumption. These operations can be broadly categorized into the following four types:

1. Inbound Logistics

This type involves the movement of raw materials and goods from suppliers to a company’s production facilities. It focuses on the efficient and timely transportation, storage, and delivery of goods, which is crucial for maintaining production schedules.

2. Outbound Logistics

It pertains to the movement of finished products from a company’s production site to the end consumer. This includes warehousing, packaging, transportation, and distribution of goods.

3. Third-Party Logistics (3PL)

Like other aspects of supply chain management, the various logistics functions can be outsourced to firms that specialize in some or all of these services. Third-party logistics providers (3PLs) actually perform or manage one or more logistics services. Fourth-party providers (4PLs) are logistics specialists and play the role of general contractor by taking over the entire logistics function for an organization and coordinating the combination of divisions or subcontractors necessary to perform the specific tasks involved. This growing trend incorporates the supply chain management philosophy of concentrating on core competencies and partnering with other firms to perform in areas outside your competence. We’ll learn more about 3PLs and 4PLs later in this section.

4. Reverse Logistics

Another growing area of supply chain management is reverse logistics, or how best to handle the return, reuse, recycling, or disposal of products that make the reverse journey from the customer to the supplier. This business can be handled at a loss, or it can actually become a profit center. We’ll also cover this topic in more detail later in this section.

Logistics Goals and Strategies

At the highest level, logistics management shares the goal of the supply chain: “to meet customer requirements.” There are several logistics goals that most experts agree upon:

• Respond rapidly to changes in the market or customer orders.
• Minimize variances in logistics service.
• Minimize inventory to reduce costs.
• Consolidate product movement by grouping shipments.
• Maintain high quality and engage in continuous improvement.
• Support the entire product life cycle and the reverse logistics supply chain.

An effective strategy depends upon the following tactics:

• Coordinating functions (transportation management, warehousing, packaging, etc.) to create maximum value for the customer.
• Integrating the supply chain.
• Substituting information for inventory.
• Reducing supply chain partners to an effective minimum number.
• Pooling risks.

Importance of Logistics Management

It plays a crucial role in the operational efficiency and success of any business. It involves the integration of information flow, material handling, production, packaging, transportation, warehousing, security, and much more. Here are five key areas where it is paramount:

1. Customer Satisfaction

A well-managed logistical system ensures timely deliveries, which results in increased customer satisfaction. This can lead to repeat orders and long-term customer loyalty. For instance, Domino’s Pizza’s effective logistics management contributes significantly to its promise of prompt pizza delivery.

2. Cost Management

Efficient logistics can help in reducing operating costs. Proper routing, load optimization, and mode selection can result in substantial savings in both short and long-term operations.

3. Competitive Advantage

A company with superior logistics can often provide better service than its competitors, thereby gaining a competitive edge. This is evident in the case of clothing retailer Zara, whose unique model allows rapid response to changing fashion trends.

4. Scalability

As businesses grow and operations expand, a well-planned system can help manage the increased complexity and volume. Apple’s robust logistics are a prime example, enabling it to coordinate with hundreds of suppliers worldwide.

5. Sustainability

Effective logistics management can contribute to sustainability by reducing wastage, optimizing routes for lower fuel consumption, and managing returns more efficiently. This aspect is becoming increasingly important as businesses strive to reduce their environmental impact.

Logistics Strategies

Logistics strategies primarily depend these five tactics:

1. Coordinating Functions

Logistics can be viewed as a system made up of interlocking, interdependent parts. From this perspective, improving any part of the system must be done with full awareness of the, effects on other parts of the system. Before the advent of modern logistics management, however, the various operations contributing to the movement of goods were usually assigned to separate departments or divisions, such as the traffic department. Each area had its own separate management and pursued its own strategies and tactics.

Decisions made in any one functional area, however, are very likely to affect performance in other areas, and an improvement in one area may very well have negative consequences in another unless decisions are coordinated among all logistics areas. Adopting more efficient movement of goods, for example, may require rethinking the number and placement of warehouses. Different packaging will almost certainly affect shipping and storage. You may improve customer service to a level near perfection but incur so many additional expenses in the process that the company as a whole goes broke.

You need a cross-functional approach in logistics, just as you do in supply chain management as a whole. Teams that cross functions are also very likely to cross company boundaries in a world of international supply chains with different firms focused on different functions.

2. Integrating the Supply Chain

Integrating the supply chain requires taking a series of steps when constructing the logistics network. In a dynamic system, steps may be taken out of order and retaken continuously in pursuit of quality improvements; the following list puts the steps in logical order.

a. Locate in the Right Countries

• Identify all geographic locations in the forward and reverse supply chains.
• Analyze the forward and reverse chains to see if selecting different geographic locations could make the logistics function more efficient and effective. (Not all countries are equal in terms of relevant concerns such as infrastructure, labor, regulations, and taxes).

b. Develop an Effective Import-Export Strategy:

• Determine the volume of freight and number of SKUs (stock-keeping units) that are imports and exports.
• Decide where to place inventory for strategic advantage. This may involve deciding which borders to cross and which to avoid when importing and exporting as well as determining where goods should be stored in relation to customers. (Some shipping companies now add a “war risk surcharge” if they’re required to pass through or near a nation with civil unrest or at war.) Both geographic location and distance from the customer can affect delivery lead times.

c. Select Warehouse Location:

• Determine the optimal number of warehouses.
• Calculate the optimal distance from markets.
• Establish the most effective placement of warehouses around the world.

d. Select Transportation Modes and Carriers:

• Determine the mix of transportation modes that will most efficiently connect suppliers, producers, warehouses, distributors, and customers.
• Select specific carriers.

e. Select the Right Number of Partners:

Select the minimum number of firm freight forwarders and 3PLs or a 4PL to manage forward and reverse logistics. In selecting the right partners, also consider their knowledge of the local markets and regulations.

f. Develop State of the Art Information System:

Reduce inventory costs by more accurately and rapidly tracking demand information and the location of goods. Developing state-of-the-art information systems may be difficult in some regions. Such situations make defining the processes and information flows even more critical.

3. Substituting Information for Inventory

Physical inventory can be replaced by better information in the following ways:

a. Improve Communication:

Talk with suppliers regularly and discuss plans with them.

b. Collaborate with suppliers:

Use HT to coordinate deliveries from suppliers. Remove obsolete inventory. Use continuous improvement tools and share observations about trends.

c. Track Inventory Precisely:

Track the exact location of inventory using bar codes and/or RFID (radio frequency identification) with GPS (global positioning systems).

d. Keep Inventory in Transit.

It’s possible to reduce systemwide inventory costs by keeping inventory in transit. One method of keeping inventory in motion the maximum amount of time is a distribution strategy called cross-docking. Used with particular success by Wal-Mart, cross-docking involves moving incoming shipments directly across the dock to outward-bound carriers. The inventory thus transferred may literally never be at rest in the warehouse.

4. Reducing Supply Chain Partners

Though you have to watch out for tradeoffs in effectiveness when knowing what is logistics and reducing the number of partners, you can generally increase efficiency by doing so. If possible, look for an entire echelon (tier) you can do without such as all the wholesale warehouses or factory warehouses

The more partners there are in the chain, the more difficult and expensive the chain is to manage. Handoffs among partners cost money and eat up time. Having many partners means carrying more inventory. Reducing the number of partners can reduce operating costs, cycle time, and inventory holding costs. There is, however, some lower limit below which you create more problems than you solve. If you eliminated all partners other than your firm, you’d be back to the vertical integration strategy pursued in a simpler marketplace during the early 20th century by U.S. auto-maker Henry Ford.

5. Pooling Risks

In regard to inventory management, pooling risks is a method of reducing stockouts by consolidating stock in centralized warehouses. The risk of stockouts increases as supply chains reduce the safety stock held at each node and move toward Just-in-Time ordering procedures. With every entity attempting to keep inventory costs down in this manner, the risk of stockouts rises if buying exceeds expectations. Statistically speaking, when inventory is placed in a central warehouse instead of in several smaller warehouses, the total inventory necessary to maintain a level of service drops without increasing the risk of stockouts. An unexpectedly large order from any one customer will still be small about the total supply available.

Value Proposition in Logistics?

A value proposition in logistics is the unique combination of services promised by a logistics provider to its clients. The value proposition aims to convince potential customers that the services offered surpass those of competing providers in terms of quality, cost, or a combination of both. Essentially, it’s the answer to the question, “Why should a customer choose us for their logistics needs?”

Importance of Certification and Education in Logistics Management

A robust foundation in the intricate world of logistics often begins with formal educational qualifications. Courses such as an MBA or diploma in logistics offer an in-depth understanding of the field and equip students with the necessary skills to handle logistical challenges. An MBA in logistics management provides insights into supply chain management, operational methods, and strategic aspects. For those aiming to delve deeper into research or high-level strategic roles, a doctorate in logistics management can be a viable option. Additionally, obtaining a logistics certification can validate an individual’s expertise and open up doors to better career opportunities.

Last Word

In conclusion, logistics management serves as the backbone of any business dealing with the production and delivery of goods. The logistics definition encapsulates a broad range of operations, from inventory management and warehousing to transportation and customer service. The logistics meaning is deeply intertwined with cost-efficiency, customer satisfaction, and overall business success. Whether it is FedEx with its promise of speed and reliability or Amazon with its technologically driven flexible delivery options, each company’s strategy reflects its unique value proposition.