- Understanding Logistics Management
The 7 R’s of Logistics Management
The Relationship Between Logistics + Supply Chain Management
- Reducing Supply Chain + Logistics Costs
Why is Logistics Management Important?
Understanding Logistics Management
Two of the most common operational goals that businesses strive to achieve are to enhance customer service and reduce expenses. This secures returning customers, ensures your company can maintain profits, and helps you to avoid high cost or wastes. Logistics management, a valuable component to supply chain management, can be used to meet customer demand and boost the efficiency of your company’s delivery of finished goods.
Logistics controls the movement and storage of information, products, and services from the point of origin to the ultimate destination—typically, the end user or customer. Workers in the logistics industry are known as logisticians, and their main objective is to meet customer needs as they facilitate the implementation of a delivery strategy.
Elements involved in logistics management include:
- Selecting the best vendors who are able to provide warehousing and transportation facilities for the specific product or service
- Implementing effective routes for transportation
- Identifying the most appropriate and efficient delivery method
- Using software and other logistics tracking resources to manage transparency in the delivery process
Without logistics, the work process and flow of goods can quickly fall apart. Issues that occur, such as delayed deliveries, damaged products, overflow in warehouses, and bottlenecks in production, can lead to customer dissatisfaction and an increase in expenses. To resolve these issues, logisticians focus on establishing collaboration between providers and buyers and securing an efficient transportation provider. They do their best to select the most appropriate vendors who will carry out tasks sufficiently.
Outbound vs. Inbound Logistics
The focus of logistics management is twofold. When information or material is on its way from the point of origin to your business, that is known as “inbound logistics.” When it is on its way from your business to the customer, that is known as “outbound logistics.”
Inbound logistics handle internal functions through a network that brings goods to your company. This network includes transporting, storing, and delivering from other suppliers, whether it’s raw materials for your manufacturing business or finished products for assembly. Eventually, you will sell the material you receive through inbound logistics.
Optimizing this network is essential if you want to achieve smooth overall operations. You’ll want a full picture of all the moving parts. Typically, companies create a partnership with a third-party logistics provider (3PL), which optimizes inbound logistics networks for you.
Outbound logistics handle external flow to the point of consumption. While it still includes transporting, storing, and delivering, instead of the material arriving to you it arrives to your customer, and the product reaches its end destination. This involves an entirely different network that includes product distribution and delivery, as well as distribution centers. Typically the distribution network is much wider and more partners will be involved, since the product is arriving at more destinations. This network should also be optimized as much as possible to save costs and provide accurate delivery timing estimates for your customers—if you would like to create positive customer relationships, your outbound logistics is where you will have the most opportunity to do so.
Functions of Logistics Management
There are several key functional areas to logistics management. These are:
- The procurement of goods. The first task in functions of logistics operations, this procurement occurs when a buyer (your business) places an order with a supplier or a customer places an order for a finished product from your business. Processing the order involves checking product availability, finalizing price, and describing delivery terms. Shortages and any other types of deviation should be acknowledged in this first function.
- Inventory control. Inventory management keeps enough items available to meet demand while maintaining a low carrying cost. This function often has the most potential to incur high costs, which negatively impact overall profits. The goal is to strike a balance between meeting demand and keeping the cost of meeting that demand as low as possible.
- Warehousing. This function of logistics involves the storage of goods until they’re sold. It plays an essential role in logistics as a key area of decision; often the efficiency of your networks depends on your choice of warehousing. Decisions include location, size, layout, and number of warehouses.
- Packaging. Logistical packaging is critical to the distribution of products. It covers damage protection, material handling, and terms of storage space to ensure that products are delivered efficiently to customers in a high quality manner. The customer should receive their purchase in a timely manner and in a way that doesn’t cause damages or defects to the product.
- Transportation. Transportation is often regarded as the most fundamental component to logistics, as it moves goods from the supplier to the buyer and from the buyer to the customer. Once an order is placed, the transaction isn’t fully completed until the goods physically arrive for the customer, and the only way to achieve this is through a variety of modes of transportation. Typically, businesses choose their mode of transportation based on cost, urgency, and infrastructure.
- Customer service. The last function to managing logistics is ensuring high quality customer service. The whole point to optimizing a smooth flow of your inbound and outbound networks is to make sure products are delivered to customers conveniently and efficiently. Products should be received at the right time and at the right cost—which leads to the 7 “rights” that all logisticians strive to achieve.
The 7 R’s of Logistics Management
Managing logistics requires effective design, execution, monitoring, and control of the steps required to transform a good or service from raw materials to final delivered product. The 7 “rights” is fundamental knowledge for anyone in logistics, as these R’s help logisticians achieve efficiency and optimization.
There is no particular order to these rights, and your business can order them in its own way according to your company’s priorities. You may prioritize the right product, or another factor may be most important. Either way, the 7 R’s of logistics management are:
The Right Product
Logisticians need to understand exactly what type of product they need to deliver to their target customers. Typically, these products are in demand and well-designed. You should look into issues that may potentially occur with your chosen product (defects, damage during transportation, etc.) to make packaging and transportation as efficient as possible.
The Right Customer
The customer is the cornerstone of logistics operations. It’s extremely important to identify the target audience and spread awareness of the products and services you offer to these customers. This often requires market research and acquiring leads to ensure that your goods are sold in the correct market.
The Right Condition
When customers receive their product, it should be in good condition without any damage or defects. Logisticians have the responsibility of ensuring that products are shipped in the right condition and packaged properly. Consistency is key in this “right”.
The Right Quantity
Quantity has an important role in logistics, as it’s necessary to control the right amount of goods. Logisticians work with distribution and production departments to get the right quantity of goods to customers. This is the “right” that provides the most opportunity to meet demand while avoiding creating too many products, which leads to waste.
The Right Place
The product must arrive at the correct location. In many cases, this where companies utilize third party software. Some companies use a tracking distribution system or route optimization system so that both customers and suppliers can monitor the product as it travels until it’s finally delivered.
The Right Time
Timing is another essential component to logistics. A large aspect to customer service is delivering products in a timely manner that doesn’t inconvenience the customer and also maintains your reputation or competitive advantages in the product’s market. Delays in shipment and errors in routing can lead to customer dissatisfaction.
The Right Cost
Pricing is crucial. However you price your products can make a big impact on the profits your company enjoys or the losses you suffer. Logisticians analyze dynamics within the industry and market demand to determine reasonable prices. They also keep track of costs and periodically ensure that goods are sold at an appropriate price point.
Overall, logistics aims to deliver the right product to the right customer, in the right condition and the right quantity, at the right place, right time, and right cost.
The Relationship Between Logistics + Supply Chain Management
Given that both supply chain management (SCM) and logistics involve the movement of products from raw production to final delivery, it can be easy to confuse the two. Despite their similarities, they are not quite the same and logisticians will have different objects than supply chain operators.
Logistics management is a subset of supply chain management; basically, it is a single activity of inventory movement across a supply chain—it can be considered as one piece to the process of creating a product and ensuring that the product reaches its end consumer. While logistics mainly involves the storage, transportation, and delivery of goods, the supply chain includes additional activities such as the planning and design of products and the optimization of available resources.
The “supply chain” is a network of businesses that create a partnership to manufacture and deliver information or physical goods. Supply chain management supervises the supply chain and aims to optimize outcomes so each business involved benefits as much as possible. It not only coordinates the production and distribution of products to end consumers, but also between the suppliers themselves. Supply and demand trends are difficult to navigate, but SCM executes effective plans that tap into logistics.
Reducing Supply Chain + Logistics Costs
One of the main goals to logistics is to identify problem areas within the supply chain. These problem areas typically involve either waste or high costs. For example, a product may have been ordered in high quantity but is sitting for long periods of time on warehouse shelves because the quantity doesn’t match true market demand. Or, the transportation provider a business has teamed up with incurs high costs and there are more cost-effective solutions available.
It is possible to use logistics reduce costs and waste that occur throughout the supply chain, particularly in logistic management’s functions of warehousing, inventory control, and transportation. In these areas, it’s highly beneficial to implement what’s known as Lean Logistics, a method that helps to reduce waste in any type of industry. Lean Logistics focuses on continual improvement and tackles certain types of waste, including:
- Overproduction, which involves producing something in larger quantities than it is actually needed. Even if each product is sold at some point, overproducing leads to a high cost for production and storage and can impact market price or demand.
- Transporting. Products should be moved as little as possible, both within facilities and between destinations. Not only does this reduce waste, but it also reduces the opportunity for products to become damaged.
- Waiting, which occurs when products sit on shelves for long periods of time or are halted mid-production. This can be caused by a bottleneck in the production line, equipment breakdown, or poor inventory management.
- Defects or Errors. If a product becomes damaged or defective, this results in waste in several different aspects. The product might need to be scrapped and the production process will have to begin over again. Or, extra time and effort will be required to fix it. Damaged products will also negatively impact a company’s reputation with its customers.
Using Lean manufacturing techniques in your business’s logistics processes can help reduce waste and more closely match customer requirements. Techniques such as Total Productive Maintenance, Kanban, and Just-in-Time (JIT) Production aim to make production as efficient as possible to deliver the right product at the right time in the right quantity to the right customers.
Many companies also use logistics tracking, a system that tracks resources throughout the movement and storage of products. With a logistics tracking system, companies know where their products are physically located and where they are scheduled to be next. Certain software that utilizes RFID and barcodes can provide real-time updates as to the movement of your product as it’s on its way to the customer. Software tracking can also provide real-time confirmation of delivery.
Logistics tracking is highly useful for handling maintenance outages and other types of downtime. If a supplier or facility along the supply chain cannot function, this means equipment and materials may need to be moved to a different site or a new supplier must be found as quickly as possible. Logistics tracking helps logisticians take action on delivery or production delays to ensure that customers still receive their products in a timely manner.
Kanban is a Lean manufacturing technique that uses visual cues to trigger action and improve organizational efficiency. As an inventory system, it helps to manage the movement of materials and information—making it the perfect thing for logistics management and controlling supply chains. Kanban provides a means of communication between different suppliers, businesses, and departments so everyone is on the same page as to where a product is located and what steps are further needed before it is finally delivered to the customer.
“Kanban” means signboard or card, and a card that provides specific information can be sent from shipping to the transportation provider, for example, to trigger necessary action. This may be a physical letter or card included with the product, or more typically is part of logistics tracking software (ex: a customer receives an email that their product was delivered so they can retrieve it). Overall, kanban serves as a link and provides the information that connects the entire process of managing logistics.
Kanban can particularly help logisticians visually see the movement of shipments and what priorities or deadlines are being met. Kanban cards can represent each item and show its location within your shipping cycle, so the process becomes transparent. This also makes it much easier to pinpoint waste or delays, and correct mistakes before they become a more widespread problem.
Why is Logistics Management Important?
Logistics is all about finding more efficient ways to move products from their creation all the way to the customer. The driving force behind logistics, and the reason why it’s important for many companies in many industries to adopt this type of management, is to provide the best customer service possible and meet demand. Having an effective logistics process can help protect the reputation of your business and increase profits. Through managing logistics, you can ship your products in a timely manner accurately and with a high level of quality.
On top of this, logistics creates transparency in your business’s supply chain and can track real-time movement of goods. Not only can you better control the flow of inventory, you can see potential disruptions before they happen and take preventative action to reduce waste. When done properly, logistics management helps you provide the right product to the right customer, in the right condition and the right quantity, at the right place, right time, and right cost.