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Defining Logistics Management and Its Importance in the Supply Chain

Table of Contents

(Last Updated On: 2022年1月18日)

What is Logistics Management? The simplest definition of logistics management is the coordination and control of resources to achieve a desired result. Sounds simple enough, right? Well, it does sound easy but logistics management can be complicated if you don’t know what you’re doing. But we’ll go over some basics so that you have a good understanding on how it works and why it’s important for the supply chain.

During the following article we are going to define Logistics Management. Then we will look into its relation to Supply Chain Management. Both of them are crucial for continuous and stable business transactions. This is true whether we talk about a business to business or a business to consumer transaction. The two should compliment each other. This way they can create an invisible force to the customers eyes, the result of which will be lower costs. Besides it will create competitive advantages and most importantly a satisfied client. Going through these basics will help you see the big picture. Then you will get to understand how these industries support one another. After which you will see how they can help your own business grow.

What is Logistics?

The Council of Supply Chain Management Professionals defines logistics as “part of the supply chain process that plans, implements and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customer’s requirements.”

While the terms “logistics” and “supply chain” are sometimes used interchangeably, logistics is an element of the overall supply chain.

Logistics refers to the movement of goods from Point A to Point B, which entails two functions: transportation and warehousing. The overall supply chain is a network of businesses and organizations working in a sequence of processes, including logistics, to produce and distribute goods.

Inbound Logistics

What is the Difference Between Inbound and Outbound Logistics? “Inbound Logistics refers to movement of goods and raw materials from suppliers to your company. In contrast, Outbound Logistics refers to movement of finished goods from your company to customers”

 

The Council of Supply Chain Management Professionals defines logistics as “part of the supply chain process that plans, implements and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customer’s requirements.”

While the terms “logistics” and “supply chain” are sometimes used interchangeably, logistics is an element of the overall supply chain.

Logistics refers to the movement of goods from Point A to Point B, which entails two functions: transportation and warehousing. The overall supply chain is a network of businesses and organizations working in a sequence of processes, including logistics, to produce and distribute goods.

What Is Logistics Management?

Logistics Management helps with all aspects of logistics in a business transaction. This includes processing business communications between the origin and the point of consumption of goods. Doing so will aid forwarding and reversing the process of goods and / or other services. This is done so as to meet the business or consumers exact needs. 

What is Its Relation to Supply Chain Management?

Supply Chain Management supports the correct execution of distributing the goods or in question to all customers or businesses at the receiving end of the transaction. Supply Chain Logistics makes sure of precise coordination and storage of all goods and services as well, across the Supply Chain. This usually starts by identifying the raw materials, which can be based on value or quality. Then the manufacturing starts. After this comes the final step, which is distribution to the client. Although sometimes the products are called back or returned due to dissatisfaction or miscommunication. This is also handled by the Supply Chain Logistics team. Though this falls under a different category. Namely: Reverse Logistics and Product Return (more on that below). When done effectively, Supply Chain and Logistics Management both will grant their clients competitive advantages and allow them to raise their value to consumers or other businesses. The two are often used as synonyms however as described above, they tend to cover different areas. Naturally this will also be dependent on the type of business we are talking about. 

The Role of Logistics

The very essence of a business is to exchange goods or services for money or trade. Logistics is the path those goods and services take to complete the transactions. Sometimes goods are moved in bulk, such as raw goods to a manufacturer. And sometimes goods are moved as individual disbursements, one customer at a time.

No matter the particulars, logistics is the physical fulfillment of a transaction and as such is the life of the business. Where there is no movement of goods or services, there are no transactions—and no profits.

Operations Management:

How Operations Management (OM) Works Operations management (OM) is the administration of business practices to create the highest level of efficiency possible within an organization.

There are seven pillars of effective logistics:

  1. Material sourcing: Material sourcing involves more than finding the lowest-cost supplier for a raw material used in manufacturing. Logistics includes calculating and managing contributing factors and costs, such as backorder delays, competitor priority rankings and lockouts, add-on services costs, extraneous fees, increased shipping costs due to distance or regulatory environments, and warehousing costs. Finding the right source for any given material requires a good understanding and management of all contributing factors. This process is called strategic sourcing, and logistics play an important role in that planning.
  2. Transportation: At the core of logistics is the act of physically transporting goods from Point A to Point B. First, a company needs to select the best mode of shipment—air or land, for example—and the best carrier based on cost, speed, and distance, including optimizing routes that require multiple carriers. In the case of global shipments, the shipper needs to be up to speed on customs, tariffs, compliance, and any relevant regulations. Transport managers need to document and track shipments, manage to bill, and report on performance using dashboards and analytics.
  3. Order fulfillment: To complete a transaction, items must be “picked” from the warehouse per the customer order, properly packaged and labeled, and then shipped to the customer. Collectively, these processes comprise order fulfillment and are the heart of the logistics sequence in customer distribution.
  4. order fulfillment process
  5. Warehousing: Both short- and long-term storage are common parts of logistic planning. But warehouse management systems also enable logistical planning. For example, logistics planners must consider warehouse space availability and special requirements such as cold storage, docking facilities and proximity to modes of transportation such as rail lines or shipyards.
  6. Further, the organization within the warehouses is part of logistic planning. Typically, goods that move frequently or are scheduled for transport soon are placed at the front of the warehouse. Lower-demand items are stored toward the rear. Perishable goods are often rotated so the oldest items are shipped out first. Items that are often bundled are usually stored beside one another, and so on.
  7. Demand forecasting: Logistics relies heavily on inventory demand forecasting to ensure that a business never runs short on core or high-demand products or materials—and never ties up capital unnecessarily in warehoused goods with sluggish sales, either.
  8. Inventory management: By using inventory management techniques to plan ahead for increased demand in seasonal or trending products, companies can keep profits higher and make inventory turns faster, meaning the ratio of how many times you sell and replace inventory in a set period. Conversely, by noting slowing inventory turns on other products, a company can better determine when to offer discount pricing or other incentives to free capital to reinvest in goods that are in higher demand.
  9. Further, retail sales often differ store to store, region to region and country to country. Good inventory management enables the business to decide to ship products that are performing poorly in one store or region to another rather than take a loss via discount pricing to be rid of the stock. Logistics is key to moving inventory where it is likely to get the best price.
  10. Supply chain management: Logistics is an important link in the supply chain as it facilitates the movement of goods from suppliers to manufacturers and then to sellers or distributors and eventually to buyers.

Different Types of Logistics Management

During the following section we will identify the main types of Logistics Management. This will help you differentiate between them. Doing this could be useful if you are in doubt about which type of services you need to be covered exactly based upon the size or type of your business. There are four types of Logistics management: supply, production, distribution and reverse logistics. Each of these types are focused on a different crucial parts of the supply process:

What Is Supply Chain Management (SCM)?

Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business’s supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.

Supply Management and Logistics

Supply chain management, as explained by Michigan State University professors in the text Supply Chain Logistics Management, involves collaboration between firms to connect suppliers, customers, and other partners as a means of boosting efficiency and producing value for the end consumer. The textbook considers supply chain management activities as strategic decisions, and sets up “the operational framework within which logistics is performed.”

Supply Management, as mentioned briefly before, allows a smooth coordination and planning of the products, services or raw materials in question. Besides their correct distribution in a timely manner to their required place as agreed previously by the client or consumer. The received goods or services then will help the receiving company’s own operations.

Distribution and Material Movement

Distribution and Material Movement is all about the How. This aspect facilitates the loading and unloading. Besides it helps with storage and way of distribution of the goods. They also are in charge of the tracking of stock as well as documentation and holding responsibility over usage of distributed goods. This is a crucial aspect of the business cycle for both wholesalers and distributors as the competitive advantage and profit margins can easily depend on timing. Besides, the turnover of goods has a heavy impact on prices as well as customer satisfaction rates.

Production Logistics and Management

Production Logistics and Management supports the different stages of distribution. After that it combines the individual goods or services and prepares them for becoming the final product. Sometimes this also includes organizing certain stages of the production process as well. Production Logistics and Management plays a key role in countless industries. Some of them rely on smaller, individual raw materials as well. These later will be turned into the product that is ready to be sold. Industries like this include automotive industries, smart phones & electronic devices, construction and so on

Reverse Logistics and Product Return

Reverse Logistics and Product Return is all about returning goods, or materials from a client or an assembly process. The system’s main goal is to satisfy customers in the long-run. This happens by correcting mistakes in case of miscommunications. Besides they can recall raw materials into stock supply if the product in question was of the sort. This could be for example building blocks or any kind of supply material for construction. It can be reclaimed by the manufacturer and recycled as stock, ready to be sold again.

The Distribution Network of Logistics Management

When we talk about the Distribution Network of Logistics Management we refer to a well-oiled machine. This network consists of facilities and systems that all compliment one another. This way they create an efficient channel of operations for suppliers and customers both. The system usually entails storage facilities and transportation networks. These will function as a middle point that aids the physical aspects of business transactions. These distribution networks are absolutely essential in today’s fast paced markets. It would prove rather difficult to imagine manufacturer and customer relations without them.

Logistics influences growth in the supply chain

The essential role logistics plays in supply chain management is clear in the digital age. Businesses of all sizes can scale logistics operations and generate massive growth through new technologies like artificial intelligence and machine learning. Technological innovations assist logistics professionals who are often responsible for work within the end-to-end supply chain: from the conception of a product to customer service after a product has been delivered.

Why Is Logistics Management Important in the Supply Chain

As the size of a company grows, the importance of Logistics Management grows with it. This is true more so to the companies that deliver physical goods or raw materials. To sum it up, the Logistics Industry is crucial. In today’s globalized markets it is key due to the following main reasons:

  • It creates value by creating a constant flow of goods. This way it ensures long-term customer satisfaction.
  • It allows businesses to improve their operations. This creates competitive advantages and maintains value. 
  • It ensures professional execution of all logistical steps. For instance the timely delivery of products to the correct location. 

The future of careers in SCM and logistics

Careers in supply chain management offer a competitive salary and promote professional growth opportunities. Supply chain executives fulfill valuable responsibilities and develop a long-term supply chain strategy that impacts an organization’s bottom line. Individuals qualified to work in logistics automation are in high demand, and supply chain professionals who have not shifted from traditional logistics fall short when compared to their competitors.

Working in many aspects of the global supply chain, supply chain leaders carry out a broad range of managerial obligations. Supply chain managers must be analytical, technical, and strategic. They must also possess critical soft skills such as active listening and emotional intelligence—to react quickly to emergencies and rapidly resolve relational issues. Logistics professionals can hone operational skills while focusing on automation and efficiency in raw material collection, inventory, warehousing, and transportation.

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Third-party logistics

Supply chain professionals can also explore third-party logistics—often referred to as 3PL services—a term that refers to businesses that outsource elements of sourcing, distribution, warehousing, and delivery services to a logistics provider. Third-party logistics professionals specialize in outbound logistics while scaling operational needs for small and large businesses.

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