Logistics refers to the movement of material goods, people or energy from a point of origin to the consumer. Logistics management involves optimizing every link in the supply chain to ensure goods reach consumers in an efficient and timely manner. It begins at the production facility or warehouse and ends at the point of sale.
The term “logistics” has military origins, initially referring to the methods an army used to get men, ammunition and supplies to the battlefield. The term has evolved to cover the organized movement, often of materials, in the business world. There are several components to logistics management, because it covers a business’s entire supply chain.
Transportation logistics is the most commonly addressed component in supply chain management. How a company transports goods from one location to another can have a strong impact on the business’s overall performance. In many cases, this part of the supply chain is contracted to a third party that specializes in transportation. This helps a business to manage seasonal and market demand changes, minimizing the need to hire and lay off workers based on business cycles.
However, transportation is only one piece of logistics. There are five main areas in the supply chain governed by logistics management. They are supply, transportation, warehousing, order fulfillment and customer service.
Supply deals with the ability to secure the goods or raw materials that will eventually be sold to the customer as a finished product. Maintaining appropriate supply requires demand forecasting and understanding the minimum production requirements to turn a profit. Buyers in a purchasing department are responsible for locating the appropriate goods or raw materials for the best price available and having those goods on hand when they are needed.
Companies must be aware of seasonal and market trends to predict the supply that will be needed and to then manage raw materials for production or goods from vendors to meet the demand. For manufacturers, this part of the supply chain can be complex. They may have several vendors on hand to ensure they are always able to locate the raw materials needed. They must be aware of lag times for the raw materials to reach them. If a raw material takes three months to secure from the date of order, then the business must have at least a three-month supply on hand. Supplies must be regularly counted and monitored, especially for vital or difficult to procure materials.
Transportation logistics apply not only to getting raw materials and goods to the warehouse, but also to supply retail locations. In some cases, the sales force carries the goods with them in a route to different retail outlets, as with snacks and beverages. In other cases, major retailers receive shipments of goods from the warehouse.
Where transportation takes freight across state lines or country borders, logistics management must address compliance with regulations both local, federal and international. Improperly registered vehicles or failure to meet Department of Transportation regulations can seriously hamper a business’s ability to transport goods when they are needed. Such delays create additional expenses as third parties must be hired to get goods where they are needed on time. This is another reason why companies often outsource transportation logistics.
There are many different ways to manage storage of goods and raw materials. Manufacturers will often have a plant with raw materials on hand and a warehouse nearby where additional materials can be secured when needed. Some businesses have central warehouses that feed smaller local warehouses. These are often placed strategically throughout the country to take advantage of shipping routes from major cities. In some cases, companies even bypass warehousing altogether by using cross docking.
Cross docking is a method of moving products from the point of origin or manufacture directly to the consumer. There may be some minor handling or packaging in between, but warehousing is eliminated. This method reduces the cost of shipping and handling for businesses while eliminating storage costs.
Efficient picking and packaging rely heavily on the logistics management of the warehouse. The slotting profile, or arrangement of stored goods, can have a great impact on how safely and how quickly workers can pick orders and pack them. Items that frequently come in and out of the warehouse should be easy to access and have sufficient space to store a large quantity. Less frequently ordered goods are best stored in less accessible locations.
How and when stock is received, unloaded and replenished will influence the speed and efficiency of order fulfillment. This is where technology plays to greatest role. By using software and communications technology, warehouses can pick orders more quickly with few errors.
The final component in logistics management has to do with keeping the customer satisfied. Order must be processed swiftly and delivered on time, in good condition. Systems must be in place to ensure customers can get information about the status of the order while it is in transit. The shipping system used by the business plays a major role in ensuring timely and accurate information to customers about their orders.
In addition, logistics management must have methods in place to handle returns and defective merchandise. Such problems in the supply chain must be investigated and resolved to ensure customer satisfaction and a reduced level of return merchandise in the future.
Modern businesses are learning to integrate logistics so that considerations for all aspects are considered in an overall strategy. Traditionally, logistics management focused on production, operating independently from marketing and sales. The production department focused primarily on efficiency and high output without regard to distribution chains or market trends. Sales departments did what they could to sell as much product as possible, without consideration of the raw materials supply or time lag for manufacturing. Marketers sought to maximize customer service and profit without considering transportation logistics or distribution chains.
By integrating logistics along every point in the supply chain, businesses leverage the efficiencies of all aspects of its business to maximize profits and customer satisfaction.