What Is Logistics? Definition and Role in Business

“Logistics” is one of the most popular buzzwords in modern business. But what is logistics, exactly, and what role does it have in your organization’s success?

Learning the ins and outs of logistics — and logistics management — will help you accelerate the flow of goods to consumers and strengthen cash flow for your business. Here’s everything you need to know.

Defining logistics

Broadly speaking, logistics encompasses the acquisition, transportation, storage, and delivery of physical resources. Logistics management, more specifically, involves overseeing and optimizing the flow of goods and resources.

Manufacturing companies use logistics management strategies to streamline the flow of raw materials and other critical resources along the supply chain.

There are many different logistics components to consider, including:

• Raw material sourcing
• Inbound transportation
• Outbound transportation
• Warehousing
• Fleet management
• Materials handling
• Inventory management
• Demand forecasting
• Order fulfillment

The scope of your logistics management strategy will vary depending on your position within the supply chain; a retailer has different logistical needs than a manufacturer or a distributor. That said, flexibility is crucial regardless of your role. 

Types of logistics

Now that you know the definition of logistics in business, it’s essential to familiarize yourself with the different types of logistics. They include:

• Inbound logistics: This is the process of processing and storing the materials you receive from vendors or suppliers.
• Outbound logistics: This involves picking, packing, and shipping goods to the next link in the supply chain, such as a distributor or customer.
• Reverse logistics: Reverse logistics entails routing goods back to your warehouse, like when a customer returns a package
• Third-party logistics: Some companies outsource logistics processes to an outside entity known as a third-party logistics provider.

Managing these logistical processes can be exceedingly complex. That’s why many businesses leverage the services of a third-party logistics provider, or 3PL. A 3PL can provide scalable support to streamline logistics workflows, reduce costs, and promote business continuity.

You don’t have to use a 3PL, but doing so is often a savvy cost-saving move. It’s especially appealing for small and mid-sized businesses that lack the connections and partnerships needed to expedite the flow of goods.

Why is logistics important?

The importance of logistics boils down to one simple fact: Your customers expect to receive their orders on time and intact. You’ll have a tough time retaining customers if your business develops a reputation for delivering goods late or sending damaged items. 

Effective logistics management helps your business avoid adverse financial consequences, such as penalties from vendors or warehouse partners, excess shipping expenses, and high return rates. If you want your business to thrive, make logistics a priority.

Benefits of logistics management

Investing in logistics management can yield the following advantages:

More visibility in the supply chain

Logistics management increases supply chain visibility, letting you keep a closer eye on your goods as they progress from the manufacturer to consumers.

With a comprehensive logistical management strategy, you can maintain visibility over your goods no matter where they are. Whether your materials are stored in a bonded warehouse, transported on a ship, or moved by a ground carrier, you’ll know exactly where they’re headed. 

Reduced overhead 

Logistics management is all about efficiency. You can identify the shipping, storage, and warehousing options that provide the best value for your business and customers. Then, you can optimize your logistics workflow to decrease overhead costs and strengthen cash flow. 

Improved customer experience

Mastering logistics management helps you create a better customer experience. You can get goods into customers’ hands sooner and ensure their orders include the right items. If a customer encounters a product issue, your logistics strategy can quickly resolve it.

Decreased waste

When you know what’s happening within your supply chain, you can pinpoint bottlenecks and inefficiencies. From there, you can work with your partners to eliminate waste and create more streamlined processes.

Scalability

To grow your business, you need a scalable logistics management strategy. Use logistics management to identify which partners have additional capacity, remove inefficient links from your supply chain, and explore new opportunities to build your reach. 

Pillars of effective logistics

There are seven essential pillars of an effective logistics strategy:

1. Transportation

Transporting goods and materials is a foundational element of logistics. It’s also one of the most complicated, which is why you need reliable carriers and powerful communication tools to keep everyone on the same page.

2. Order fulfillment

Order fulfillment is the process of receiving, processing, and executing customer orders. The faster you can do this, the happier your customers will be.

3. Order management

Order management involves tracking orders from reception to delivery. It falls under the umbrella of order fulfillment.

4. Route optimization

Route optimization involves ensuring carriers deliver goods with minimal waste and maximum efficiency. This granular logistics process significantly impacts the efficiency of last-mile delivery.

5. Freight auditing

Auditing your freight partners evaluates whether they’re taking good care of your shipments and making deliveries on time.

6. Warehouse management

Warehouse management is the process of overseeing warehouse operations like stocking, picking, and receiving. Leading businesses use warehouse automation solutions to make their facilities more efficient.

7. Communication

You need a way to effectively disseminate information to trading partners and carriers. Many businesses rely on electronic data interchange (EDI) tools to facilitate this communication, as it’s a universal solution most trading patterns are familiar with.

Logistics in practice

The ultimate goal of logistics management is ensuring you have the appropriate amount of resources and goods at the right time so you can deliver them to your customers in good condition.

For instance, the natural gas industry’s logistics workflow involves managing resources like trucks, storage facilities, pipelines, and distribution facilities.

Retailers provide another example of logistics in business. A retailer must oversee back-end processes to streamline the movement of goods from wholesalers to distribution facilities. They also engage in outbound logistics when fulfilling orders and delivering goods to customers. 

Logistics vs. supply chain management

Logistics management is a function of supply chain management that focuses primarily on handling materials and overseeing the flow of finished goods.

By comparison, supply chain management has a much broader scope that includes demand planning, supply chain execution, sourcing, and sales and operations planning (S&OP). S&OP is a planning strategy that aligns your sales and operations workflows to maximize efficiency, profitability, and agility. 

Upgrade your logistics management with Orderful 

Whether you decide to tackle logistics hurdles in-house or work with a 3PL, frictionless communication is paramount. You must be able to efficiently share information with your trading partners, vendors, and customers.

Orderful’s top-notch EDI services and information exchange solutions will help you tap into the benefits of third-party logistics and tear down communication barriers between you and your partners. Contact us today to set up a meeting with an EDI expert.

Don’t let antiquated communication tools hold you back. Power your logistics strategy with Orderful.