Standing in line in the middle of nowhere: Inflation and supply chain
Inflation and supply chain disruption are wreaking worldwide havoc as cost-of-living prices soar and economies falter.
The fact that in 2021 U.S. business logistics costs increased about 22% to $1.85 trillion should make it clear that logistics is a vital aspect of competing and winning in global markets increasingly driven by e-commerce and dependent on smooth-running supply chains.
Although some of the increases and pressure on supply chains were the direct result of the pandemic, the world suddenly felt the impact of logistics on nearly every aspect of life. With a shortage of just about everything, the supply chain became among the most talked about topics in in everyday life.
Businesses of all kinds felt the pinch of disrupted supply chains. For example, procurement logistics responsible for sourcing and purchasing materials to produce automobiles couldn’t enough semiconductors to finish the vehicles that required chips to operate onboard sensors and computers.
This disruption rippled throughout the industry. The shortage of microchips left production as well as sales and distribution without products to ship and sell. The always-full lots at dealerships quickly dwindled down to the few available new models. Soon even the used car market couldn’t keep up.
Today, brands across all industries are focused on improving their logistics management for business resilience and growth.
What is logistics?
Logistics is the overall process of planning and execution of how resources are acquired, stored, and transported from one point to another, such that they are delivered at the right place and at the right time while reducing overall operational costs. The goal of logistics management is to meet customer requirements in a timely, efficient, and cost-effective manner.
At first glance, logistics and supply chain may seem like the same thing. But logistics is the process used to manage and coordinate the supply chain across an interconnected collection of external companies, suppliers, and shipping operations as well as internal functions to ensure that materials and products are moved from Point A to Point B as efficiently as possible.
The process we know as logistics originated in military contexts. To win battles and ultimately wars, soldiers needed supplies produced or obtained and delivered on time and efficiently.
This concept, adapted to business operations, helps companies earn greater profits, reduce cost and waste, keep current customers, and win new business.
Prime examples of this include brick-and-mortar retailers like Walmart, manufacturers driven by assembly lines like General Motors, and, of course, e-commerce giants like Amazon.
These three examples require many of the same kinds of logistics management as well as different types of logistics to ensure that products get produced, sold, and delivered to customers.
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What are the types of logistics?
There are three main types of logistics:
- Inbound
- Outbound
- Reverse
Inbound logistics coordinates the procurement and delivery of products, materials, and information as inputs into an organization such as a business. These things flow inward from outside sources, often other businesses, vendors, and contractors.
Outbound logistics manages movement of products out of a business to customers. Whether those delivery vehicles are planes, trains, and automobiles, or fiber optic cables or satellites, products and services go out through vast networks made of shipping channels, storage facilities, and last-mile delivery methods.
Then we have reverse logistics. After inbound logistics help get products made, and after outbound logistics gets those products into the hands of customers, sometimes the customer decides to return that product. Maybe it’s the wrong item, or it doesn’t fit, or it was damaged or defective. Or maybe there’s a recycling program.
This is when reverse logistics comes into play, getting items from customers back to the manufacturer or company that produced or sold it.
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What are the various functions of logistics?
Let’s break down logistics into the many functions that make it such an essential part of any successful business. Ultimately, reducing costs and increasing efficiencies defines effective logistics, regardless of what form logistics takes.
- Transportation management systems enable logisticians to optimize the planning and execution of the movement of materials and products flowing along both inbound transportation and outbound transportation channels.
- Fleet management factors into effective transportation management for a company with its own vehicles. This means hiring, training, and managing drivers and possibly mechanics, and can include purchasing, maintaining, repairing, and replacing vehicles as well as planning and executing routes and schedules.
- Warehousing and warehouse management play another important role in overall logistical success. Whether you’re bringing materials and information into the business or sending products and services out to customers, storage and warehousing are necessary in some form or another. That may mean actual warehouses and storage facilities or data centers for information storage and transmission.
- Inventory management involves managing the purchase and storage of products and raw materials and balancing that with customer demand.
- Demand planning and demand forecasting use many data sources and machine learning to anticipate demand trends among various customer segments. Using data-driven forecasting models, logistics teams plan for ebbs and flows in demand by increasing or decreasing the amounts of materials and products ordered and stored, factoring in inventory management data, consumer sentiment, economic conditions, and overall market trends and business plans.
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Benefits of logistics management
Effective logistics management provides a range of business benefits, including:
- Visibility into supply chains
- Lower production costs
- Inventory and demand planning and forecasting
- Better customer experience
- Competitive edge
The savings and loss prevention produced by efficient logistics management reduces costs in part by reducing overhead and waste.
Greater efficiency and lower costs give the business a competitive edge by enabling investment in innovation and expansion into new markets as well as scaling production and distribution.
Improving products and managing a seamless and efficient supply chains—inbound, outbound, and reverse—goes a long way toward providing exceptional customer experience. Done right, logistics management ensures a business lives up to customer expectations and meets customer needs.
Managing a vast and integrated network of logistics functions increasingly requires that businesses embrace digital transformation and build in the right logistics management software to keep a step ahead of the competition.
