You may not think of Napoleon Bonaparte as a logistician. But his axiom that “an armymarcheson its stomach”—that is, keeping forces well-provisioned is fundamental tosuccess inwar—launched logistics as a field of military concentration.
Today, the term “logistics” applies to the reliable movement of supplies andfinishedproducts. According to a Statista study, U.S. businesses spent $1.63 trillion on logisticsin 2019, moving goods from origin to end-user through various supply chain network segments.By 2025, a total of 5.95 trillion ton-miles of freight will move across the United States.
Without efficient logistics, a business cannot win the profitability war.
What Is Logistics?
While the terms “logistics” and “supply chain” are sometimes usedinterchangeably, logisticsis an element of the overall supply chain.
Logistics refers to the movement of goods from Point A to Point B, which entails twofunctions: transportation and warehousing. The overall supply chain is a network ofbusinesses and organizations working in a sequence of processes, including logistics, toproduce and distribute goods.
Video: What Is Logistics?
What Is Logistics Management?
Logistics is the collection of processes involved in moving goods internally or from buyer toseller. Logistics managers oversee and control the many complexities involved in thatprocess; in fact, there are a number of certifications(opens in a new tab) for these professionals.Success depends on attention to many details: Routes need to be determined based onexpediency, regulatory environments and avoiding obstacles ranging from road repairs to warsand adverse weather conditions. Shipping provider and packaging options must be carefullyconsidered, with costs weighed against factors from weight to recyclability. Fully loadedcosts may include factors outside of transportation, such as those that ensure customersatisfaction and the availability of suitable warehousing.
If a shipment of dairy products arrives spoiled because refrigeration failed, that’s onthelogistics team.
Fortunately, logistics management software helps businesses make the very best routing andshipping decisions, contain costs, protect investments and track the movement of goods. Suchsoftware can often also automate processes, such as choosing shippers according to ratefluctuations or contracts, printing shipping labels, automatically entering transactions inledgers and on the balance sheet, ordering shipper pickups, recording receipts and receiptsignatures and helping with inventory control andother functions.
Key Takeaways
- Logistics is the process of efficiently moving goods from Point A to Point B. Successdemands minute attention to detail, from packaging to warehousing to transportation.
- At best, poor logistics will dent a company’s bottom line. At worst, it can becripplingbecause logistics is the physical manifestation of a transaction—without it,there’s nomovement of cash from customer to seller.
- Logistical best practices vary depending on the nature of the business and its productdecisions, but the process is always complex. Automation is key to efficiency.
Business and Management Logistics Explained
Business logistics refers to the entire set of processes involved in movinggoods, whether from a supplier to a business or from a business to a customer. The keyconcept here is managing these processes as a unified system. For example, online retailersthat successfully drop ship products direct to customers from hundreds or thousands of smallsuppliers have advanced business logistics practices.
A logistics management system underpins that effort and includes inbound and outboundtransportation management, warehouse management,fleet management, order processing, inventory control, supply anddemand forecasting, and managing third-party logistics (3PL) service providers.
Importance of Logistics
Logistics centers on the movement of goods, but its effects extend much further. In business,success in logistics translates to increased efficiencies, lower costs, higher productionrates, better inventory control, smarter use of warehousespace, increased customer and supplier satisfaction, and an improved customerexperience.
Each of these factors can significantly move the needle on a company’s success. Notethatlogistics also extends to managing returns to extract the mostrevenue from these goods.
The Role of Logistics
The very essence of a business is to exchange goods or services for money or trade. Logisticsis the path those goods and services take to complete the transactions. Sometimes goods aremoved in bulk, such as raw goods to a manufacturer. And sometimes goods are moved asindividual disbursem*nts, one customer at a time.
No matter the particulars, logistics is the physical fulfillment of a transaction and as suchis the life of the business. Where there is no movement of goods or services, there are notransactions—and no profits.
There are seven pillars of effective logistics:
Material sourcing:
Material sourcing involves more than finding the lowest-cost supplier for a rawmaterial used in manufacturing. Logistics includes calculating and managingcontributing factors and costs, such as backorder delays, competitor priorityrankings and lockouts, add-on services costs, extraneous fees, increased shipmentcosts due to distance or regulatory environments, and warehousing costs.Finding the right source for any given material requires a good understandingand management of all contributing factors. This process is called strategic sourcing, and logistics plays an important role in that planning.
Transportation:
At the core of logistics is the act of physically transporting goods from Point A toPoint B. First, a company needs to select the best mode of shipment—air orland, forexample—and the best carrier based on cost, speed and distance, includingoptimizingroutes that require multiple carriers. In the case of global shipments, the shipperneeds to be up to speed on customs, tariffs, compliance and any relevantregulations. Transport managers need to document and track shipments, manage billingand report on performance using dashboards and analytics.
Order fulfillment:
To complete a transaction, items must be “picked” from the warehouse perthe customerorder, properly packaged and labeled and then shipped to the customer. Collectively,these processes comprise orderfulfillment and are the heart of the logistics sequence in customerdistribution.
See AlsoMastering Logistics in 2023: The Power of the 7 C's Framework - Victoria Fide ConsultingThe 3 C’s of Supply Chain SynchronizationThe five elements of logisticsWhat is Logistics? | Definition from TechTargetWarehousing:
Both short- and long-term storage are common parts of logistic planning. But warehouse management systemsalso enable logistical planning. For example, logistics planners must considerwarehouse space availability and special requirements such as cold storage, dockingfacilities and proximity to modes of transportation such as rail lines or shipyards.
Further, organization within the warehouses is part of logistic planning. Typically,goods that move frequently or are scheduled for transport soon are placed at thefront of the warehouse. Lower-demand items are stored toward the rear. Perishablegoods are often rotated so the oldest items are shipped out first. Items that areoften bundled are usually stored beside one another, and so on.
Demand forecasting:
Logistics relies heavily on inventory demandforecasting to ensure that a business never runs short on core orhigh-demand products or materials—and never ties up capital unnecessarily inwarehoused goods with sluggish sales, either.
Inventory management:
By using inventory managementtechniques to plan ahead for increased demand in seasonal or trendingproducts, companies can keep profits higher and make inventory turns faster, meaningthe 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 canbetter determine when to offer discount pricing or other incentives to free capitalto reinvest in goods that are in higher demand.
Further, retail sales oftendiffer store to store, region to region and country to country. Good inventorymanagement enables the business to decide to ship products that are performingpoorly in one store or region to another rather than take a loss via discountpricing to be rid of the stock. Logistics is key to moving inventory where it islikely to get the best price.
Supply chain management:
Logistics is an important link in the supply chain as it facilitates the movementof goods from suppliers to manufacturers and then to sellers or distributors andeventually to buyers.
A supply chain is essentially a series of transactions. If logistics fails, thesupply chain fails and transactions grind to a halt. A prime example: bare shelvesin grocery store dairy aisles even as farmers dumped milk as supply chains brokeduring the pandemic.
Logistics Lingo
3PL (third-party logistics) partners are outsourcers that handlewarehousing, fulfillment and returns of certain goods for a fee.
Inbound logistics refers to purchasing and arranging thetransportation of products, parts, materials and finished inventory from suppliersto a company’s warehouse or manufacturing plant.
Outbound logistics refers to the flow of items through acompany’sproduction line, warehouse and ultimately to the customer.
Logistics vs Supply Chain Management
Logistics deals with the movement of goods from a single company’s perspective, meaningthemovement of materials and goods one company receives and manages internally as well as whenit moves those goods to a customer. A supply chain is a network of businesses involvedsequentially in the production or distribution of goods or services. In short, logistics isgenerally a one company issue while the supply chain is a multi-company issue.
While logistics may be coordinated throughout part of or even the entirety of the supplychain, each segment is the responsibility of one entity until it hands off the material orproduct to another entity in the supply chain.
Logistics Components
In its most basic form, logistic components are:
- Intake from suppliers and material handling;
- Labeling, packaging into smaller units, organization and warehousing;
- Inventory management for production or distribution;
- Demand planning;
- Order fulfillment; and
- Transport.
Typically, a logistics management system includes inbound and outbound transportationmanagement, warehouse management, fleet management, order processing, inventory control,supply and demand forecasting, and management of third-party logistics service providers.
Examples of Logistics
Logistics best practices vary depending on the nature of the business and its productdecisions. Consider the variances in the following examples.
A manufacturer bases its business model on a just-in-time inventorymanagement system that aligns receipt of raw materials with production schedules sothere is little need to pay for storage and a company’scapital iscontinuously freed for reinvestment. Its logistics priorities include demand planning,selecting suppliers that consistently deliver on time and on budget, fast intake ofmaterials upon arrival and efficient material handling. Once final goods are manufactured,priorities shift to packaging the finished product and transporting it to distributors,wholesalers, retailers or other customers. Manufacturers need to manage true end-to-endlogistics from procurement to receipt to manufacturing to packaging, storage andtransportation to a buyer.
If the manufacturer has a direct-to-consumer model, it may use asupply chain as a service(opens in a new tab) provider to get its productsto the end customer.
In the second example, a boutique clothing store orders stock from designersand manufacturers. Finished goods arrive at the retailer’s main distribution warehouseforintake. The items are first unitized—broken down from bulk commercial packaging toindividual consumer packages. Barcodes are added, then items are sorted, packaged andshipped to the store or a nearby warehouse. Logistics for the retailer begins with intake ofgoods and continues through the movement of those goods to their final destinations, whichin this case is a brick-and-mortar store, not the final customer.
In a second retail scenario, some or all of the goods are sent to an order-fulfillmentcenter, where they are processed and shipped to the end customer, who likely made thepurchase online. In this scenario, logistics entails the retailer receiving the goods itordered from suppliers, unitizing them and storing them in the fulfillment center’sstorageonsite to be sorted per customer order and then shipped by a third-party logistics supplycompany, such as UPS, FedEx or USPS.
In a third scenario, the retailer redistributes its in-store inventory to other stores wheredemand for the product is higher to avoid discounting and taking a hit to profits. Or, theretailer may know from its analysis that demand is sluggish everywhere for certain products.In that case, the more quickly it marks the stock down or sells to a retail discounter at areduced bulk price the more likely it is to recoup much of its investment. Logistics in thisscenario entail inventory control, demand planning, pulling, packing and shipping productsbetween stores, moving some items to sales racks, and shipping a bulk distribution in atransaction with a third-party seller.
If the retailer declares some remaining product as too costly to sell, because demand is toolow at any price, then logistics would also include transport of these items to a charityfor a tax write-off. If some of that product is also damaged, the retailer’s logisticsmanager would transport it to a disposal site.
6 Benefits of Logistics Management
Given that the movement of goods is what drives cash flow, it stands to reason that managingthat movement—logistics management—is a core business concern. Indeed, logisticsmanagementimpacts a company’s bottom line for better or worse. It’s best not to leave thatimpact tochance.
The following are six major benefits of effective logistics management.
Visibility:
Logistics management affords greater visibility into the supply chain. This enablesbusinesses to better control costs, tease out efficiencies, spot supply chainproblems, conduct demand planning and gain insights into opportunities.
Reduced overhead:
Logistics management enables companies to reduce overhead in areas from cuttingshipping costs to shrinking how much warehouse space they need by proactivelycontrolling inventory levels.
Improved customer experience:
An excellent customer experience (CX) is the driving factor behind repeat sales. Bydelivering orders accurately and quickly, you improve the customer experience whichin turn increase brand loyalty and future sales.
Preventing loss:
Logistics management helps prevent loss in several ways. One is by a true inventoryaccounting, so your company knows exactly how much stock it has on hand at any giventime. Companies can also track movement and current location so stock won’t bemisplaced or diverted without notice. In addition, by ensuring optimal storage andtransport conditions, such as temperature and moisture management, solid logisticsprevents spoilage and damage.
Support expansion:
Demand forecasting supports expansion by realistically calculating inventory needsand ordering, transporting and stocking accordingly. Further, logistics managementbest practices help companies scale to fulfill more customer orders on time.
Competitive edge:
Delivering orders correctly and on time is a foundational element in the customerexperience—and good CX is key to repeat orders as well as solid brandreputation andnet promotor scores, which in turn help a company acquire new buyers. Logisticsmanagement helps a company consistently deliver, or over deliver, on promises andsharpen its competitive edge.
7 Rs of Logistics
The Chartered Institute of Logistics and Transport(opens in a new tab), an internationalorganization for supply chain, logistics and transport professionals, defines the seven Rsof logistics as “getting the right product, in the right quantity, in the rightcondition,at the right place, at the right time, to the right customer, at the right price.”
And in truth, that is the goal of logistics management.
Right product:
Job #1 is delivering the product that was ordered according to specifications: color,size, brand, quantity. But also consider an automated maintenance plan wheremanufacturers use IoT data to send a “just-in-time” replacement part, orsomethingelse that the customer may have not specified but needs. The point is to get buyersthe products that are right for them or their situations.
Right quantity:
Say an item can be purchased as either a single unit or in packs of 12, which arealso considered a unit. On a larger scale, a manufacturer may sell parts in a boxcontaining a few products or as a pallet of multiple boxes. Getting quantity rightdemands clarity in how inventory is listed as well as proper picking and packing.
Right condition:
New, used or refurbished, customers expect a product to function properly andotherwise be useable. Products should therefore be inspected for flaws and damageprior to shipping. And, return shipping processes should be simple and convenientfor customers.
Right place:
Tracking to ensure receipt and that shipped items were delivered to the right addressare essential parts of logistics management.A package that is never received andmust be replaced costs a company twice—and damages the customer relationship.
Right time:
Often, from the customer’s perspective, timing is everything. Whetherit’s a consumerordering a birthday or holiday gift or a manufacturer that needs a raw material tomeet its schedules, late arrivals may cost the customer or be returned as no longerneeded.
Right customer:
Order mix-ups, address errors and other mishaps communicate a lack of respect for thecustomer and inattention to detail. An ERP system that automates outbound logisticscan minimize errors and maximize a company’s supply chainexecution.
Right price:
It’s important that your pricing be competitive for the geographic area and theindustry to turn your inventory regularly and at a good margin.It is also imperativeto adjust pricing—up or down—according to demand. To succeed here,companies needcontinuous insights into profitability ratios and unit margins.
4 Areas to Get Started With Business Logistics
Successful logistics is equal parts strategy and planning. Your strategyshould encompass tactics to make the movement of goods work in your favor. Yourplan should outline all the steps your company will need to take to bringyour strategy to life.
Spatial management:
Logistics requires sufficient space for goods; warehouse and material handlingequipment; and people to receive, store, pick, package, label and ship goods. Yourwarehousemanagement strategy should focus on making wise use of space so that goodsare handled efficiently while keeping square footage and maintenance costs as low aspossible.
Management & staffing:
One of the greatest expenses in any warehouse is staffing, so reducing picking timeis a money saver. Inventory management software can show staff exactly where itemsare shelved and the best routes to take when pulling more than one item. Is yourbusiness seasonal? Plan for the necessary upsizing and downsizing in staffing tomeet demand. You’ll need policies to guard against theft without making yourpeoplefeel over-policed. Then there are benefits packages, workers’ comp insuranceandother HR-related functions that are crucial to a well-managed logistics team.
Equipment:
Logistics requires specialized equipment, such as a truck fleet, conveyor belts,robotics and forklifts or some combination, depending on the type of materials orgoods your company handles and how much of the work you outsource. Besides thecapital expense, managing equipment and related issues including maintenance,insurance and depreciation, requires careful planning and tracking.
IT infrastructure:
Your IT infrastructure must to be optimized to accommodate functions from onlineordering and purchasing to warehouse automation, IoT and other technologies key toyour logistics strategy.
#1 Cloud ERP
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How ERP Benefits Logistics
Enterprise resource planning software (ERP) integrates a variety of applications thattogether constitute the flow of information within the company. This happens to also makeERP a powerful logistics tool as it enables effective order fulfillment.
Three top areas where ERP benefits logistics are inventory control, staff management andproduct distribution.
For example, fleet operators can manage asset distribution and maintenance based oninformation, such as work orders and parts inventory, pulled from ERPsystems and feed that data back into the information flow as tasks are completed.Similarly, inventory control and supply chain insights can be automatically routed toreports, such as ledgers and the balance sheet, purchasing reports and automated ordering,and fleet and employee scheduling.
Transportation and logistics arecentral to your company’s success as it is the physical manifestation oftransactions and without transactions there is no business. Managing logistics is alsocritical to the company’s financial health in that it can add or subtract money fromthebottom line. Using software such as RPA, ERP, warehouse management, supply chain management,and others, a company can add efficiencies, cut costs and gain control over this importantbusiness aspect.
Logistics FAQs
What do you mean by logistics?
Logistics entails the organization and coordination involved in moving goods from one place to another. It covers everything from where the goods start to where they end up, including transportation, storage and careful handling to ensure they are transported smoothly, securely, and promptly. The goal is to oversee the movement of items to satisfy customer needs while keeping efficiency high.
What does a logistics person do?
A logistics professional, typically known as a logistics manager, supervises the operations involved in the transportation and storage of goods. Their role involves planning, executing, and overseeing procedures to ensure the effective movement and storage of goods, along with services and relevant information from where they originate to where they’re consumed. Their responsibilities may include choosing transportation methods, coordinating shipments, managing inventory levels, negotiating with suppliers and transport providers, optimizing routes for efficiency, and ensuring compliance – all within the laws and regulations of their industry and country. Additionally, they utilize logistics management software to enhance effectiveness by monitoring shipments and controlling costs.
What is the work in logistics?
Work in logistics encompasses managing the supply chain, from sourcing raw materials to delivering products to the end user, alongside managing information flows. This involves choosing efficient shipping methods and routes, ensuring timely deliveries, and overseeing warehousing to keep inventory secure and well-managed. Additionally, it includes tracking inventory levels, forecasting demand to meet customer needs, and handling order fulfillment—processing, picking, packing, and shipping orders. Effective logistics also requires coordinating with suppliers and customers to ensure operations run smoothly and maintaining high levels of satisfaction, underlining the importance of clear communication and collaboration throughout the supply chain.
