You may not think of Napoleon Bonaparte as a logistician. But his axiom that “an army marches on its stomach”—that is, keeping forces well-provisioned is fundamental to success in war—launched logistics as a field of military concentration. Today, the term “logistics” applies to the reliable movement of supplies and finished products. According to a Statista study, U.S. businesses spent $1.63 trillion on logistics in 2019, moving goods from origin to end user through various supply chain network segments. By 2025, a total of 5.95 trillions of ton-miles of freight will move across the United States.
What Is Logistics?
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 is the collection of processes involved in moving goods internally or from buyer to seller. Logistics managers oversee and control the many complexities involved in that process; in fact, there are a number of certifications for these professionals. Success depends on attention to many details: Routes need to be determined based on expediency, regulatory environments and avoiding obstacles ranging from road repairs to wars and adverse weather conditions. Shipping provider and packaging options must be carefully considered, with costs weighed against factors from weight to recyclability. Fully loaded costs may include factors outside of transportation, such as those that ensure customer satisfaction and the availability of suitable warehousing. If a shipment of dairy products arrives spoiled because refrigeration failed, that’s on the logistics team.
Fortunately, logistics management software helps businesses make the very best routing and shipping decisions, contain costs, protect investments and track the movement of goods. Such software can often also automate processes, such as choosing shippers according to rate fluctuations or contracts, printing shipping labels, automatically entering transactions in ledgers and on the balance sheet, ordering shipper pickups, recording receipts and receipt signatures and helping with inventory control and other functions.
Key Takeaways
- Logistics is the process of efficiently moving goods from Point A to Point B. Success demands 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 be crippling because logistics is the physical manifestation of a transaction—without it, there’s no movement of cash from customer to seller.
- Logistical best practices vary depending on the nature of the business and its product decisions, 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 moving goods, whether from a supplier to a business or from a business to a customer. The key concept here is managing these processes as a unified system. For example, online retailers that successfully drop ship products direct to customers from hundreds or thousands of small suppliers have advanced business logistics practices. A logistics management system underpins that effort and includes inbound and outbound transportation management, warehouse management, fleet management, order processing, inventory control, supply and demand 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 production rates, better inventory control, smarter use of warehouse space, increased customer and supplier satisfaction, and an improved customer experience. Each of these factors can significantly move the needle on a company’s success. Note that logistics also extends to managing returns to extract the most revenue from these goods.
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.
There are seven pillars of effective logistics:
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 shipment 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 plays an important role in that planning.
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 billing and report on performance using dashboards and analytics.
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.
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. Further, an 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.
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.
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. 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.
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. A supply chain is essentially a series of transactions. If logistics fails, the supply chain fails and transactions grind to a halt. A prime example: bare shelves in grocery store dairy aisles even as farmers dumped milk as supply chains broke during the pandemic.
Examples of Logistics
Logistics best practices vary depending on the nature of the business and its product decisions. Consider the variances in the following examples. A manufacturer bases its business model on a just-in-time inventory management system that aligns receipt of raw materials with production schedules so there is little need to pay for storage and a company’s capital is continuously freed for reinvestment. Its logistics priorities include demand planning, selecting suppliers that consistently deliver on time and on budget, fast intake of materials 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-end logistics from procurement to receipt to manufacturing to packaging, storage and transportation to a buyer. If the manufacturer has a direct-to-consumer model, it may use a supply chain as a service provider to get its products to the end customer. In the second example, a boutique clothing store orders stock from designers and manufacturers. Finished goods arrive at the retailer’s main distribution warehouse for intake. The items are first unitized—broken down from bulk commercial packaging to individual consumer packages. Barcodes are added, then items are sorted, packaged and shipped to the store or a nearby warehouse. Logistics for the retailer begins with intake of goods and continues through the movement of those goods to their final destinations, which in 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-fulfillment center, where they are processed and shipped to the end customer, who likely made the purchase online. In this scenario, logistics entails the retailer receiving the goods it ordered from suppliers, unitizing them and storing them in the fulfillment center’s storage onsite to be sorted per customer order and then shipped by a third-party logistics supply company, such as UPS, FedEx or USPS.
In a third scenario, the retailer redistributes its in-store inventory to other stores where demand for the product is higher to avoid discounting and taking a hit to profits. Or, the retailer 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 a reduced bulk price the more likely it is to recoup much of its investment. Logistics in this scenario entail inventory control, demand planning, pulling, packing and shipping products between stores, moving some items to sales racks, and shipping a bulk distribution in a transaction with a third-party seller.
Courtesy: best freight forwarder company
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