This article provides an easy-to-understand explanation of what logistics is, the benefits of optimizing logistics operations, and the difference between logistics and SCM.
At its core, logistics refers to the centralized management of product flow from raw material procurement to customer delivery via a comprehensive system. In today's market, the demand for logistics services has increased with the growing variety of available products.
This article provides a detailed explanation of what logistics truly entails, dispels common misconceptions, and explores the benefits of optimizing logistics operations.
Logistics refers to the process of distribution, from sales to delivery, and to the various activities related to logistics, from delivery to distribution processing. There are different types of logistics, which are sometimes referred to as procurement logistics, production logistics, consumer logistics, and so on, divided by logistics process. Many people often confuse logistics with distribution and supply chain management (SCM). To help clarify these distinctions, below is a definition of logistics and its differences from distribution and SCM.
Processes involved in logistics:
Logistics encompasses the activities involved in delivering products to customers, and the management of these activities is known as "logistics management." As such, logistics is a subset of logistics management, and effective management is crucial for achieving efficient logistics operations.
Moreover, logistics management plays a vital role in enhancing performance by overseeing the procurement of essential raw materials for production. Taking these factors into account, the introduction of logistics management becomes imperative in order to streamline operations and optimize the overall logistics process.
One term that is often mistaken for logistics is Supply Chain Management. This is abbreviated as SCM and refers to the financial management of product manufacturing, from the procurement of raw materials to the delivery of products.
While it is common to mistake logistics and Supply Chain Management (SCM) as interchangeable terms, SCM encompasses broader responsibilities related to managing corporate assets and production lines. As a result, logistics is a subset of SCM and primarily deals with overseeing a specific set of operations. SCM, on the other hand, focuses on the overall management of a larger number of operations.
Originally a military term, "logistics" referred to a system designed to efficiently provide timely support for supplies. Today, it is primarily associated with logistical support activities such as supplying resources. In military operations, proper logistics are critical to ensuring that soldiers on the front lines receive the necessary supplies and support, as their lives ultimately depend on it.
This is because insufficient clarity and control over operational procedures, soldier conditions, and supply quantities can lead to a range of problems, including injuries and starvation. Similarly, when logistics operations are not functioning effectively within a company, it can have severe consequences, akin to a matter of "life and death" for the company, such as financial losses resulting from improper execution of operations.
Logistics optimization has been attracting attention in the business world and for good reason, as proper logistics management helps reduce costs and improve productivity. Below is an in-depth introduction to the means of logistics optimization.
Logistics optimization involves streamlining various processes in your organization, including procurement, production, sales, and transportation. It also addresses social concerns such as operational optimization and safety as part of overall business management. "Logistics management" is a term commonly used to emphasize the strategic understanding required for eliminating inefficiencies and ensuring sustained profitability in logistics operations.
In the field of logistics, it is crucial to accurately determine customer demand and effectively meet it. In logistics, all transportation and distribution processes are centrally controlled within a system, enabling streamlined production and distribution. This enables the establishment of a systematic approach to delivering the precise product at the exact time required by the customer.
Optimizing logistics operations can lead to significant productivity improvements. Below are four main objectives of implementing logistics.
By optimizing logistics operations, companies can gain precise insights into customer needs through data analysis. This enables them to effectively meet supply and demand requirements. As a result, companies can avoid excessive inventory and the wastage of employees' time, leading to improved productivity and efficiency.
To maintain an inventory buffer, products must be manufactured in quantities that align with customer demand to avoid stockouts. In the case of popular, profitable products, precise sales forecasting is paramount since product shortages could result in lost business opportunities.
Wasteful operations cause employees to perform extra work, which leads to a loss of profit due to reduced work efficiency. As such, optimizing logistics operations can help identify and streamline operational processes, minimize waste, and optimize costs.
Inventory control staff often have multiple responsibilities, such as sales or clerical tasks. However, optimizing logistics can alleviate their workload by delegating inventory control tasks to a system or outsourcing. This enables staff members with dual roles to concentrate on their core business activities, allowing them to dedicate more effort towards achieving increased profitability.
As online shopping has surged in popularity in recent years, numerous e-commerce sites and businesses have emerged, intensifying competition for customer acquisition. As a result, e-commerce businesses have started offering free shipping and same-day delivery, and customers tend to purchase products that are delivered as cheaply and quickly as possible.
Optimizing logistics operations can enhance customer satisfaction by leveraging management information to anticipate customer needs and make informed inventory and delivery plans. Thus, optimizing logistics operations is crucial for companies for identifying and responding to customer demands, enabling them to develop effective customer acquisition strategies.
Optimizing logistics operations can provide a variety of benefits, and below we’ve listed four specific examples.
By accurately identifying customer needs, businesses can determine which products to manufacture and the required production volumes, avoiding wasteful overproduction. This is a significant effect of optimizing logistics operations as it also helps prevent warehouses from becoming overfilled by excess inventory.
By effectively managing inventory levels, businesses can avoid overstocking and stockouts, ensuring a steady stream of revenue and profitability.
By optimizing logistics operations, businesses will be able to visualize unnecessary costs and hence improve overall business operations. For example, neglecting inventory management can lead to the production of products even though they are still in stock, resulting in excess inventory. Excess inventory can result in various costs, such as material costs, labor costs for those involved in manufacturing, and storage costs.
On the other hand, introducing and leveraging logistics can significantly enhance operational efficiency, minimizing wasteful costs.
When sales representatives are responsible for inventory management, their ability to focus on sales can be compromised, and there is a risk of inaccuracies in inventory control. However, with logistics optimization, inventory can be managed through reliable numbers and data. This allows sales representatives to utilize accurate inventory information effectively when engaging with customers, enabling them to prioritize sales activities and enhance customer satisfaction.
The logistics industry faces a variety of challenges, including labor shortages, low wages, and increased shipping costs due to free shipping. These challenges arise in response to accelerating labor shortages due to the declining birthrate and aging population, as well as the expansion of online shopping.
For instance, if a logistics company decides to offer free shipping and same-day delivery, profits will drop in relation to sales, and the company will need to take measures to lower costs, such as reducing labor costs. Therefore, it is extremely important to conduct operations efficiently without incurring costs.
To achieve this, businesses must implement logistics and effectively execute the PDCA (Plan-Do-Check-Act) cycle, which involves continually evaluating and improving the logistics process to identify and resolve issues.
Logistics has undergone various technological innovations over the years, such as "mechanization of transportation using trucks 1.0" and "mechanization of cargo handling using containers and forklifts 2.0”. And, in recent years, "Logistics 4.0 utilizing AI and IoT" was introduced in Germany, and logistics reforms utilizing developing communication technologies are hence required.
For example, the delivery of packages using drones is a Logistics 4.0 concept: A delivery method that utilizes the latest technology and responds to the shortage of manpower. In Logistics 4.0, visualizing big data and leveraging technologies like AI and IoT have become crucial to reduce manpower and automate processes. Warehouse management systems (WMS), ordering and receiving systems, and RPA are some of the systems currently in use.
By incorporating AI and IoT into these systems, clerical tasks that previously required human labor can be handled by AI robots, leading to significant improvements in efficiency. Technology thus plays a vital role in addressing the challenges encountered by the logistics industry today.
With the rise of online shopping and a variety of products have become readily available, customer needs are fluctuating very quickly.
Hence, the primary objective of logistics operations is to efficiently cater to customers' demands and deliver products promptly. As a result, by optimizing logistics operations, companies can generate more profits and make everything from product manufacturing to distribution and sales more efficient and productive. Finally, optimizing logistics can prove to be highly beneficial for companies as it can overcome the current labor shortage challenge.