By Dr. Robert Gordon, CPC | 11/14/2023
Many people ask me what the most essential aspect of a good supply chain is, and in my mind, the most crucial factor is flexibility. A supply chain can do many things, but to be effective, a supply chain must be flexible.
Most of the time, items in a supply chain are in motion, so it's imperative that a supply chain have flexible logistics. Flexible logistics allow for the expediting or redirection of material, and being able to push or pull materials to and from different locations is very powerful.
For instance, if a critical part is unavailable but also required to repair equipment, a manufacturing line might go down. The longer the production line is down, the more time will be lost and production will drop.
Without a finished product available for sale, sales will decrease. As sales decrease, customers might seek alternatives and buy from another business. Forcing customers to seek alternatives allows competitors to erode a company's market share.
This illustration of why flexibility is so essential to an organization’s logistics is just one example of why flexible logistics are necessary. Flexible logistics can reduce costs by helping avoid mistakes and make needed changes when issues arise. Keeping customer requirements in focus and shipping products on schedule, can help make the customer experience a positive one.
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What Is Logistics Management?
Logistics management involves the flow of goods and services from the point of origin to the point of consumption. It encompasses various activities, including:
- Transportation
- Warehousing
- Inventory
- Order fulfillment
- Demand planning
- Supply forecasts
- Management of a supply chain
Logistics managers control where shipments are routed, and coordinators keep end users updated about deliveries. A qualified logistician considers factors such as shipping cost, time, and environmental impact, among other aspects of the chosen mode of transport.
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The Importance of Transportation
Transportation is one of the most crucial aspects of the logistics industry. Transportation involves selecting the most appropriate mode of transport for goods or materials – such as road, rail, sea, or air – and planning the most efficient route to move goods from one location to another.
Transportation has become particularly challenging due to a current personnel shortage impacting trucking, rail, ocean, and air shipments. As a result, both inbound and outbound logistics are affected.
Effective Inventory Management Within Fulfillment Centers
Logistics is all about getting material to the right place at the right time. Logistics management requires precision and should operate like clockwork. Managing inventory is closely related to warehousing and fulfillment centers, and it involves keeping track of the quantities and locations of goods in storage.
Too much inventory in fulfillment centers will increase costs and reduce effectiveness. Too much inventory is "dead" money, as inventory only generates revenue when it is sold. Carrying inventory costs the company money that could be used elsewhere.
Too little inventory will increase the downtime of equipment and can lead to shortages, like the great toilet paper shortage during the COVID-19 pandemic. It is necessary to keep the warehouse management system working efficiently and to use efficient demand planning with the most accurate information possible.
Ensuring Efficiency in Distribution Centers
Logistics management also involves moving materials in and out of distribution centers. Efficient distribution centers prioritize managing storage space to ensure that goods can be quickly located and retrieved when needed, then sent to the end user.
Every organization needs to have a logistics strategy to focus efforts and information in a manner that supports operations. Logistics management is a critical function for any business producing or distributing goods and services to a brick-and-mortar store or to an ecommerce business.
A good first step for a logistics strategy is to map out the organization’s logistics processes. Understanding all the various logistics components and process components can help a company ensure customer satisfaction, while reducing costs and improving efficiency.
Using logistics management software can help an organization better track – and understand how logistics plays into – the movement of all goods. Consider the examples of Walmart® and Amazon®, as much of their growth has been driven by successfully managing all their inbound logistics and outbound logistics. Walmart and Amazon have become important business logistics companies with their efficient order processing and their own branded delivery trucks.
Many other companies have implemented automated systems for customer ordering, warehouse management, and material handling. Organizations have even begun to use autonomous vehicles for shipping services. These systems aim to lower costs and often help by simplifying communication across the supply chain system.
Why Is Supply Chain Management Important in Logistics?
The importance of cost reduction looms over every organization. Effective logistics management helps in reducing the overall costs of a company. It involves:
- Inbound logistics
- Outbound logistics
- Selection of the most efficient mode of transportation
- Route optimization optimizing routes
- Management of inventory levels to minimize holding costs
The optimization of operations can reduce transportation and warehousing costs. Considering the global economy and many company supply chains' global nature, transportation is a significant component of total supply chain costs.
Being cost-effective is always a concern for companies; however, in many cases, efficiency in logistics is more important than reducing direct costs. For example, if the production line needs a lot of bearings to keep things moving, one company might look to get the longest-lasting bearings for that production line.
You might ask, “Why not get cheaper bearings, since the direct costs would be lower?” Although that is true, the cost of the labor to replace the bearings will outweigh the direct costs of the bearings themselves.
Bearings are never in an easy-to-access places and are generally inside specialized equipment, requiring a lot of labor to disassemble and reassemble equipment to replace the worn part. Ultimately, having a more expensive bearing that lasts twice as long and avoids twice as much labor (as well as shipping costs) is better.
The Differences Between Managing Logistics and Supply Chains
There are some similarities between supply chain management and logistics, but there are also some key differences. The management of a supply chain is a broader concept in business, and logistics management involves a wide range of activities involved in producing and delivering goods and services.
The management of a supply chain covers the entire production process. It involves coordinating and managing sourcing, procurement, and logistics activities.
Supply chain management also includes managing relationships with suppliers, manufacturers, and distributors, as well as planning and controlling the flow of goods from production to the consumer.
Similarly, logistics management focuses on planning, implementing, and controlling the flow of goods and services. However, it also involves transportation management, warehousing, inventory management, and order fulfillment.
Logistics refers to the movement and storage of goods and services and is an area that supply chain logisticians in the logistics industry should know well. By contrast, managing a supply chain involves a broader range of activities, including the sourcing of raw materials, procurement, production, and distribution.
At the same time, aspects of the logistics industry such as inbound logistics, outbound logistics, and business logistics involves a subset of supply chain management, focused on moving and storing goods and services. These sectors of the supply chain are crucial for the success of a business and are closely related, but they are not the same thing.
Increasing Supply Chain Efficiency Provides a Unique Advantage
Efficient supply chain management can lead to a competitive advantage, underscoring the importance of supply chain management in logistics. An effective supply chain can help reduce costs while improving efficiency and customer satisfaction.
Keeping costs down and customer satisfaction high is the recipe for a successful company and its supply chain, especially in a crowded market. Every organization needs to evaluate the management of its supply chain and improve any of its poor logistics processes to better understand the efficiencies the company can achieve. In turn, that can lead to an improved customer experience and greater customer satisfaction.
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Studying Supply Chain Management vs. Logistics Management
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Amazon is a registered trademark of Amazon.com, Inc.
