Walk through a busy shopping center in any large city, and you’ll see stores with loaded shelves. Fresh produce, toys, electronic gadgets, home appliances, and nearly every consumer product you can think of — all in one place. If you’ve ever stopped to consider how all those goods got there, welcome to the science of logistics management!
What is Logistics Management?
In business, the word logistics encompasses all the processes undertaken by an organization to acquire resources, store and process them, and ultimately ship them to their final destination. Put plainly, logistics is concerned with both the inbound and outbound movement of goods and supplies in the company. The term is borrowed from the military, where logistics referred to the considerable task of keeping a marching army well stocked with military equipment and soldiers’ rations. How a company handles its logistics greatly influences its supply chain management (SCM) strategy.
Handling logistics for a large company, especially one in the manufacturing, retail, or e-commerce sectors, can be a daunting task. That’s why logistics management has emerged as its own discipline under the larger umbrella of SCM. The goal of logistics management is to optimize the movement of company resources, ensuring all deliveries of raw materials and finished goods arrive at their destinations on time and in a cost-effective manner.
Why Logistics Management is Important
Logistics management is central to nearly every critical company process, from planning operations to executing them. When companies follow an ineffective logistics management strategy, it can lead to minor setbacks, like a customer leaving a negative review about their order being delayed. But it can also have major repercussions, like causing a factory to shut down production because a critical shipment of raw materials failed to arrive on time.
In contrast, giving special attention to logistics management to ensure goods are moving smoothly can have several benefits for a company. From higher productivity levels to lower overhead costs, logistics management is a strategic must-have if you want to upgrade your supply chain.
Logistics Management: A Growing Market
The logistics management market is on the up and up. Precedence Research published a report on the global logistics market in February 2023, highlighting its rise. In 2022, the global logistics market size was estimated to be worth $7.98 trillion. By 2030, that valuation is expected to climb as high as $18.23 trillion! That’s a compound annual growth rate of 10.7%, which indicates the need for effective logistics management will only increase in the coming years. The same report also found that North America is, and will remain, the largest global regional market for logistics in the reported period, with Europe coming second.
The Difference Between Logistics Management and Supply Chain Management
This article has already mentioned how logistics management and SCM are closely interlinked. The association between logistics and supply chains is so ingrained in most people’s minds that some even use the terms interchangeably. But as any logistics management expert or logistician will tell you, there is one key difference that sets the two apart.
Essentially, logistics management is only concerned with the movement of goods from a single company’s perspective. It begins when the company first purchases materials from suppliers and ends when it ships the finished goods to its customers.
On the other hand, the supply chain involves multiple companies, usually acting independently. Sourcing agents, B2B suppliers, and middlemen are all part of the supply chain but are not considered components of logistics management.
A lesser-discussed aspect of logistics management is reverse logistics. This deals with already sold goods that the customer wishes to return. Convenient pickups and prompt replacement deliveries are key to reverse logistics, which is just as much a part of the overall supply chain as traditional logistics.
Key Components of Logistics Management
At its heart, logistics management is all about the movement of goods. But it’s not as simple as merely ensuring deliveries get from Point A to Point B. There are components at play behind the scenes that you should know about if you want to refine your logistics management strategy.
1. Anticipating Demand
Effective logistics management starts with realistic demand planning. This means maintaining a healthy balance between demand and supply. It’s equally applicable to industrial manufacturing plants as it is to fast fashion e-commerce brands. Tracking demand and matching supply to it introduces some much-needed flexibility in your supply chain and ensures a steady flow of your products reach the market.
2. Storage and Warehousing
Unless your company is having a banner year, it’s unlikely that your products will fly off the shelves as soon as they become available. Storage and warehousing solutions will come to your rescue, keeping your goods in prime condition until they are ready to be sold. Many companies have started using warehouse management software (WMS) to help them with this aspect of logistics management.
3. Inventory Management
At the heart of logistics management is the process of inventory management. It’s imperative that you check your inventory levels frequently so that you are neither over-producing stock nor falling short of demand. This applies to all types of inventory, from raw materials entering your manufacturing facility to finished goods going out to market. Inventory management is closely linked to demand planning and requires both strategic planning and organizational flexibility.
4. Transportation and Fleet Management
Most companies take on the responsibility of transporting their products themselves unless they are working with a third-party logistics (3PL) partner. Running an efficient transportation option involves choosing the best routes for your fleet. Aside from routing, fleet management is another key concern. Your logistics management strategies need to be in effect all the way up to the last-mile delivery, which means they have to cover your transportation and fleet management methods as well.
5. Information Management
As business operations scale up, the sheer volume of data involved in tracking logistics can affect optimization. Enterprise software solutions harness the power of next-generation technology like artificial intelligence (AI) and machine learning (ML) to make logistics management data easier to access and clearer to read. Having important, relevant, and actionable information at your fingertips helps you spot patterns and devise a logistics management strategy that reliably works.
Benefits of Logistics Management
It’s already been established that effective logistics management is vital to any company’s success. Let’s look at some of the reasons why logistics management is given such importance.
1. Increased Efficiency
Logistics management introduces efficiency into the supply chain. It isn’t possible to run a smooth supply chain without a sound, comprehensive logistics management strategy in place.
2. Improves Customer Experience
The delivery date of a goods shipment is like a promise from the seller to the buyer. Missing a shipment date is like betraying your customer’s trust. Conversely, logistics management removes the speed-breakers on your routes, allowing your delivery team to make each drop-off exactly on time!
3. Reduces Operational Costs
Because of its broad scope, logistics management can prove useful at many stages of the supply chain — from finding the best deals on warehouse space to saving on fuel costs by choosing adjusted routes. This means, when done right, logistics management can save you significant operational costs.
4. Prevents Loss
Having to throw away unsold inventory is always a sad moment, not to mention a major cost. Logistics management can help reduce the amount you lose to decay, and it also helps in tracking packages and making sure they end up where they are supposed to all along.
5. Gives a Competitive Advantage
Effective logistics management always trumps ad-hoc resource gathering. Companies that are better prepared to safely transport their goods will find they are getting a lot more loyal regular customers.
Future Trends in Logistics Management
Ever since the global pandemic hit, shopping has been at lower-than-average levels. But 2023 is a year where holiday markets might bounce back. Here are some trends that will define logistics management in the coming months, as predicted in the 2023 report from Precedence Research.
Market Growth Driven by Ecommerce
The Ecommerce sector is driving a lot of innovation in inventory management and logistics management. With most brands offering several shipping options, they need to work out the logistics of making deliveries independently or with a 3PL.
Digitization and Automation Will Become More Popular
The excitement over AI and ML has reached most fields, from entertainment and education to healthcare and enterprise software. Many freight companies already rely on AI for route optimisation. Logistics management is a discipline that seems tailor-made for computer assistance.
Third-Party Logistics Market Will Grow Larger
The predicted growth of the logistics market has proven to be very enticing for small transport companies operating locally. It encourages small and medium-sized entrepreneurs to run their own 3PL companies to assist large businesses with logistics.
Seven Rights of Logistics Management
For all its disparate components and moving parts, logistics management is still an indispensable part of SCM. The simplest way to understand the science of logistics management is always to come back to the seven rights: Right product, right quantity, right condition, right place, right time, right price, and lastly, right customer.
If you need help mastering the principles of logistics management, software tools like PackageX offer solutions for campuses, warehouses, and retailers.