The Importance of Logistics for Business

Aug 4, 2022

6 min read

What is logistics?

Logistics involves moving materials from the source to the end consumer as finished products. It helps managers answer critical business questions about how and where to source affordable and high-quality raw materials. Or how to optimize inventory levels and order fulfillment for the peak holiday season.

Successful businesses understand the importance of well-organized logistics. Successful logistics management reduces costs, improves warehouse processes, and improves order fulfillment and customer satisfaction.

According to the Council of Supply Chain Management Professionals’ 2020 State of Logistics Report, businesses in the U.S. spent $1.63 trillion on logistics costs in 2019.

In this article, we’ll review the role of logistics in different supply chain functions and discuss the importance of logistics for suppliers, manufacturers, and customers.

What is logistics management?

While the main purpose of logistics is to move the product from the source all the way through to the end customer, it is also responsible for many other functions. There are several essential components of logistics management, including demand forecasting, warehousing, materials handling, inventory control, product packaging, transportation, and customer service.

Logistics management involves planning and forecasting every conceivable contingency that could disrupt this delivery to the customer, such as varying weather patterns and erratic fuel costs, and finding solutions to overcome disruptions.

A well-planned logistics management strategy can help businesses increase the efficiency of inbound and outbound logistics, reduce operational costs, and enhance the customer experience.

Business and Management Logistics Explained

Business logistics is a set of related activities involving the movement and storage of goods from suppliers through to customers and includes returns, recycling, and disposal.

It requires the smooth execution of logistics activities by all stakeholders, including suppliers, inbound and outbound transport services, warehousing, freight forwarders, and terminal operations.

The Importance of Logistics

Logistics is an integral part of supply chain management that allows businesses to plan and execute the efficient and effective movement, handling, and storage of goods. They are critical to global supply chains, particularly when parts are produced in one country, assembled in another, and sold worldwide.

Logistics help better plan and manage the movement of goods, proper storage and handling of goods, and ensure on-time delivery to customers. It also facilitates companies in developing a demand-driven approach to forecast and plan for supply chain disruptions.

In addition, logistics helps businesses reduce the inventory they hold through just-in-time inventory management. When products are manufactured or purchased and stocked in the warehouse only when there is actual customer demand, businesses can optimize stock levels, reduce costs and increase efficiency.

The Role of Logistics in Business

Here we’ll go over the role of logistics in different components of the supply chain.

1. Material sourcing

Material sourcing is the first step in the supply chain. It involves finding and vetting potential suppliers and negotiating and sourcing raw materials for production. Once the sourcing department finds a reliable, affordable, and quality supplier, the procurement team purchases the materials. The logistics team then transports those materials from the source to the production facility.

By using logistics and material sourcing in tandem and efficiently, businesses can reduce the cost of raw materials, transportation, and manufacturing within a company. These cost reductions positively impact the bottom line, increasing profits significantly.

2. Transportation

Transportation is among the primary functions of logistics. From moving raw materials into the production line to delivering finished products to your customers, materials handling requires transport at every step of the supply chain.

The success of your supply chain management (SCM) depends on an efficient transportation management system.

Whether you keep your transportation service in-house or outsource to a third-party transport service provider, your transport managers need access to robust route optimization, real-time order tracking, and delivery management systems. Similarly, you need to establish a shipper’s portal to enable your customers to track and manage their orders.

3. Order fulfillment

Order fulfillment is a function of logistics, focused on completing customer orders. The process starts when you receive an order, but it doesn’t always end when the order is delivered to the end customer. The customer may choose to return or replace the order—that’s also part of the order fulfillment process.

Logistics and order fulfillment are essential components of your supply chain management that determine how your product gets delivered from the distribution center to the final customer or on a retailer’s shelf.

Seamless integration has a key role in successful order fulfillment. Depending on the complexity of your logistics operations, you need to sync your transportation management system (TMS) and ERP software with the shippers portal to offer real-time order tracking to your customers and monitor inventory levels. These integrations help you both meet company standards and improve customer satisfaction.

4. Warehousing

Warehouse management is a component of inventory management and deals with storing materials at a warehouse. Inventory management involves stock present at all locations, including distribution centers and retail stores.

Efficient handling of warehousing and inventory activities requires sophisticated logistics systems. These include warehouse management systems (WMS) and automation tools.

An effective logistics management strategy also requires the efficient movement of goods within a warehouse. For example, moving high-demand products to the front of the warehouse and transporting slow-moving products to the back. Many companies outsource their warehousing to third-party logistics services to improve efficiency and reduce operational costs.

5. Demand forecasting

Demand planning requires accurately anticipating the demand for raw materials and products throughout the supply chain.

Efficient logistics demand forecasting considers even the most uncontrollable conditions and disruptions. To accomplish this, companies need to create forecasting models to predict demand, using their own historical data and external variables, like market conditions. The best model is the one that helps businesses find a balance between adequate inventory levels to meet needs without having a surplus.

6. Inventory management

Inventory management is often interchangeably used with warehousing management. As stated earlier, inventory management deals with finished goods stock located at all locations, including warehouses and retail stores, whereas warehousing only involves stock present at one warehouse location.

Inventory control is a natural extension of logistics processes. It involves keeping accurate and up-to-date records of stock levels, ensuring the safety of stock, forecasting demand for goods, and replenishing stock. The smooth execution of these tasks is crucial for successfully completing customer orders.

7. Supply chain management

In supply chain management, logistics are responsible for the movement of goods from the source to the producer and from there as finished products to the end consumer.

When done right, supply chain management can speed up the movement of goods and reduce transportation costs.

Optimize your business logistics with Sifted

To sum it up, a successful logistics management strategy can help businesses to deliver the right goods to the right place at the right time. Logistics management enables companies to anticipate unforeseen disruptions in supply chains and take steps to ensure smooth delivery to the final customer.

Sifted Logistics Intelligence gives you complete visibility into your parcel shipping data in one place, empowering you to make better decisions.

Ready to optimize your parcel logistics costs? Get a free demo from Sifted!

Topics: advantages of logistics, benefits of logistics, logistics
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