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Logistics Definition

Logistics can be defined as a planned framework to control the procedure of transportation for an efficient management of storage, information and capital flows. It includes the increasingly complex information, communication and control systems required in the present business environment. 

The logistics of items naturally involves the integration of production, inventory, material handling, packaging, transportation, warehousing, information flow, and often security. Information and goods are transferred from the origin to the destination only after thorough planning and strategy. Without proper planning, the process may lead the company to overlook certain areas of a project, which may adversely affect their relationship with the client.

What does logistics mean?

[Origin: the term logistics comes from French logistique from the late 19th century: (loger means to lodge)]

A component of supply chain management, logistics is the process of effectively planning, control and transportation of goods, information, and services to a preset destination. This technology helps companies develop a stronger customer-buyer relationship and at the same time reduce high expenses.

Information and goods are transferred from the origin to the destination only after thorough planning and strategy. Without proper planning, the process may lead the company to overlook certain areas of a project, which may adversely affect their relationship with the client.

The Importance of Logistics 

Logistics is important for every business now, no matter how large or small they are. It can be dispersed into five main heads – Procurement Logistics, Production Logistics, Distribution Logistics, After-Sales Logistics, and Disposal Logistics. While most small businesses focus on one logistic field, bigger enterprises may deal with all the five.

All the above mentioned logistic fields are in a way interrelated. Thorough market research, planning for requirements, supply management, which leads to controlling the flow of production and distribution of goods and services via. different means of transport. In addition, reverse or disposal logistics is concerned with reuse of products, with an objective to reduce logistics costs, save resources and simultaneously enhance the quality of services.

The Importance of Logistics in an Organization:

  • A successful logistics provides a competitive edge against other organizations through a system or process by which customer needs can be fulfilled in a more efficient way.
  • Providing product in an efficient manner helps to build a good relationship with consumers.
  • A business cannot make the quality product without quality goods. Therefore, having enough products stocked is necessary for supply and demand purposes and also to maximize customer satisfaction.
  • Business logistics helps in ensuring the efficiency of a product-creation process. It is important to track, transport, store and manufacture an inventory in a way that it can accommodate all of an organization’s departments. By controlling this flow, so that each department understands what to do and what is expected of them logistics ensures that the company’s plans and goals stay on track. 

Logistics Classification:

Based on the type of the business, logistics can be classified as inbound or outbound. The processes are sometimes considerably complex and hence businesses have to hire third-party logistic agencies to conduct duties related to one of these five logistic fields.

Inbound logistics 

It focuses on purchasing and arranging the inbound movement of materials, equipments, or finished inventory from the supplier to manufacturers or assembly plants, warehouses, or retail stores. Inbound logistics, in simple words, refers to the transport, storage and delivery of goods coming into a business. It includes the activities of receiving, storing, and disseminating of incoming goods or material for use.

Outbound logistics 

It incorporates the activities like storage and movement of the finished product and the related information flows from the end of the production line to the end user. Outbound logistics refers to the transportation, storage and distribution of goods going out of a business.

The Inbound and outbound logistics processes are sometimes considerably complex and hence businesses have to hire third-party logistics agencies to conduct duties related to one of the below-mentioned five logistic fields.

Five Main Components of logistics:

Procurement Logistics, Production Logistics, Distribution Logistics, After-Sales Logistics, and Disposal Logistics.

  • Procurement logistics embodies market research, requirements planning, make-or-buy decisions, supplier management, ordering, and order controlling.
  • Production logistics resides within a value-adding system (ex: factory or a mine). This component ensures the availability of the right product at the right time in the right quantity on each machine and workstation. 
  • Distribution logistics revolves around the delivery of the finished products to the customers. It includes order processing, warehousing, and transport management.
  • After-Sales Logistics is responsible for the transaction that takes place after the product(s) is sold to customers. Services such as the refurbishment of returned items, installation, training, warranty-related repair and replacement part fall in this category.
  • Disposal logistics, as its main role, is required to reduce logistics cost(s) and enhance service(s) related to the disposal of waste produced during the operations process.

While most small businesses focus on one logistic field, bigger enterprises may deal with all the five.

All the above mentioned logistic fields are in a way interrelated. Thorough market research, planning for requirements, supply management, which leads to controlling the flow of production and distribution of goods and services via. different means of transport. In addition, reverse or disposal logistics is concerned with reuse of products, with an objective to reduce logistics costs, save resources and simultaneously enhance the quality of services.

Logistics outsourcing:

Logistics outsourcing simply means the logistics services offered by an LSP (logistics service provider) to any company. It offers more customizable services, comprehends a wide range of service activities, is set apart by a long-term orientation, and therefore is strategic in nature.

Logistics outsourcing can be partial and not necessarily have to be complete externalization to an LSP, like:

  • A single contract for supplying a specific service on occasion
  • Creation of a spin-off
  • Creation of a joint venture

Third-party Logistics (3PL):

Third-party logistics companies basically handle the physical distribution and logistics for their client company. A 3PL company can do this by using its own resources, such as warehouse facilities, and their network of freight transportation providers to help clients ship or store their products appropriately. 3PL companies specialize in inbound and outbound freight, customs, freight consolidation, warehousing, distribution, order fulfillment, cross-docking, inventory management.

Fourth-party Logistics (4PL):

A 4PL company not only outsources logistics’ services but also outsources the management of the said services. Predominantly, a 4PL company does not necessarily (may or may not) have transportation or warehousing of its own, but rather use the transportation and warehousing services of a 3PL company. 

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