17.6 Logistics and Its Functions

Logistics and distribution are crucial for getting products to customers efficiently. From transportation and warehousing to inventory management and packaging, these functions work together to ensure the right products reach the right places at the right times.

Advanced strategies like just-in-time delivery and cross-docking help companies optimize their supply chains. Third-party logistics providers offer specialized expertise, while integrated systems and information management enable better coordination and visibility across the entire logistics network.

Logistics and Distribution

Key functions of logistics

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• Transportation moves goods from one location to another via various modes (road, rail, air, water, pipeline)
• Warehousing stores goods until needed and encompasses receiving, put-away, storage, order picking, and shipping
• Inventory management balances supply and demand to minimize costs and prevent stockouts by ensuring the right amount of stock is available
• Packaging protects goods during transportation and storage at primary, secondary, and tertiary levels
• Information management enables visibility, coordination, and optimization of logistics activities by tracking and sharing data throughout the supply chain

Logistics information systems

• Integrate data from transportation management systems (TMS), warehouse management systems (WMS), inventory management systems (IMS), and enterprise resource planning (ERP) systems
• Enable real-time tracking and tracing of goods to provide visibility into the location and status of shipments and allow for proactive problem-solving and exception management (supply chain visibility)
• Facilitate collaboration and information sharing among supply chain partners to support joint planning, forecasting, and replenishment (CPFR) and enable vendor-managed inventory (VMI) and consignment inventory
• Optimize logistics processes and resources by determining the most efficient transportation routes and modes, supporting warehouse layout and inventory allocation decisions, and enabling dynamic pricing and capacity management

Integrated logistics management

• Coordinates all logistics activities as a single system to optimize the entire supply chain rather than individual functions
• Improves customer service through faster, more reliable deliveries
• Reduces costs by eliminating redundancies and inefficiencies
• Enhances flexibility and responsiveness to changes in demand or supply
• Aligns logistics strategies with overall business objectives
• Requires significant investment in technology, infrastructure, and personnel
• Necessitates close collaboration and trust among supply chain partners
• Involves complex coordination and synchronization of multiple activities
• May be hindered by legacy systems, organizational silos, and resistance to change

Advanced logistics strategies

• Just-in-time (JIT) logistics minimizes inventory holding costs by synchronizing deliveries with production schedules
• Cross-docking reduces handling and storage costs by transferring incoming shipments directly to outgoing vehicles with minimal or no storage time
• Reverse logistics manages the return flow of goods from customers to sellers, including product returns, repairs, and recycling
• Intermodal transportation combines multiple modes of transport to optimize efficiency and reduce costs
• Last-mile delivery focuses on the final leg of product transportation to the end customer, often the most challenging and costly part of the logistics process
• Blockchain in logistics enhances transparency, traceability, and security of supply chain transactions and information sharing

Role of third-party logistics providers

• Offer outsourced logistics services such as transportation, warehousing, inventory management, and packaging
• Enable companies to focus on core competencies by allowing for specialization and economies of scale in logistics operations
• Provide flexibility and scalability in distribution to quickly adjust capacity and resources to match fluctuations in demand
• Offer expertise and technology in logistics management, giving access to best practices, specialized equipment, and advanced information systems
• Can help reduce costs and improve service levels through optimization of transportation networks, inventory positioning, volume discounts, and negotiating power with carriers and suppliers
• Involve risks and challenges such as potential loss of control over logistics operations and customer relationships, dependence on the 3PL's performance and financial stability, and need for effective communication, coordination, and performance monitoring

Logistics for customer value

• Ensure the right product is delivered to the right customer at the right time by supporting the "seven Rs" of customer service (right product, quantity, condition, place, time, customer, price)
• Reduce lead times and improve reliability through efficient transportation and warehousing, enabling faster order fulfillment and more predictable delivery dates while minimizing stockouts and backorders
• Ensure product availability through accurate inventory management, preventing lost sales and customer defections due to out-of-stock situations and enabling postponement strategies for customization and personalization
• Protect products and enhance the customer experience with effective packaging that prevents damage and spoilage during transportation and handling while providing convenience and ease of use
• Enable flexibility and adaptability to customer needs with responsive logistics that allow for rush orders, special requests, unexpected changes, and seamless omnichannel experiences across distribution channels