What is Logistics? Here's what you need to know

Published on 01st February 2022

Have you ever been uncomfortable hearing someone say, “Oh, it’s logistics,” unable to understand it? (You no longer have to!) 


And, did you know that every aspect of logistics affects a company’s bottom line?


From the definition of logistics to its components and fundamental working principles, we’ve prepared a comprehensive introduction to the basics of logistics for you.


So, shall we begin?


What is Logistics?


The planning, organizing, executing, coordinating, and controlling of resources and people in a complex operation is known as logistics. In other words, logistics is the bridge that connects suppliers and customers.


The term logistics originated in military science. It described the movement of military supplies, equipment, and personnel from one point to another. Presently, the term describes handling and transporting resources in every sector.


Components of Logistics


A logistics operation comprises some if not all of the following business functions:


  • Inbound Logistics
  • Outbound Logistics
  • Warehousing
  • Material Handling
  • Inventory Management
  • Fleet Management
  • Order Fulfillment
  • Demand Forecasting


Inbound Logistics


Inbound logistics refers to transporting raw materials and goods from manufacturers or suppliers to a company.


Inbound logistics consists of the following procedures: 


  • Purchasing or receiving materials
  • Assorting materials in a warehouse
  • Returning or exchanging materials (also known as Reverse Logistics)


Outbound Logistics


Outbound logistics is the movement of finished goods from a warehouse to customers or end-users.


Outbound logistics comprises the following processes:


  • Processing orders for products
  • Packaging products
  • Storing and shipping products




The storing of goods and inventory in an organized way is called warehousing. Warehousing helps smoothen the flow of goods by keeping track of the information related to all goods.


In traditional retail, goods are stored temporarily at warehouses until retail stores collect them. Whereas in e-commerce, we send goods to customers from a warehouse itself.


Material Handling


It is the process of distribution of goods within a warehouse. Material handling calls for manual labor, semi-automated and automated systems, and equipment.


Material handling is crucial to an organized warehouse. Implementing qualified people, i.e., material handlers, can save time and space in a warehouse. 


Material handlers are responsible for the safe cataloging of goods in a warehouse. Hence, they should be well-trained in the in-and-out movement of goods. 


Inventory Management 


An inventory is the collection of goods and equipment that a company aims to sell to customers. 


Inventory management is keeping inventory accessible and having the right product at the right time.


The elementary functions of inventory management are:


  • Purchasing inventory
  • Storing inventory
  • Profiting from inventory


Purchasing inventory: Buying goods that will be sold profitably.


Storing inventory: Storing inventory, cataloging it, and making it ready to sell.


Profiting from inventory: In this final stage of inventory management, products are sold to retailers with sufficient profit margins.


Now, a logistics manager can opt for a few methods to analyze inventory management, depending on their type of business. Some of the most popular methods are:


  • Days Sales of Inventory (DSI)
  • Economic Order Quantity (EOQ)
  • Just-in-time Management (JIT)
  • Material Requirements Planning (MRP) 


Days Sales of Inventory (DSI)


DSI inventory management is also known as the average age of inventory, days in inventory (DII), and days inventory outstanding (DIO). Likewise, it is also interpreted in many ways. It represents the average time a company takes to turn its inventory into sales. A lower DSI value usually means greater productivity.


Economic Order Quantity (EOQ)


Economic Order Quantity refers to the method in which the logistics company estimates constant consumer demand and calculates the precise number of units that the company should add with each batch order. This method ensures that no excess units are gathering dust in the inventory.   


Just-in-time Management (JIT)


Just-in-time management is the method in which a logistics company only keeps the inventory that they need to sell. This prevents wastage of goods and equipment. However, just-in-time way of addressing customer requirements can be risky.

When the demand surges and the company is unable to deliver on time, it can cause a dent in its reputation.


Material Requirements Planning (MRP)


MRP is a method that uses sales forecasting from the available sales records and anticipates the required quantity of materials for the future. However, if not carefulmisestimations can occurcausing losses. 


Fleet Management 


Fleet management refers to controlling, maintaining, and managing the machinery used to transport materials, components, goods, and finished products.


A fleet may consist of private motor vehicles, ships, airplanes, and rail cars. Vehicle financing, licensing, and leasing are the primary functions of fleet management.


Efficient fleet management is critical for boosting the productivity of a logistics company. This can be done by having an adept transportation management system capable of dealing with unforeseen incidents on the road.


Order Fulfillment


Order fulfillment entails the processes from a customer placing order until receiving it.


A timely order fulfillment results in better customer satisfaction and further establishes the reputation of a logistics service provider. There are two main ways to fulfill an order:


In-house order fulfillment: Suitable for large-scale businesses that want total control of the logistics operations. Mercedes-Benz and Amazon are examples of companies that use in-house order fulfillment.


Outsourcing: Hiring third-party fulfillment providers is the most suitable option for emerging companies that wish to save time and energy by not handling order fulfillment. Ample Foods and BAKBLADE are examples of companies that hire third-party fulfillment providers.  


Demand Forecasting


As the name suggests, demand forecasting predicts future customer demand for products. Understanding what customers need by acquiring data through feedback and reviews is crucial to stop losses and enhance productivity. Logistics managers can structure their inventory according to customer requirements and boost the logistics process with this information.


However, it is important to note that this prediction is only effective if one considers all the relevant factors, including labor force issues, weather fluctuations, natural disasters, and other significant events. Proper demand forecasting is vital to logistics management, which is crucial to building a flourishing business.


Logistics vs. Supply Chain Management 


Logistics and supply chain management are often used synonymously but don’t mean the same.


Logistics refers to a company’s internal processes for distributing products to customers. In comparison, supply chain management describes a set of organizations working together to govern the distribution of products to customers.


Supply chain management includes customer care services, warehouse providers, transportation management systems, and vendors. 


In short, logistics is all about the safe and efficient transportation of goods and materials. In contrast, supply chain management is broader and is more about the planning and management of the transportation of goods and materials.


7 R's of Logistics


A well-organized logistics network follows the 7 R’s for enhanced productivity.


The 7 R's of logistics in order are listed below:


  • Getting the Right product
  • In the Right quantity
  • In the Right condition
  • At the Right place
  • At the Right time
  • To the Right customer
  • At the Right price


Why is Logistics Important?


To conclude, let’s see why logistics is essential for any organization to move forward. Although, we hope that it is evident by now. 


With efficient transportation of goods and materials, we can ensure progress everywhere. Hence, logistics forms the backbone of the global economy. 


Understanding the workings of the logistics industry is pivotal in staying ahead of the competitors in every industry. The better the logistics, the better progress there is!  

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