What is Logistics Management Meaning, Importance, Basic Functions & Strategies

Introduction

Introduction to Logistics and Logistics Management

Definition

Logistics is defined as the art and science of obtaining, producing, and distributing material and products in the proper place and in proper quantities.

Logistics Management is a part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption to meet customer requirements.

Difference Between Supply Chain and Logistics

Transforming a raw material into products and getting it to customers is Supply Chain, whereas the movement of materials within the supply chain is Logistics.

The Seven Rs of Logistics

The seven Rs of logistics is a well-known concept in logistics management. It is concerned with getting the:

Right product
Right quantity
Right condition
Right place
Right time
Right customer
Right price

Logistics Functions

Various areas of logistics management contribute to an integrated approach to logistics within Supply Chain Management:

Transportation

Many modes of transportation such as air, rail, road, water, or pipeline play roles in moving goods through supply chains. Selecting the most efficient combination improves the value for customers.

Warehousing

Warehousing involves activities related to receiving, storing, and shipping materials to and from production or distribution locations. Inventory often spends time in a warehouse when it is not moving between locations.

Third and Fourth-Party Logistics

Third-Party Logistics (3PL) providers perform or manage one or more logistics services.
Fourth-Party Logistics (4PL) providers act as logistics specialists and play the role of general contractor, taking over the entire logistics function for an organization.

Reverse Logistics

Reverse logistics handles the return, reuse, recycling, or disposal of products making the reverse journey from the customer to the supplier.

Logistics Value Proposition

Managers must balance logistics costs against the appropriate level of customer service. Logistics are usually managed to achieve customer satisfaction at the lowest total cost, where service and cost minimization are two key elements.

Logistics Goals and Strategies

Logistics shares the goal of Supply Chain Management to meet customer requirements. Common logistics goals include:

Responding rapidly to market or customer order changes.
Minimizing variances in logistics service.
Minimizing inventory to reduce costs.
Consolidating product movements by grouping shipments.
Maintaining high quality and engaging in continuous improvement.
Supporting the entire product life cycle, including reverse logistics.

Effective Logistics Strategies

An effective logistics strategy involves tactics such as:

Coordinating functions, e.g., transportation management.
Integrating the supply chain.
Substituting information for inventory.
Reducing supply chain partners to an effective minimum number.
Pooling risks.

Designing Effective Logistics Strategy

Substituting information for inventory requires constructing the logistics network through steps like:

Locate in the Right Countries: Identify geopolitical locations and analyze forward and reverse chains.
Develop an Effective Export-Import Strategy: Determine import/export volumes and strategic inventory placements.
Select Warehouse Locations: Calculate optimal distances from markets and place warehouses effectively.
Select Transportation Modes and Carriers: Choose transportation modes that efficiently connect suppliers, producers, warehouses, distributors, and customers.
Select the Right Number of Partners: Select a minimum number of firms, freight forwarders, and 3PL/4PL providers.
Develop State-of-the-Art Information Systems: Reduce inventory costs by tracking demand info and goods location accurately.

Substituting Information for Inventory

This can be achieved by:

Improving communications with suppliers.
Collaborating with suppliers using continuous improvement tools.
Precisely tracking inventory with GPS and barcode systems.
Keeping inventory in transit by using cross-docking.
Using postponement centers for product assembly until actual orders are received.
Mixing shipments to better match customer needs.
Reducing customs wait times by pre-clearing freight.

Reducing Supply Chain Partners

Reducing supply chain partners simplifies management, reduces operating costs, cycle time, and inventory holding costs. Aim to reduce entire echelons like wholesale or factory warehouses without eliminating entire partner networks, which would revert to vertical integration strategy.

Pooling Risks

Pooling risks involves consolidating common inventory components across a broad product family to buffer overall inventory deployment. This reduces storage costs and risks of stockouts by centralizing stock.

Conclusion

To achieve effective logistics management, focus on enabling efficient flow of goods and information through integrated internal processes and external collaboration across the supply chain. Customer orders, sales activity, and forecasts drive product and materials procurement, forming the backbone of logistics functions.

Keywords

Logistics
Logistics Management
Supply Chain
Transportation
Warehousing
Third-Party Logistics (3PL)
Fourth-Party Logistics (4PL)
Reverse Logistics
Logistics Value Proposition
Customer Service
Inventory Management
Risk Pooling

FAQ

What is logistics?

Logistics is the art and science of obtaining, producing, and distributing material and products in the proper place and improper quantities.

What is logistics management?

Logistics Management is part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption.

What are the seven Rs of logistics?

The seven Rs involve getting the right product, quantity, condition, place, time, customer, and price.

What are the key functions of logistics?

Key logistics functions include transportation, warehousing, third-party logistics, fourth-party logistics, and reverse logistics.

How does logistics management create value?

Logistics management creates value by balancing costs against customer service levels, aiming for efficient service delivery and minimizing costs.

What is reverse logistics?

Reverse logistics handles the return, reuse, recycling, or disposal of products making the reverse journey from the customer back to the supplier.

How can information substitute for inventory in logistics?

Information can substitute for inventory by improving communication with suppliers, tracking inventory precisely, and using tactics like postponement centers and cross-docking to minimize physical stock while responding quickly to demand.