Logistics is a widely used term, but do we really know what it actually means? What is logistics in business? And why is it so important?
What is Logistics?
Logistics is the term used to describe the process of coordinating and managing how resources – which could be people, materials, inventory, or equipment – are obtained, stored and taken to their final destination. In today’s world, it constitutes an essential part of most businesses’ success. The word “logistics” comes from the military French term “logistique”, which originally referred to how the military acquired, stored and transported their equipment and supplies.
In the context of supply chain and business, logistics is all about managing the flow of goods between the point of origin and the point of consumption, for the purpose of satisfying the needs of consumers or businesses. The whole process needs to take into consideration production, packaging, storage, transportation, security, the handling of materials and the flow of information, amongst others.
What is Logistics in business?
Not to be confused with supply chain management, logistics refers to what happens in a single company, whereas a supply chain refers to an external network of providers that deliver on behalf of various companies. Logistics in business starts with the acquisition of raw materials and covers the entire process, including, as mentioned above, production, packaging, shipment and transportation.
Third party logistics (3PL) providers can help with the physical transportation of goods and, if required, some of them can also offer storage and packaging services. Some companies cover just one component of the logistics process, like transportation, and others can cover all the logistics needs of a company. Working with 3PL providers offers a number of advantages to both smaller and larger companies, including the ability to obtain better prices, boost efficiency, expand more easily into new markets and improve customer service.
Just to give you an idea of what is currently preferred, air is more than four times more popular than shipping by sea. Every year, 9.5 billion tons of commercial goods are shipped by ship worldwide, whereas more than 42 billion tons of goods are transported by air.
Logistics management is all about assigning the right number of resources or products at the right time, ensuring that these arrive at the desired destination perfectly preserved. It can involve inbound and outbound transportation, warehousing, handling resources, order fulfilment and inventory management.
Logistics management involves the planning, implementation and control of the flow and storage of goods, services and related information from their point of origin to the place of consumption. Its principal objective is quite clear: meeting or exceeding, if possible, customers’ needs.
Over the last decade, companies like UPS, FedEx and Amazon have played a significant role in transforming the logistics landscape. Technology has had an important role to play in this transformation, and the likelihood is that the logistics sector will continue to evolve and improve as technology develops new systems and tools.
Why is Logistics important?
Regardless of a business’ size, logistics undoubtedly will play an important part in its day-to-day activities. Although small companies often focus more on designing and producing their products, the way they manage logistics is essential for ensuring that the product ends up reaching the customer. Poor logistics can have a significant impact on a business because if the products a company produces cannot effectively reach customers, the business will fail.
We could even go as far as to say that the more efficient logistics management is, the more profitable a business will most likely be, as this will inevitably lead to higher customer satisfaction.