Importance of logistics in supply chain management

 Explore the interconnected functions of logistics and how they contribute to successful supply chain management.

The impact of logistics on supply chain management is significant for any business. Logistics ensures an efficient and effective flow of goods and services. It entails supply chain integration between various stakeholders, including suppliers, manufacturers, distributors, and retailers.  

Each step in the supply chain system entails unique challenges such as unpredictable inventory levels to meet customer demands, delays in shipments, and lack of visibility. Logistics optimization addresses these roadblocks by combining technology, data analysis, and other tools to help businesses maintain their competitive edge, meet customer expectations, and improve efficiency. 
 
Logistics comprises several functions that make this happen. We’ll look at them for better understanding.  

Key functions of logistics

Logistics is a multifaceted process that plays a critical role in modern supply chains. It encompasses a wide range of functions that work together to ensure the efficient and effective flow of goods and services.  

Each function, from processing orders and managing inventory to warehousing, packaging, transportation, cargo handling, and monitoring shipments, plays a crucial role in ensuring products are delivered on time and in excellent condition. 

Businesses must understand and coordinate these essential components or functions to optimize their supply chain, reduce costs, and improve customer satisfaction. 
 
The following four key functions of logistics highlight its role in the supply chain based on their order of importance to logistics management:

• Transportation

Transportation in logistics ensures timely and efficient movement of goods from suppliers to customers. Transportation, due to its impact especially in the last mile of the logistics cycle, takes up a significant component of the overall logistics budget.  

External factors such as distance, mode of transportation (road, rail, air, and sea), fuel prices, and carrier rates influence these costs. However, efficient transportation management can help optimize these costs and lead to savings. 

With the rise of e-commerce, there has been an increase in demand for faster and more reliable delivery options. This has led to an increase in focus on last-mile delivery, same-day delivery, and adoption of technologies such as drones and autonomous vehicles to improve transportation efficiency and reduce costs.  

• Warehousing

Warehousing is essential for storing goods, managing inventory levels, and facilitating efficient order fulfillment. It involves a physical space for products to be held for consolidation and as a strategic stock placement. 

Warehousing costs include rent, utilities, labor, and equipment maintenance. The size and location of warehouses, inventory turnover rates, and storage methods can significantly impact these costs. Inventory management techniques such as JIT (Just-In-Time) that ensure supply based on consumer demand can help you reduce costs by minimizing warehousing expenses. 

Disruptions caused by the COVID-19 pandemic have highlighted the importance of a resilient supply chain that involves efficiency improvements such as regional or local warehouses for smaller distribution zones.

• Inventory management

Effective inventory management ensures that businesses have the right amount of stock in hand to meet customer demand. It involves balancing supply and demand, optimizing stock levels, and managing inventory turnover.   

Inventory management directly impacts transportation, warehousing, and order fulfillment expenses. Insufficient inventory can result in stockouts and lost sales, while excess inventory can lead to higher warehousing costs.   

Increase in complexity of supply chains and recent trends such as globalization have made inventory management more challenging, compelling businesses to navigate through various regulations, tariffs, and transportation modes to ensure timely delivery.

• Order fulfillment

Order fulfillment is the process of fulfilling customer orders accurately and efficiently. It involves activities such as picking, packing, and shipping products.  

Order fulfillment costs include labor, packaging materials, and shipping expenses, and implementing efficient processes and technologies can help minimize these expenses. 

The rise of e-commerce and the resulting demand for faster and more accurate order fulfillment have prompted businesses to invest in automation to improve their order fulfillment capabilities.  

Impact of logistics on overall business performance

Logistics plays a key role in improving some of the valuable metrics that highlight your business' performance. Effective logistics management enhances delivery times, reduces operational costs, and improves customer satisfaction, all of which are critical metrics that reflect your business's overall performance.

1. Customer satisfaction

Customer satisfaction in B2B logistics is crucial for building strong relationships with distributors and retailers.  

Factors such as on-time delivery, accurate order fulfillment, effective communication, and responsive customer service play a significant role in ensuring customers are satisfied with the logistics process.  

When businesses consistently meet or exceed the expectations of their B2B customers, they are more likely to retain their business, generate repeat orders, and receive positive referrals. Ultimately, this contributes to the long-term success and growth of your business 

Customer satisfaction in logistics can be achieved through:

• An effective transportation management system that comprises the most appropriate mode of transportation, optimized routes, etc.
• An order fulfillment process that meets customer expectations with reduced lead times

2. Cost efficiency

Logistics is one of the largest cost-centers of business: 12% to 20% of e-commerce revenue may increase to 15% to 25% in the near future.  

Business optimization can lower operational costs significantly. Businesses can reduce transportation and inventory costs and improve their bottom line through warehouse efficiency improvements. Additionally, an efficient warehousing team can enhance inventory accuracy and customer service.

3. Time-to-market

Time-to-market is a critical metric for businesses operating in today's fast-paced and competitive environment. Effective logistics plays a crucial role in accelerating time-to-market by streamlining processes and reducing lead times. This allows businesses to:

• Launch new products: Introduce new products to the market quickly and capitalize on emerging trends or market gaps.
• Expand into new geographies: Enter new markets and reach new customer segments by ensuring efficient transportation and distribution of products.
• Introduce new channels: Explore additional sales channels, such as direct-to-consumer (D2C) models, to reach a wider customer base.

For instance, Zara leverages efficient logistics to introduce new collections within weeks, thus capturing market demand and driving sales. 

The key is to adopt an effective inventory management technique that balances the need to have sufficient stock to meet customer demand while minimizing excess inventory that can tie up capital. 

Thus, effective logistics is not merely a support function, but a strategic imperative for businesses seeking to thrive in today's competitive environment. Businesses can enhance customer satisfaction, reduce costs, accelerate time-to-market, and gain sustainable competitive advantage by optimizing the logistics process.

Strategic role of logistics in modern supply chains

Logistics is no longer an operational function; it is a strategic imperative. Logistics optimization can offer significant advantages to businesses, enabling them to:

• Provide real-time visibility into the entire supply chain
• Build strong relationships with suppliers and transportation partners
• Facilitate seamless communication and data sharing between different stakeholders  
• Optimize routes, predict demand, and automate processes 
  
  Businesses can either implement these strategies manually or effortlessly integrate them into their operations with the help of Pando, a leading provider of AI-powered logistics solutions.  

Optimize your logistics through Pando's powerful solutions

Pando empowers businesses to achieve operational excellence within their supply chains by understanding the critical role of efficient transportation management and helping you make efficiency improvements via:

• Optimization of logistics operations through real-time analytics, predictive intelligence, and collaborative automation
• Reduction in freight costs by leveraging market intelligence to select the most cost-effective carriers, optimize vehicle types, and consolidate shipments through lane bundling
• Improvement in accuracy by reducing administrative burden and providing digitized shipment documentation
• Improvement in cost management by providing automated invoice generation, thereby reducing human errors.  

Pando's solutions can significantly enhance logistics operations by increasing customer satisfaction, reducing costs, and improving competitive positioning in the market. By embracing Pando's innovative solutions, businesses can build resilient and efficient supply chain networks, ensuring success in today's competitive landscape. 

You too can experience the Pando advantage and streamline your supply chain management with the company's effective logistics process. Book a demo now.