What is Logistics? Let’s Break it Down with Practical Examples

With the increasing trend of online shopping and expanding customer base across borders, companies rely on logistics services like never before. They help businesses effectively manage a global supply chain and ensure last-mile connectivity, thereby enabling them to achieve high customer satisfaction levels.

Thus, understanding logistics and its key components is essential for businesses to succeed in today’s competitive market. Let’s dive deeper.

Understanding Logistics: A Brief Overview

Logistics is an umbrella term encompassing numerous processes responsible for the efficient and reliable flow of goods, services, and related information from the point of origin to the customer or point of consumption.

Thus, to get a clear idea of what logistics is, we need to break down its aspects and take a look at them individually.

Comprehending the Basics of Logistics

In simple terms, logistics is transporting goods from the manufacturer to consumers when necessary. It involves demand planning, inventory management, customer service operations, and order fulfilment. Logistics services can come in handy in different parts of the supply chain.

The definition of logistics will also vary based on the industry and the part of the supply chain in which it is used. For instance, e-commerce businesses can use logistics to move goods from their warehouses to customers efficiently. Meanwhile, manufacturing companies can depend on logistics providers to gather raw materials from various suppliers, assemble the product, and distribute it to retailers. 

Building Blocks of Logistics

Now that you have a fair idea of what logistics is let’s move on to its components:

Transportation

Transportation is one of the most complicated parts of logistics management. It includes finding the fastest and most cost-effective way to transfer goods and products to distributors and consumers through various transportation channels, such as air transport, freight shipping, cargo trains, and road vehicles. 

Warehousing and Inventory Management

Warehousing refers to the physical storage of goods for sale or distribution to retailers. It generally involves using Warehouse Management Systems (WMS) to ensure that goods and raw materials are properly stored and easily accessible and transported when needed.

Conversely, inventory management involves assessing consumer demand, controlling the inflow and outflow of goods from warehouses, and determining how much stock to hold and at which location to ensure optimum supply.

The combination of both these components enables businesses to deal efficiently with unpredictable fluctuations in supply and demand. 

Procurement and Supplier Management

Procurement and supplier management includes finding suppliers from whom companies can sustainably source raw materials, creating mutually beneficial partnerships and developing strategies based on the supplier relationship.

They also involve managing communication with third parties, setting the terms and conditions, and devising purchasing strategies to ensure the lowest possible acquisition cost. 

Distribution and Fulfilment

Distribution in logistics includes receiving products from warehouses, storing them and shipping them off to wholesalers, retailers or fulfilment centres based on the orders.

Meanwhile, fulfilment involves handling storage, picking the products based on the order, packing them and shipping them to customers with the help of the delivery partners. Additionally, it includes printing shipping labels, generating invoices and accepting returns.

So, now that you know what logistics is and its key components, let’s learn how logistics works in detail.

How Logistics Works: A Step-by-Step Guide

Here are the steps in which a logistics system works:

1. Planning and Strategising: The planning and strategising phase involves synchronising the journey of goods/materials from their source to the end user. This encompasses several activities, such as planning transportation channels, storage, distribution, etc.  
2. Sourcing and Procurement: Sourcing and procurement entails finding suppliers who can provide the desired raw materials, shortlisting them, making purchase strategies, setting up contracts and ensuring a working relationship with them.
3. Production and Manufacturing: This part of the logistics system controls and manages the movement of goods within the manufacturing sites to ensure optimal material flow. It includes warehousing and internal transport, i.e., transferring the raw materials to the production site and the finished products to storage. 
4. Distribution and Delivery: This step transfers the finished goods from warehouses to regional distribution centres. Then, they are shifted to fulfilment centres, where they are picked up, packed, and sent for delivery based on the customers’ orders. 

Breaking Down the Importance of Logistics

Companies must manage several business aspects, such as designing and manufacturing products, marketing, ensuring customer satisfaction, etc. However, if the goods are unavailable to consumers when needed, their business will eventually fail.

This is where logistics comes in. It ensures adequate items are always in stock, provides last-mile connectivity, and facilitates timely deliveries. As a result, companies can benefit from better inventory utilisation, higher product availability and lower shrinkage.  

4 Primary Types of Logistics You Must Know

Logistics services can be broadly divided into 4 main categories. They are:

Inbound Logistics

Inbound logistics involves receiving and storing materials/goods from vendors and suppliers.

Some examples include:

• Manufacturing: receiving and storing raw materials needed for production.
• Healthcare: receiving and storing medical supplies and equipment needed for patient care.

Outbound Logistics

Outbound logistics refers to picking out products based on an order, packing them, and shipping them to customers.

Here is an example to understand this better:

• Order Processing: A customer places an order on Flipkart’s website, and the order is processed through their system. This includes verifying payment, checking inventory, and preparing the order for shipment.
• Picking and Packing: The warehouse staff then pick the items from the shelves and pack them into boxes, ensuring they are protected during transit.
• Shipping: The packed boxes are then handed over to shipping carriers.
• Tracking: Throughout the process, Flipkart provides tracking information to the customer, allowing them to monitor the status of their delivery.
• Delivery: The shipping carrier delivers the package to the customer’s doorstep, completing the outbound logistics process.

Reverse Logistics

Reverse logistics involves handling customers’ returns of goods/products and facilitating their redistribution to others or their return to the supplier.

Some examples include:

• A mobile store offering a discount on new purchases on returning old devices in-store.
• Some product companies provide a service for maintaining or repairing equipment if issues arise.

Third-Party Logistics (3PL)

Third-party logistics refers to a situation in which a company outsources its logistics operations to third-party service providers.

Some examples include:

• Couriers
• Express and parcel services

Crucial Tips for Improving Your Logistics Strategy

Knowing logistics and how it works will help you create a strategy that aligns with your business goals. So, let’s dive deeper!

Following are some of the best tips to improve your logistics strategy:

• Conducting Regular Audits and Assessments: Performing regular audits and assessments of performance metrics like stock management, order accuracy, on-time delivery rates, and customer satisfaction levels will enable companies to detect and rectify improvement areas.  
• Utilising Technology and Automation: Companies can significantly streamline their logistics operations using technology and AI tools to automate tasks like data entry, order processing, freight invoicing, and inventory management.
• Collaborating with Supply Chain Partners: Teaming up with supply chain partners can be an excellent way to improve logistics. These firms provide solutions that cater to all aspects of the procurement phase, such as vendor sourcing, quality control, goods transfer, etc., and work closely with clients to help them achieve their business goals.
• Keeping Up with Innovations and Industry Trends: There is an increasing trend of adopting technological innovations in the logistics industry, such as the Internet of Things (IoT), robotic process automation (RPA), artificial intelligence (AI), blockchain, etc. Thus, companies must monitor and implement these industry trends on time in their logistics operations to remain competitive in today’s market.

However, knowing what logistics is will not be enough, given that running a business involves handling many aspects. Businesses must choose a dedicated logistics partner to thrive in the competitive market.

This is where Porter Enterprise steps in. As India’s largest logistics solution marketplace, spanning 20 cities, we’ve empowered over 5,000 enterprise clients with seamless logistics solutions. With a vast network of more than 500,000 driver partners, we ensure your goods reach their destination efficiently and securely.

But what sets us apart is our flexible pricing model. Unlike fixed monthly contracts, we charge based on the distance and time you use our service, allowing you to pay centrally for pan-India usage. With Porter Enterprise by your side, you can navigate the ever-changing logistics landscape with ease.

Try out Porter for Enterprise today and make logistics handling a breeze!

Frequently Asked Questions About Logistics