What is Logistics and why is it Important to Your Company?

February 25, 2019

The term, “logistics,” and its actions originated with the military. In the war theater, logistics applied to the process of supplying equipment and supplies to troops. Logistics as a business concept evolved in the 1950s with the increasing complexity of supplying businesses with materials and shipping out products in an increasingly globalized supply chain. Today, the business sector uses this term to describe the efficient flow and storage of goods from point of origin to the point of consumption. The supply chain is a vital part of this process, including transportation, shipping, receiving, storage, and management of all these areas. Within the business sector, logistics can be applied to information, transportation, inventory, warehousing, material handling, and packaging, disposal, and security.

Even small businesses deal with finding suppliers, if not with transporting merchandise to a store. Small business owners also conduct distribution logistics with inventory and warehousing. And, every small business owner can tell you about how they handle reverse logistics, with returned merchandise or refusal of services. Larger businesses may deal in all four logistic fields.

In the business environment, logistics either have an internal or external focuses (inbound or outbound). Depending upon the business involved, this part of the chain can be simple or complicated. For more complicated procedures, third parties often are hired to conduct any one of the four fields within business logistics.

Third-party logistics (3PL) involves using external individuals or organizations to execute logistics activities that have traditionally been performed within an organization itself. If, for example, a company decides to export its product, it may hire a person or organization to help with distribution logistics. Today, there is a movement toward building fourth-party logistics (4PL), which integrates 3PL competencies and other organizations to design, build, and run comprehensive supply chain solutions. A 4PL general contractor would manage other 3PLs, truckers, forwarders, custom house agents, and others, essentially taking responsibility of a complete process for the customer.

Another specialty includes supply chain consulting firms. Firms in this industry specialize in the optimizing the  production and distribution of goods, this can be from assisting businesses from the first stages of securing suppliers to the delivery of finished goods to consumers. Such firms give advice on improvements in the manufacturing process and productivity, product quality control, inventory management, packaging, order processing, the transportation of goods, and materials management and handling. In the process, these consulting firms might suggest improvements to the manufacturing process in order to use inputs better, increase productivity, or decrease the amount of excess inventory. Supply Chain consulting firms in this segment of the industry also advise on the latest technology that links suppliers, producers, and customers together to streamline the manufacturing process.

Even project management requires logistics, as one vein of this science coordinates a sequence of resources to carry out projects. Typical constraints in project management include scope, time, and budget, or the same constraints involved in business logistics. The time constraint refers to the amount of time available to complete a project. The cost constraint refers to the budgeted amount available for the project. The scope constraint refers to what must be done to produce the project’s end result.