Understanding the Role of Logistics in Today’s Modern World
As with many industries, best practices in logistics vary depending on the nature of the business and its product decisions.
Just in Time Inventory Management
A manufacturer, for example, would typically base the majority of their business model on a just in time (JIT) inventory management system that aligns receipt of raw materials with production schedules. The goal here would be to decrease the need to pay for storage and in turn free up the company’s capital for reinvestment. The logistics priorities of JIT include demand planning, selecting suppliers that consistently deliver on time and on budget, fast intake of materials upon arrival and efficient material handling. Once final goods are manufactured, priorities shift to packaging the finished product and transporting it to distributors, wholesalers, retailers, or other customers. Manufacturers need to manage true end-to-end logistics from procurement to receipt manufacturing to packaging, storage, and transportation to a buyer.
If the manufacturer has a direct-to-consumer model, it may use a supply chain as a service (SCAAS) provider to get its products to the end customer.
Imagine you own a boutique clothing store, where you order stock from designers and manufacturers. Finished goods typically will arrive at your main distribution warehouse for intake. The items are first unitized, where they are broken down from bulk commercial packaging to individual consumer packages. After that, barcodes are added, then items are sorted, packaged and shipped to the store or a nearby warehouse. Logistics for the retailer begins with intake of goods and continues through the movement of those goods to their final destinations, which in this case is a brick-and-mortar store, not the final customer.
In this scenario, logistics entails the retailer receiving the goods it ordered from suppliers, unitizing them and storing them in the fulfillment center’s storage onsite to be sorted per customer order and then shipped by a third-party logistics supply company, such as UPS, FedEx or USPS. As a part of your logistics strategy, it would be wise to designate a portion of your clothing items ordered from designers and manufacturers to be sent to an order-fulfillment center. There they would be processed and shipped to the end customer, who likely made the purchase online.
Inventory Control Model
Let’s dive into a third scenario, where the retailer notices that certain items have higher sales rates at other locations. By redistributing its in-store inventory to other stores where demand for the product is higher, they hope to avoid discounting and taking a hit to profits just to move the inventory.
Alternatively, the retailer may know from its analysis that demand is sluggish everywhere for certain products. In that case, the more quickly it marks the stock down or sells to a retail discounter at a reduced bulk price, the more likely it is to recoup much of its investment. Logistics in this scenario entails inventory control, demand planning, pulling, packing and shipping products between stores, moving some items to sales racks, and shipping a bulk distribution in a transaction with a third-party seller.
If the retailer declares some remaining product as too costly to sell, because demand is too low at any price, then logistics would also include transport of these items to a charity for a tax write-off. If some of that product is also damaged, the retailer’s logistics manager would transport it to a disposal site.
If you’re interested in learning more about how your organization can benefit from a planned logistics strategy, please contact our in-house logistics experts using the form below.
Director of Marketing & Media, C.L. Services