What are Logistics?

Robinhood Learn
Democratize finance for all. Our writers’ work has appeared in The Wall Street Journal, Forbes, the Chicago Tribune, Quartz, the San Francisco Chronicle, and more.
Definition:

The term logistics refers to the activities involved in acquiring and transporting resources from one destination to the next.

🤔 Understanding Logistics

Companies often have a lot of resources to coordinate, including materials, equipment, and inventory. The acquisition and transportation of these resources are referred to as logistics. The term originally comes from the movement of equipment and supplies in the military, but now companies use it to describe their own processes. Logistics might include activities like transporting goods from a manufacturing plant to a warehouse or from a distribution center to a retail location. The need for adequate logistics management has increased alongside the complexity of supply chains. Logistics are just one part of supply chain management.

Example

Suppose an electronics company is releasing a new product. The company manufactures the product in the United States and plans to sell it worldwide. Once it’s built the product, the company wants to get it out of the plant and onto the next destination as efficiently as possible.

There’s an incredible amount of coordinating that goes into globally distributing a product. The company has to plan transportation for each leg of the trip and ensure the product arrives at the retail stores by the launch date. The coordination of these activities is called logistics management. Large corporations typically have specialized staff members who coordinate these activities.

Takeaway

Logistics in a corporation is like planning a vacation…

There’s a lot of coordination that goes into planning a vacation. You have to plan everything from where you’ll stay while you’re there to transportation to and from the airport. Now imagine how much more coordination goes into planning the movement of products around the country or the world.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.
Sign up for Robinhood
Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.

Tell me more…

What is logistics management?

The concept of logistics management originated during the 1960s. As supply chains became more complex, there was more of a need for specialists within a company who could effectively oversee these logistics. Today, logistics management is an integral part of any large company.

Logistics management refers to the systems and processes that companies have in place to execute these responsibilities. A single person or an entire department might be in charge of overseeing the logistics within a company. Some companies might also choose to outsource their logistics management to consultants. Today, companies can also facilitate these processes using logistics software.

Seven factors typically go into effective logistics management:

1. Right product: Logistics management directors should be aware of what product is in transport, whether it be a raw material heading from their point of origin to a factory or a finished product heading to a customer.

2. Right place: Logistics management often includes transporting products to multiple locations throughout the supply chain.

3. Right price: With an effective logistics system in place, companies can save money on their cost of goods sold and also save their customers money on the final sale.

4. Right customer: Different companies have different customers — A wholesaler might have retail stores as its customers, while an e-commerce store might target consumers directly.

5. Right condition: Effective processes can help to ensure the best quality of products starting with the transport of raw materials until the time the customer opens the product at home.

6. Right time: Getting products to their final destination on time, whether that be a retail store or a customer’s home, is a vital component of logistics management.

7. Right quantity: A cost-effective logistics management system includes one where companies know how much of a particular product is needed over a specific period of time.

What are the different types of logistics?

There are many different types of logistics, but a few appear most frequently in business. The four primary categories are supply, distribution, production, and reverse.

Supply logistics

Supply logistics, also known as procurement logistics, refer to planning and coordinating raw materials to the correct place.

Suppose you work for a company that produces dining tables and chairs. Supply logistics include procuring wood and transporting it to the manufacturing plant to build the tables.

Distribution logistics

Distribution logistics include all of the activities that go into storing and transporting materials and products.This category requires coordinating locations to store products. For example, the company would determine where to store the finished products before transporting them to the next stop.

The process also includes all of the physical activities such as loading products onto a truck, transporting products, and unloading products from a truck.

Production logistics

Production logistics sounds like precisely what it is — the coordination of everything that goes into making a product. This step of logistics management is where all the products you’ve procured and transported come together.

It includes the steps that go into the product manufacturing, where the products will be manufactured, and who will manufacture them.

Reverse logistics

Reverse logistics is the process of planning for and reclaiming materials and supplies. Some of the items that you transported in the previous steps of logistics management are now transported back.

First, reverse logistics would apply in cases where there was leftover material after production. Those raw materials might then go back into the supply logistics steps.

Reverse logistics could also refer to reclaiming the product itself. Suppose a company that produces blenders sells their product to a retail store. A customer buys one of the blenders, only to find that it doesn’t work.

Reverse logistics would be required to reclaim the malfunctioning product from the customer or retail store.

What are the functions of logistics?

We’ve talked about the big picture steps that logistics management includes. Now let’s cover some of the specific functions that occur in the process of logistics.

1. Order processing: When a customer places an order, some steps occur before the company can transport the product to the buyer. Consider the example of a manufacturer selling its product to a retailer. There’s paperwork that has to be processed before the delivery can take place.

2. Inventory control: Companies want to have enough inventory on hand to cover the needs of their customers, but not so much that stock sits for long periods. Inventory control is all about striking that perfect balance. After all, companies don’t want all of their money tied up in unsold inventory.

3. Warehousing: From the time the goods have been manufactured until the time they have been sold, they have to go somewhere. Warehousing products during this in-between time is an integral part of logistics management.

4. Transportation: Transporting products from the factory to the warehouse or from the warehouse to the buyer is one of the most critical steps of the logistics process.

5. Material handling & storage: Effective materials handling and the storing of goods and raw materials is vital to cutting down on costs and ensuring the best product quality.

6. Logistical packaging: There are two types of packages for products. The first is the outer product packaging, which is designed to achieve specific marketing objectives. The other type is logistical packaging, which refers to the internal packaging. Companies want to prevent damage to the product without being too expensive.

7. Information: A capable logistics management department is always aware of what is happening within the supply chain. Companies must have an efficient way to relay real-time information to the logistics managers (aka logisticians), to other people within the company, and to the buyer.

What is the relationship between logistics and supply chain management?

Though logistics management and supply management are closely related, logistics is actually just a small part of the entire supply chain management system.

Supply chain management looks at the whole picture and refers to everything that happens from the time a company initially dreams up a product to the time it reaches the buyer.

The supply chain starts with the innovation and development of a product idea. At this point, there isn’t even a physical product in place. The next step is to source and purchase raw materials to use for a product. After sourcing and purchasing, it's time for the actual manufacturing and distribution of the product.

Finally, supply chain management continues even after the product has been delivered to the store. It also includes customer service to customers, plus the global deployment of the product, meaning getting into new global markets.

Logistics management refers to just a small portion of the supply chain where the company purchases, manufactures, and distributes products.

Why are logistics important?

There are several benefits to having effective logistics management within a company.

First, proper logistics management can lead to increased customer satisfaction. When your production and distribution logistics are a well-oiled machine, you can rest assured that the product will be on the shelves for the customers who want to buy it.

Have you ever really wanted to buy a product but found that it was always out of stock? Effective logistics management can help to avoid situations like that.

Next, effective logistics management leads to improved transparency within a supply chain. Having reliable systems in place allows you to see where problems exist in the process if there are any. Without a solid system in place, you might be aware of inefficiencies within your company without being able to pinpoint where they are.

Finally, proper logistics management can lead to cost savings. Companies who do it well can produce and distribute the right amount of inventory based on the needs of consumers. This perfect balance can save a lot of money in the long run.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.

1183999

Related Articles

You May Also Like

The 3-minute newsletter with fresh takes on the financial news you need to start your day.
The 3-minute newsletter with fresh takes on the financial news you need to start your day.


© 2021 Robinhood. All rights reserved.

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Robinhood Financial LLC provides brokerage services. Robinhood Securities, LLC, provides brokerage clearing services. Robinhood Crypto, LLC provides crypto currency trading. Robinhood U.K. Ltd (RHUK) provides brokerage services in the United Kingdom. All are subsidiaries of Robinhood Markets, Inc. ('Robinhood').

1476799