Estimated duration: 1hr
This course explores logistics management and the significant role this plays in the success of any company’s operations. More importantly, logistics processes play a big part in customer satisfaction, which arguably is more important than low product costs. When thinking about logistics, companies should think about the customer-facing portion of the company and strive every day to add value for their customers.
The Council of Supply Chain Management defines logistics management as follows: “… that part of supply chain management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption, in order to meet customers’ requirements.”
Logistics management is often confused with supply chain management. Supply chain management has broader objectives and actually encompasses logistics management. Supply chain management includes inter-enterprise, multi-functional processes that target everything from the supplier’s inbound freight to the end consumer.
Logistics management is the more practical, hands-on part of the supply chain where goods are transported into a facility, properly stored, handled and transported out. Logistics management focuses on short-term procedures whereas supply chain management is focused on the long-term.
In this course, you will learn about the development and focal points of logistics management, difficulties companies have within these focal points and the best practice to achieve optimised logistics, which leads to superior customer service.
Making quick, informed decisions can allow a company to make significant savings on its logistics costs, so one of the best practices in logistics management is to implement a fine-tuned logistics strategy. Since the supply chain is constantly changing, so are logistics processes. Developing and implementing a formal logistics strategy will add flexibility to the decision-making process and increase error-response time. A deliberate strategy will let a company predict service disruptions and also allow the company to know where to respond to them to ensure service levels stay at peak performance.
How does a company implement a logistics management strategy?
First, assess all logistics functions. Take a look at every part of the organisation’s logistics management and define how it should work and how it contributes to overall supply chain management goals. Look at each physical part of the logistics process and determine its optimum function, i.e. are distribution centres in the right locations and are there enough of them?
Even after a strategy is applied, continue to evaluate its success, and ask if there are other opportunities. The entire supply chain management environment is continually evolving, so logistics roles must be flexible.
To design a new strategy or analyse your existing logistics processes, ask and answer these eight questions:
- Do you have a way to handle expedited shipping differently than slower shipping movements? Would it be beneficial to do so?
- Is there a plan that defines when an item should be inventoried and when an item should be sent directly to a customer?
- Would it be more effective to have a third-party logistics (3PL) company manage some or all aspects of your logistics functions? What financial and service considerations must you take into account before making this decision?
- Can your distribution network be improved?
- Could a change of carrier or mode save money or improve service in outbound transportation?
- Do you carry too much inventory? Too little?
- What are your specific customer service goals? Is it easy item returns? Delivery speed? Safety?
- What future business operations will affect logistics functions and are you prepared to handle them?
For every business, there are different logistic needs and different ways to evaluate operational success. A static logistics strategy will cause serious harm to customer service and the bottom line. It’s detrimental to not benchmark success or direction for improvement.
Spend 30 minutes analysing your existing logistics process. In completing this exercise ask and answer the eight questions listed above.
Remember that this can/should be returned to again and again in order to get it ‘finely tuned’. Each time you make a change know that this is making your company’s logistics process more concise and relevant.
It is important to ask questions about your logistics processes, evaluate successes and inefficiencies, and alter your logistics management strategy to fit your company’s changing needs.
Inbound logistics is one of the most overlooked aspects in logistics management. Often, companies focus on outbound logistics, seeing this as low-hanging fruit in terms of cost savings while ignoring the potential savings on their inbound freight spend. There are usually more pressing matters for a business to attend to, and many lack any control over inbound freight. However, to drive significant savings and improve customer service, it is critical to gain control of inbound logistics.
Freight Paid to Freight Collect
Switching from freight paid to freight collect is an example of a simple change most companies can effortlessly implement. Freight Paid is a common payment method for inbound freight among suppliers. Freight Paid means that the supplier pays for transportation costs. Switching to Freight Collect will give your company control over inbound logistics. Often, the true cost of transportation is hidden in the price of a product. With control over inbound freight, you know exactly what the transportation costs are and can streamline the route by going straight to your distribution centre, not making an extra stop at the supplier’s distribution centre. Freight Collect is a best practice in logistics management because this method will give you visibility into the inbound process. Visibility makes identifying inefficiencies and implementing change possible. With visibility, a company can analyse carrier performance, track overall costs, predict and avoid disruptions, and in the process analyse vendor performance. The company can then choose the best combination to save money and time; the resulting benefits will be seen by the company’s customers through improved service.
Vendor compliance programs (VCP)
Often companies don’t pay close enough attention to inbound freight and the potential benefit of a vendor compliance program (VCP). A good vendor compliance program can be a competitive differentiator. A vendor compliance program will define expectations and benchmarks for the vendor, have a way of tracking and reporting vendor performance, include frequent meetings to discuss any necessary changes, and ensure all consignee goals are consistently met.
The following are among the reasons to have a vendor compliance program:
• Current Logistics Environment: Logistics processes are more and more complicated every year. Every point of the logistics process is dependent on each other, and the entire logistics process is just one point of the overall supply chain. Any inefficiencies or minor slip up in inbound freight management affects the internal process, the customer, and even the end-consumer.
• Technology: Technology became very important in transportation and logistics after the relatively recent global recession when transportation departments downsized. Since then, the available technology has grown and improved significantly. Software can now measure and analyse just about anything, giving you a good chance of success at any logistics venture. If you’re not taking advantage of available technology to set up a controlled and monitored vendor compliance program, then you will fall behind those who do use transportation management software to their benefit.
• Efficiency: Logistics management is customer-facing, and as such, its efficiency reflects the whole company. Customers are demanding more which stresses the logistics process. Maintaining high efficiency is the only way to ensure customer demands are met without significantly increased costs. Inbound freight needs to run as smoothly as possible for the best possible customer experience.
To summarise, a proper vendor compliance programme is necessary to have competitive logistics management processes. To ensure a vendor compliance program is successful, companies should work with the vendor at every step.
Rather than fighting over requirements, or simply charging a vendor for bad service, companies should aim to collaborate in an effort to solve problems and improve service. This suggests that companies shouldn’t just tell a supplier when they do something wrong, but rather seek to establish a mutually beneficial relationship; helping them achieve success and rewarding them for being reliable. Reliability is invaluable in this volatile industry and economy. When a vendor compliance program is successful, the enhanced working relationship should see companies benefit from reduced inventory, improved warehouse operating costs, overall reduced inbound costs (with value-added), and enhanced customer service. While investing in a vendor compliance program may be taxing at first, it often proves to be worth the effort.
A well-planned reverse logistics strategy, customised for the company, will reduce storage and distribution costs, improve brand reputation, create more sustainable business practices, and satisfy customer demands.
Reverse logistics is a type of inbound freight that many companies lose money on. It’s often seen as an expensive, complex challenge and many companies avoid managing it.
Reverse logistics is vital to the customer experience, and it is important that it’s managed properly. A good reverse logistics programme generates maximum value from each item returned. Returns impact the bottom line. In some industries, such as book publishing, catalogue retailing and greeting cards, product returns to the vendor are significant.
Quality and distance travelled determine the backward path of the product and its final form and destination. The longer a product stays in the system, the less valuable it becomes. Further to this, already damaged goods and packages will get worse being transported again. Products that can be classified as time-sensitive, like those with technology components, lose market value with each passing week. As a result, it’s best practice to minimise the time items spend within the system to ensure maximum reclaimed value.
Reverse logistics is important for customer service. For example, consumers who order clothes online typically order several different sizes and colours of the same item. Then, they’ll send back the products that don’t fit or aren’t the correct colour. If this process is difficult, they are unlikely to order again from the company. Good reverse logistics practices, and by extension customer service, include a return shipping label and easy packaging for returns. This encourages future loyalty.
Take 15 minutes
Consider your company’s policy on reverse logistics. This is a critical aspect of most company’s logistics but often one that is somewhat overlooked.
What specific policies are in place within your company to deal with reverse logistics? In light of what you have explored within this course, should you change your company’s approach to reverse logistics?