Definition

logistics

Contributor(s): David Essex and ASKA Global Supply Chain Management

Logistics is the process of planning and executing the efficient transportation and storage of goods from the point of origin to the point of consumption. The goal of logistics is to meet customer requirements in a timely, cost-effective manner.

Originally, logistics played the vital role of moving military personnel, equipment and goods. While logistics is as important as ever in the military, the term today is more commonly used in the context of moving commercial goods within the supply chain.

Many companies specialize in logistics, providing the service to manufacturers, retailers and other industries with a large need to transport goods. Some own the full gamut of infrastructure, from jet planes to trucks, warehouses and software, while others specialize in one or two parts. FedEx, UPS and DHL are well-known logistics providers.

Typically, large retailers or manufacturers own majors parts of their logistics network. Most companies, however, outsource the function to a third-party logistics provider (3PL). 

How it works

Transportation and warehousing are the two major functions of logistics.

Transportation management focuses on planning, optimizing and executing the use of vehicles to move goods between warehouses, retail locations and customers. The transportation is multimodal and can include ocean, air, rail and roads.

Not surprisingly, transportation management is a complex process that involves planning and optimizing routes and shipment loads, order management, freight auditing and payment. It can also extend to yard management, a process which oversees the movement of vehicles through the yards outside manufacturing plants, warehouses and distribution facilities. Carrier management is an important aspect, since the price, availability and capacity of transportation carriers can vary widely.

Logistics companies typically use transportation management system (TMS) software to help meet the demands of transport-related logistics. There are also niche applications, such as yard management systems.

Warehousing, or warehouse management, includes such functions as inventory management and order fulfillment. It also involves managing warehouse infrastructure and processes -- for example, in a fulfillment center, where orders for goods are received, processed and fulfilled (shipped to the customer). Most companies use warehouse management system (WMS) software to manage the flow and storage of goods and track inventory. Most vendors of ERP software offer TMS and WMS modules, as well as more specialized components for inventory management and other logistics functions.

Customs management, or global trade management, is often considered part of logistics, since the paperwork to show compliance with government regulations must often be processed where goods cross national boarders or enter shipping ports.


This video from CNBC goes inside the complex
global logistics operations of FedEx and UPS,
two of the largest shippers.

AI and driverless vehicle technology will play important parts in how logistics operates in the future. Some logistics providers already use AI to better track packages and predict transport-related problems in the supply chain.

Meanwhile, autonomous vehicles -- such as driverless forklifts, delivery trucks and drones -- are likely to become more commonplace in warehouses, in warehouse yards and on highways.

Why logistics is important

While on-time delivery of intact packages has always been important throughout the supply chain, it has become even more mission-critical in recent years, as omnichannel commerce, with its same-day home or retail delivery of customized products ordered from smartphones, becomes more common.

Suppliers, manufacturers, distributors and retailers have had to improve their logistics processes to meet the demand for quicker, more convenient delivery of a wider variety of goods. They also have had to better integrate their processes and systems to improve supply chain visibility

Types of logistics

Logistics management is an important component of supply chain management (SCM). While the terms are sometimes used interchangeably, logistics focuses on moving products and materials as efficiently as possible. In contrast, SCM encompasses a much broader range of planning activities, such as demand planning, and execution, including strategic sourcing.

Sometimes the terms inbound and outbound logistics are used to denote logistics for goods arriving at or leaving a facility, respectively. One important category is reverse logistics, the logistics processes needed to return a product for servicing, refurbishing, or decommissioning and recycling.

This was last updated in January 2019

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