What Is Logistics Management? (Definition and Importance)

By Indeed Editorial Team

Published 30 August 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Logistics management is part of the reason customers can order and receive products easily and quickly. By optimising their logistics systems, businesses can attract and maintain customers, raise brand awareness and improve revenue. If you want to work in manufacturing, business or a related area, being able to track logistics can help you excel in your role. In this article, we discuss what logistics management is, explore how it differs from supply chain management, review its importance and offer tips for implementing it for your own company.

What is logistics management?

Logistics management is the process of handling goods from creation to consumption. Specifically, logistics managers are responsible for the efficient procurement, storage and transportation of products for a company. Contributing to the manufacturing process and supply chain management, they coordinate facilities and team members to move resources through the supply chain and support business operation. They seek to minimise operating costs, adhere to budgets and get products to customers as quickly as possible.

The primary goal of logistics managers is to allocate the right amount of materials to the proper places and people at the correct times while keeping materials and products in good condition and fulfilling customer demands. The word "logistics" originated as a military term, referring to the conveying of food and supplies to soldiers. Now, it also means the military-like, organised and precise flow of goods from raw material to the final product. Logistics management is an important part of work in many industries, such as garbage collection, mail delivery and food production. Here are some primary components of logistics:

Order processing

One part of logistics management is order processing, the ability of customers to request a product, pay for it and track the status of their orders. Companies may ensure the efficiency of this process by using bar codes to identify and update inventory and using software to check stock availability and enter order requests. Online applications allow companies to track and adjust orders and inventory in real-time and minimise paper waste.

Inventory management

Another key aspect of logistics is inventory control, in which a company handles the stockpiles of goods it's waiting to manufacture, transport or sell. While holding inventory can be expensive, it provides a company with many benefits, enabling it to transport goods in bulk to reduce cost-per-unit, deliver products to customers quickly and cope with irregular customer demands. It also helps to account for imbalances between supply and demand. Here are some types of inventory transportation strategies:

  • Direct shipment: In this method, companies ship goods directly from the manufacturer to the customer. This is common when businesses have perishable goods they need to deliver quickly.

  • Warehousing: One of the most common inventory management techniques, warehousing involves storing goods in containers on racks and shelves. Team members receive and sort incoming stock and compile and load goods for orders.

  • Cross-docking: In this strategy, teams sort incoming shipments and transfer them to outgoing delivery vehicles right away. This means goods only stay at the transhipment facility for a few hours.

Related: 15 Project Management Skills Every Manager Should Have

Transportation

With the proper transportation of supplies and products, companies can get unique raw materials and sell their products to expansive, national and international markets. They can also use the economies of scale approach, saving money and resources by transporting larger shipments rather than smaller ones. Companies may use the following modes of transportation to ship their goods:

  • Truck: Trucks and other vehicles may deliver perishable and other retail goods in a single trip or to consolidation facilities.

  • Ship: Maritime transport helps companies participate in international, overseas trade and commerce.

  • Rail: Shipping on trains is inexpensive but slow, so it's usually for lower-priority raw materials like coal, lumber and paper.

  • Air: Air transportation is fast, and people use this mode for transporting high-value products over large areas.

  • Pipeline: Pipelines are necessary for moving water, petroleum and other materials over long distances.

The distribution network for logistics management

The logistics management process relies on the success of its distribution network to satisfy customers' expectations. There may be many vendors and intermediaries working together in this process. The distribution network consists of the following components:

  • Factories that create goods and services

  • Warehouses that store goods for pickup

  • Distribution centres that consolidate goods and accept customer return items

  • Transport vehicles that deliver goods and services

  • Small and large retail stores that sell a variety of consumer goods and services at their location

Related: What Does a Merchandiser Do? (Plus How To Become One)

Three types of logistics

While there are many types of logistics, here are three important examples involving the direction of product flow that can help you better understand the topic:

  1. Inbound logistics: This type of logistics involves the movement of raw materials from suppliers to warehouses and production organisations. It's important for companies to have these systems effective, as they impact the rest of the supply chain.

  2. Outbound logistics: This area is the flow of final products to end-users or customers for sale and distribution. This type is often called the order fulfilment process.

  3. Reverse logistics: Reverse logistics is the migration of products from end-users back through the supply chain to the manufacturer or other appropriate place. This is necessary when customers return products, seek product repairs or recycle materials.

Supply chain management vs. logistics management

While some use these terms interchangeably, many view supply chain management as different from logistics management. A supply chain is an extensive network of organisations and employees through which a company converts raw materials to final products and distributes them to customers. Logistics management is a more specific part of this network, and refers to the storage and movement of goods, or services and information, within the supply chain. While supply chain management involves connecting suppliers, manufacturers, wholesalers and retailers, logistics has a focus on transportation, warehousing, packaging and delivery.

Supply chain management components

Here are some of the key factors of supply chain management:

  • Product development: This supply chain area involves researching market needs and inventing a product concept and design to fulfil them. Those responsible for this are often research and development professionals and design engineers.

  • Purchasing and sourcing: An important part of the supply chain is finding good suppliers and negotiating supply contracts. Businesses seek reliable producers who provide high-quality materials.

  • Manufacturing: This is the actual process of transforming natural resources into final products, typically in a factory setting. Those who contribute to this system are often machine operators, electricians and welders.

  • Logistics and distribution: Logistics refers to the storage and movement of goods through production for customers. It involves order processing, transportation methods and delivery.

  • Customer service: This component is answering customer questions and processing returns. A good customer service department is important to attracting and maintaining customers.

Related: What Is Customer Service?

Why is logistics management important?

Logistics management is important because it helps companies deliver products to customers efficiently, fulfilling their demands for fast service. Customers who can rely on a company for same-day or express shipping might choose to support that company permanently, leading to business success. Logistics management also enables businesses to ensure the careful handling of products so that they stay in good condition for customers. Organising storage and transport means reducing waste of time, efforts and resources. It also makes it easier to track systems and implement changes if necessary.

Tips for effective logistics management

With the right amount of effort, many professionals can map out, understand and optimise the phases of production, distribution and returns. Here are a few tips to improve your logistics management practices:

Create a strong strategy

A strong logistics management strategy addresses as many questions and variables as possible regarding all phases of logistics. It plans for risks and elements that might cause delays in shipment and inventory fulfilment, such as inclement weather. Develop a blueprint of this strategy to ensure the steady inflow and outflow of supplies. Ask each point person in the production, distribution and returns processes about potential problems that may arise in their area.

Appoint an experienced leader

If it's in your budget, consider hiring a logistics manager to oversee all steps in your strategy, resolve problems that occur and collaborate with others to achieve your company's goals. Their level of expertise within their industry can be useful in communicating with regional contacts and performing special tasks like making adjustments to last-minute shipments. An ideal candidate can also inspire logistics, production and delivery teams to stay productive and complete their duties on time.

Automate project management processes

Automate repetitive tasks so you can spend your valuable time working with complex workflows that require human oversight. Use software applications to manage tasks, such as delivery tracking and inventory allocation. Customers typically expect companies to have easy, online ordering and tracking systems.

Related: Computer Skills: Definitions and Examples

Document performance and find ways to improve

Document performance and progress towards goals to learn from mistakes and foster improvement. Reflect on what's worked in the past and seek team and employee feedback on the functionality of your systems. As employees work with equipment and customers every day in their specific area, they're typically experts on what a business may need to change to improve customer satisfaction and gain more revenue.