Importance of logistics in supply chain management
- Logistics Management
Supply chain management had long been a neglected area. However, in the 21st century, businesses shifted their focus towards supply chain management. The reason was its importance as a source of competitive advantage. However, logistics is an equally crucial area. It is an important area of supply chain whose effective use can ensure a balance between supply and demand. Logistics became particularly important for being the backbone of the entire supply chain. Research has recognized supply chain as an important source of competitive advantage. There are a large number of examples in the industry which have proved that successful supply chain management can lead to higher profits and improvement in performance. However, to a large extent successful supply chain management requires effective logistics management.
Amazon, Costco and Wal-Mart are some of the brands that proved successful management of supply chain can have a positive financial impact. However, while focusing upon the management of the supply chain, it is important that the companies do not lose attention of logistics. It is an inseparable part of the supply chain and requires both investment and planning. Moreover, successful supply chain management is impossible without successful logistics management.
Business size is irrelevant and even small businesses can gain from supply chain management; especially by managing logistics. Logistics in business can have internal or external focus (inbound or outbound logistics). This part of the business can be simple or complicated based on the business’ size and shape. In case of the complicated processes, third parties are hired to perform any of the four fields in logistics. These four fields in business logistics are procurement, production, distribution and disposal logistics.
Logistics is defined as the part of supply chain that plans, implements and manages the forward and reverse flow as well as storage of goods, services and related information efficiently and effectively between the point of origin and consumption to meet customer needs effectively. For logistics the most important concern is to get the right product to the right place at right time. From the supplier to the business or from the business to the customer, the role of logistics is everywhere important. However, it does not mean that logistics is not full of challenges. Businesses mostly get one or two factors right. Getting all the pieces to fall in place is a big challenge. This is also why the companies are required to especially focus upon the logistics function. Unless they do so, the resulting errors can take a toll on revenues and profits.
Another key thing is that the financial impact of logistics is generally not as direct and clear as the other functions like marketing, sales and finance. It is also why in several cases the logistics function remains one of the most neglected. However, if people carefully check, then its importance can be understood. Logistics aids nearly every department. It plays a central role in the successful operation of the entire business. While one might not be able to find a direct relationship between marketing and logistics, still these two functions bear a symbiotic relationship. Marketing functions to stimulate the demand. Replenishment is the challenge before production and logistics functions. Marketing can drive the demand up; however, it is upon the logistics and production to meet the demand in a timely manner. At this point logistics cannot be considered just a network, but as the backbone of supply chain. The strength of the entire chain rests upon it. Companies that can manage logistics successfully can manage the balance between supply and demand. Businesses have to especially remain ready in the seasons of high demand. In seasons of demand, products need to be in the stores at the right time. Successful logistic management in this manner ensures that businesses successfully exploit the opportunities market offers.
An even important thing is that successful logistics management can ensure customer satisfaction. It is particularly true in case of the companies that are heavily dependent on their supply chain. Particularly, in cases like Amazon where product delivery is an important part of the sales process, logistics becomes indispensable. Satisfied customers are always good for business. In this sense successful logistics management can ensure both good reputation as well as great income. So, it appears true that logistics has a meaningful impact on the financial health of the business. Moreover, if there is a discrepancy between the demand and supply the result will be reduced income for a business. If the two are to be matched then the businesses should invest in logistics. Logistics can provide the critical leverage that businesses need to perform well in the market. Most of the large brands in retail have focused on filling the gaps in logistics using special software. Tracking logistics is just as important as inventory management.
Overall, superior logistics management leads to superior performance by the businesses. However, to derive the best results from logistics, it is important that the various functions are aligned with it. This alignment is important. It is because logistics also serves the marketing and production departments. Externally, it is the suppliers and customers who are served by logistics. If we see the entire picture then logistics is somewhere at the centre. This necessitates an effective logistics strategy. Other important considerations in this regard include the geographical location and the channel/network strategy. Geographical location is important since it can help at minimizing costs related to supply.
Same is the case with network strategy. Having an effective network strategy ensures that cost efficiency as well as excellent reach are achieved. There can be additional benefits too. Some businesses have used logistics excellently for branding purposes. Simultaneously, excellent delivery times and low prices can also be achieved based on efficient supply chain management. So, the companies that have not yet focused on logistics management and planning must start doing it. Having a dedicated logistics department and strategy can enable the businesses to achieve an edge over the competitors. Still, the best thing is that companies understand the crucial relationship between logistics and various other departments.