Logistics is an important element of the supply chain which companies need to plan out ahead of their production and distribution strategies. Logistics is simply defined as the flow of material, information, and money between consumers and suppliers (Frazelle, 2001). From this definition, it could be understood that logistics could be divided into five important business activities, including collecting customer responses, planning and managing inventory, supply, warehousing, and transportation (Frazelle, 2001). The entire process of logistics could therefore be split into purchasing and selling activities. Inbound logistics involves purchasing raw materials, components, and other supplies for carrying out production, whereas outbound logistics covers the flow of finished goods to customers. This paper will examine the importance of managing inbound logistics and its interrelationship with business operations. Moreover, the contribution of outbound logistics to organizations’ bottom lines will be discussed.
Inbound logistics have not received due recognition by businesses till recently for the reason that procurement managers do not have a thorough understanding of the material management process and often mismanage the inward flow of goods, leading to problems for the businesses. Perhaps the most important factor in managing inbound logistics is the cost factor which companies need to control. These costs could be split into inventory carrying costs, transportation costs, warehousing expenses, maintenance costs, salvage or disposal costs, and basic unit cost of product or service (Gourdin, 2006; Chatur, 2006). All these costs relate to different inbound activities, which could be viewed as part of a wider inbound logistic system. Thus, by managing these activities, businesses can maximize the value obtained from their suppliers and, in turn, share the same with their customers. Management of these activities requires strong controls over inward shipments and alignment of cost reduction goals within the organization. The implementation of a successful inbound logistic system thus requires completeness and quality of transportation management and information system, which allows companies to optimize their procurement process and to support their ultimate objectives. In the current economic scenario, the extent of inbound logistics has become increasingly complex and global. Sourcing materials from different vendors makes inbound logistics quite difficult. Inbound logistics system allows improvements by increasing in-bound transit visibility, better handling of goods receipts, effective and efficient collaboration and communication with parties involved (Gourdin, 2006). Therefore, it could be interpreted from the above arguments that the importance of inbound logistics is the same as that of outbound logistics as it allows major transformations in business operations and keeping the cost of products or services delivered lower.
Coordination between business operations and purchasing allows companies to assess their productions requirements to supplement other functional activities. From a resource-based view, the relationship between operations and purchasing could be seen as building an organization’s capability to integrate its internal functions and cooperate with its suppliers to respond to changing business environment and sustain its competitive advantage over its competitors. Therefore, successful coordination between business operations and purchasing activity is important for ensuring smooth business operations. The evaluation of demand for materials assists companies in developing their strategic plans for months ahead and place orders to their suppliers for timely delivery. It is clear that the inbound logistics system is a conglomerate of various business activities, including ordering, purchasing, transportation, storage, and conversion into final products or services, and is highly dependable upon the integration of various business operations with purchasing. Many companies have adopted JIT, a concept based on the minimum level of inventory and ordering of materials for production on an order basis, which arrives at the consumer at the time of production (Chatur, 2006). In this case, careful planning is required to ensure that order requirements are fully met without any hindrances caused by delayed shipments, faulty material, and financial difficulties, which could add up to the cost of production. The inbound logistic system should therefore be implemented in such a way that estimates the purchasing requirements to carry out logistics and transportation operations.
Organizations bottom line has been referred to in many different ways such as in marketing terms, it is the ability of an organization and its products or services to retain customers by adding more to customer value and offering them value added services which eventually keep them coming back for the same product or service. In accounting terms, it is limited to the profit generated by the company. It is, therefore, apparent that through efficient outbound logistics, it is possible to contribute to the bottom line. Michael Porter’s Value Chain Model provides a provoking insight into how all types of logistics add value to the supply chain. By looking closely at this model, we could understand that efficient outbound logistics in combination with marketing and customer service creates opportunities for the business, and overall customer satisfaction could be attained. This, therefore, requires outbound logistics through knowledge management which involves establishing a system for producing and distributing information between different functions of the organization (Rutner & Langley, 2000). Furthermore, logistics service providers realize the importance of this factor and, in their attempt to offer better solutions to companies, are seeking convergence to provide broader sets of solutions to companies which would enable them to shrink the time of delivery and increase the customer value (Gordon, 2006).
In order to conclude the above discussion regarding the role of logistics, both inbound and outbound, we could conclude upon important lessons such as the success of logistics system is driven by the costs its bears and how swiftly information could be shared between different functionalities of the company. Finally, outbound logistics surely contribute immensely to organizations’ bottom line by adding customer value by responding effectively to their needs and requirements.
- Chatur, A. A. (May 2006). Driving Costs Out of Supply Chain: Inbound Logistics. Washington: Infosys Technologies Limited.
- Frazelle, E. (2001). Supply Chain Strategy. New Jersey: McGraw-Hill Professional.
- Gordon, B. (2006). Outsourcing. Canadian Transportation Logistics , 109 (11), 75.
- Gourdin, K. N. (2006). Global Logistics Management. New Jersey: Wiley-Blackwell.
- Rutner, S. M. & Langley, C. J. (2000). Logistics Value: Definition, Process and Measurement. The International Journal of Logistics Management , 11 (2), 73-82.