“If managing the supply chain is like fetching a hungry baby a bottle, then logistics is the thankless trek up and down the stairs in the middle of the night.” ~ Benn Bekic, CSO, WiseTech Global
According to Deloitte, 79% of companies with high-performing supply chains surpassed industry competitors in terms of revenue growth. Comparatively, only 8% of companies with average supply chains realized above average growth. How do your inbound logistics and outbound logistics compare?
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Comparing Supply Chain Management and Logistics
Supply chain management is one of the most poorly understood elements of a business. That’s despite the fact that it accounts for the lion’s share of a company’s costs. Oftentimes, the supply chain and logistics processes within businesses aren’t strategically designed. Instead, they develop over time and are rarely scrutinized.
According to Benn Bekic, Chief Strategy Officer of WiseTech Global, this is the difference between logistics and supply chain management. Observers often use the terms interchangeably, but they certainly aren’t synonymous.
Your inbound logistics and outbound logistics includes everything required to get a product from one point to another.
On the other hand, supply chain management covers every movement involved to get a product to the customer.
Still sound like they’re the same thing? Hardly. Logistics covers the nitty gritty, as Bekic’s quote demonstrates, while supply chain management looks at the big picture. Supply chain management is a strategic activity, while logistics is the implementation of that strategy - and the occasional deviation from it.
Another way to differentiate logistics is by considering the role of different businesses. Logistics concerns the movement of goods within one company, whereas supply chain management covers the movement of goods through different businesses in the supply chain. For instance, the supply chain for baked goods would include the farmer, the warehouse operator, and the baker.
Why Is Supply Chain Management So Critical?
Supply chain management and logistics are vital to running a successful business. In the past, supply chain management and logistics didn’t earn as much attention as business activities like research and development, product marketing, and sales.
Recently, however, it’s attracted the attention it deserves, and rightly so. Supply chain management, and its component function logistics, are important for the following reasons:
- A beautifully designed and packaged product isn’t worth anything if your customer never receives it
- A company that can efficiently process, store, and transport raw materials, semi-finished goods, and finished goods will increase profits by streamlining operations
- A brand that manages to deliver goods accurately and on schedule increases customer satisfaction and loyalty and increases the likelihood of repeat customers
- A business that understands all facets of its supply chain avoids working with unethical supply chain partners, protecting its reputation and from legal damage
You should note that supply chain management and logistics management aren’t just for large companies. By understanding the essentials of these disciplines, small to medium sized businesses can also improve customer satisfaction and reduce operating costs.
In this guide, we will focus on the inbound logistics and outbound logistics function of supply chain management.
What Is the Difference Between Inbound Logistics and Outbound Logistics?
Many business functions fall into the category of logistics. These include functions such as fleet management, warehousing, and materials management. However, the concept of logistics can generally be divided into inbound logistics and outbound logistics.
Inbound logistics covers the transportation and storage of goods coming into the warehouse. Typically, this includes the relationship between a warehouse and its suppliers of raw or semi-finished goods.
Alternatively, the outbound side refers to the transport of goods leaving the warehouse. Generally, this covers the relationship between a warehouse and its customers.
Both inbound and outbound logistics processes are important for overall supply chain management strategy. While the inbound logistics process might include everything from raw materials to tools, outbound logistics is primarily concerned with end products ready for use by customers.
How to Optimize the Inbound Logistics Process
Experts consider the inbound logistics process “the final frontier” for companies who wish to reduce transportation costs. Streamlining this process is difficult and requires considerable effort from supply chain managers and warehouse operators. At a high level, improving inbound logistics includes the following activities.
Building Strategic Relationships with Your Supplier Partners
Determine your most optimal route and work with suppliers to implement it in a way that’s beneficial for both parties. Create a routing guide as part of this process to clearly define operating procedures and rules of engagement. Your routing guide will include:
- Modes and carriers to use in certain lanes
- Rate requirements
- Service requirements
While routing guides can be physical or digital, experts recommend online routing guides. They can adapt to changes in the shipping landscape such as fluctuating rates.
By implementing a routing guide, you can limit rogue expenses by suppliers. For instance, it introduces rate benchmarks and eliminates the use of non-authorized carriers. Naturally, though, a routing guide is most effective when a particular individual or business unit is in charge of overseeing and updating it.
Developing and Implementing Vendor Inbound Compliance Standards (VICS)
Specific supplier behavior hinders a company’s ability to manage a streamlined, efficient supply chain. So you’ll want to develop Vendor Inbound Compliance Standards (VICS) that all suppliers must agree to in order to work with your company. By reinforcing positive behavior and establishing penalties for negative ones, you can optimize your inbound logistics process.
Keep in mind, though, that it’s not enough to just develop VICS. You must include penalties for non-compliance in the VICS and apply these penalties consistently. For one, this ensures suppliers take your compliance requirements seriously. For another, financial penalties offset the cost of inefficient practices.
Using a Transportation Management System (TMS) for Dynamic Rates for Freight Costs
Businesses often accept the freight costs their vendors quote due to lack of visibility over market rates. But, with a transportation management system (TMS), your company has access to changing rates based on market conditions. You can use this information about carriers and routes to set real-time vendor allowances. This ensures that you get the best rate possible and keep costs low.
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Consolidating Your Inbound Freight Deliveries
Less-than-truckload (LTL) shipments are inefficient and lead to unnecessary costs both in terms of shipping and unloading. Indeed, when a company unloads 10 to 14 different LTL shipments, it spends 5 times more than it would unloading just one truckload.
So, by consolidating LTL shipments into full truckloads, your company saves money. Of course, there are challenges associated with this strategy especially when working solo. To reap the benefits of full truckload transportation, you have to think about the following logistics considerations:
- Specific shipping and handling requirements
- Point of origin and final destination of shipment
- Shipment weight
- Departure time and arrival time of shipments
- Availability of drivers
- Availability of trucks
- Current fuel costs
Sometimes, although they would benefit from implementing it, companies can’t pull off a full truckload transportation strategy on their own. In such cases, you can use the services of a third-party logistics company (3PL).
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How to Optimize the Outbound Logistics Process
We’ve seen that the inbound logistics game is about checking whether your vendors and suppliers keep you happy. On the other hand, the outbound logistics process is about getting your products to customers. Essentially, you must ensure your customers remain happy with you.
On the face of it, this sounds simpler than inbound logistics. However, there are several variables involved in a successful outbound logistics operation. These include:
- Warehousing inventory
- Processing orders
- Picking products
- Efficiently packaging finished goods
- Transporting finished goods to customers
- Scheduling drivers and warehouse staff
- Working with third-party transportation companies (if applicable)
When it comes to getting finished goods to consumers on time and to their requested specifications, there are steps warehouses can take to improve their outbound logistics processes.
Negotiate with Your Carriers for the Best Rates
Everything is negotiable. So, if you work with third party carriers, don’t assume that the rate you’ve been given is the shipping rate you must accept. Build a relationship with your carrier account manager. At the same time, explore potential points of negotiation. There are several areas of your shipping agreement that you can negotiate. It would be better to use shipment rule automation algorithms to optimize the shipping rules.
To start, carefully review all aspects of your current shipping agreement, including next-day air rates and surcharges. Look through your shipping data to understand where you’re spending the most money.
Once you have an understanding of your shipping activity and business needs, negotiate volume discounts or initiate an RFP process to solicit the best offers from multiple carriers. Here you can check our page to learn best shipping strategies for new age fulfillment businesses.
Reduce Your Inventory Costs
Managing inventory costs keeps warehouse costs low. Remember: the outbound side is about getting products to customers on time. One of the ways you can do this is by ordering more product than you need to ensure you can swiftly respond to demand fluctuations.
Watch out though — while inventory prevents stock outs, too much of it could increase your outbound logistics costs. You’ll need to pay for staff to inspect and count inventory, premiums to insure the goods, rent to store the products, and more. Some useful strategies for keeping inventory costs low are:
- Using safety stock formulas
- Applying lean management techniques
- Adopting a vendor managed inventory (VMI) strategy
- using an inventory management system
Using Cross-Docking for Your Warehouse Operations
Cross-docking limits the amount of time goods spend in your warehouse. Workers sort incoming goods before quickly transferring them to an outbound truck. While it isn’t suitable for every business, employing a cross-docking approach allows businesses to use less warehouse space and minimize material handling.
Cross-docking also increases product quality, reducing the number of recommerce returns and increasing customer satisfaction. During the staging process, where products are temporarily kept on the dock before shipping, workers can quickly inspect products and remove damaged finished goods from the outbound shipment.
Wal-Mart is famous for its excellent supply chain management strategy and cross-docking plays a prominent role in both its inbound and outbound logistics processes. In fact, optimizing the supply chain was a primary focus for Wal-Mart from the company’s start and allowed the famous retailer to offer the low prices it’s known for today.
The Advantages of an Integrated Supply Chain Management Strategy
Your company’s supply chain extends beyond its four walls. It encompasses your entire network of factories, suppliers, warehouses, distribution centers, and retailers. Moving through this supply chain are raw materials which are processed, stored as finished goods, and shipped to consumers.
Traditionally, supply chains existed in silos and many still do today. In this unintegrated supply chain model, however, each logistics function operates with its own goals in mind.
This is largely because there are often entirely different businesses involved. The functions will concern themselves with one, but not all, of the following supply chain management goals:
- Inventory accuracy
An integrated supply chain takes an “enterprise resource planning approach” to the supply chain. It doesn’t use a disjointed process with several business that work with separate objectives.
Instead, an integrated supply chain takes a centralized approach where managers build relationships with partners and all activities flow through one system. This way, an integrated supply chain makes businesses more efficient and reduces costs.
That said, you might face challenges building the necessary technology infrastructure and convincing supply chain partners.
In some cases, companies adopt a vertical integration approach to their supply chain. Rather than relying on other businesses, they start companies designed to fill specific functions in their supply chain. This reduces both dependence on suppliers and potential hold ups.
Improving Inbound and Outbound Logistics Is an Important Part of Effective Supply Chain Management
Inbound and outbound logistics are a key component of a company’s supply chain. A strong inbound logistics process ensures businesses are working with the best suppliers, while an effective outbound process keeps customers happy and buying more.
Keep a careful eye on your workflows and develop standard operating procedures to increase efficiencies. Don’t be afraid to use technology to gain visibility over your entire supply chain. By prioritizing supply chain management, regardless of company size, you can adapt the strategies and techniques that work for your business.
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.