Logistics is a vast and complex field of the supply chain that involves the planning, coordination, and management of the movement and storage of goods and related information from the point of origin to the point of consumption. It plays a crucial role in businesses and organisations of all sizes across a wide range of industries. There are various ways to classify and differentiate logistics based on the activities and functions involved in an eCommerce business. This blog aims to provide insight into the different kinds of logistics in the modern landscape by looking at their purpose, processes, and applications. So, let’s dive in!
Understanding The Logistics Functions
Logistics plays a vital role in an organisation’s success because it ensures that products are available at the right time, at the right place, and in the right assortments.
The modern logistics function is a system that helps companies manage the flow of products throughout their supply chain. It is designed based on the stated logistics objectives so that minimum cost would incur for the accomplishment of these objectives.
Four Major Logistics Functions
Below is a list of the major logistic functions. You should be familiar with them all.
Transportation is the process of physically moving goods from one location to another. We can say logistics is transporting goods from point A to B. Transportation plays a crucial role in supply chain management, whether it’s moving raw materials to a manufacturing plant, finishing products to a warehouse for storage, or delivering goods to customers.
Several different modes of transportation can be used in the eCommerce business, depending on the type and size of the goods being shipped, as well as the distance and speed of delivery. For example, large shipments of goods might be transported by truck or train, while smaller packages might be shipped by air or boat.
Warehousing is a crucial function of logistics because it is where goods are stored until they are needed for distribution or use. These large facilities that are designed to store and manage a wide range of products provide a safe and secure location for storing goods, which can include everything from fragile items that need to be handled with care to heavy machinery that requires specialised equipment for handling. Warehouses are also designed to be highly organised to promote last-mile delivery in eCommerce. Goods are typically stored in designated areas and carefully labelled to ensure easy order fulfilment.
Inventory management is an important function of logistics because it systematically tracks and controls inventory levels to ensure that the right amount of goods is available in the warehouses when needed. This is critical for eCommerce businesses because having too little inventory can result in lost sales and a bad customer experience. On the other hand, too much inventory can tie up capital and increase storage costs. Effective inventory management requires a careful balance between these two extremes, and it involves a range of activities such as forecasting demand, determining order quantities, and setting reorder points.
It also involves using advanced systems and technologies to track inventory levels in real-time and generate reports and alerts when inventory is running low, or there are discrepancies in the data.
Packaging is the process of designing and creating materials and methods for protecting and transporting goods safely and efficiently. It helps ensure that goods arrive at their destination in good condition, and it can also help improve the overall efficiency of the supply chain by reducing handling and storage costs.
There are many different types of packaging goods, and it depends on the type of goods being shipped, as well as the distance and mode of transportation. Today businesses focus more on the packaging of products as it plays a big role in branding.
What are 2PL, 3PL, and 4PL?
There are different types of logistics an eCommerce business can avail according to the needs and size of operation.
When an eCommerce store outsources only shipping and storage activities to an external provider is called 2PL. The 2PL operator, or second-party logistics, refers to a company that provides logistics services to another company on a contract basis and manages only one part of logistics without including integrated logistics solutions. 2PL can be a convenient and cost-effective solution for companies that need logistics services but want to avoid investing in their infrastructure or hiring a full-time logistics team.
For example, a toy manufacturer must ship its products to national retailers. However, instead of managing the logistics by themselves, they hire a 2PL company to handle the transportation and warehousing. The 2PL company would then use its trucks and warehouses to store and transport the toys while the toy manufacturer focuses on other aspects of its business.
3PL, or third-party logistics, refers to a company that provides end-to-end logistics solutions to its client. These services include transportation, fleet management, inventory management, warehousing, packaging, and order fulfilment. 3PL is best for companies that need a wide range of logistics services and want to outsource them to a single provider. It’s like having your own logistics department without the hassle of managing it yourself!
For example, a clothing retailer needs to ship its products to stores all over the country. Instead of managing the logistics by themselves, they hire a 3PL provider to handle everything. The 3PL provider would receive the clothing at its warehouse, sort and store it, and manage inventory, packaging, order fulfilment, and customer services. The retailer places its orders with the 3PL provider, and the 3PL takes care of the rest.
4PL, or fourth-party logistics, refers to a company that acts as a “lead logistics provider,” coordinating and integrating the activities of other logistics service providers (such as 3PLs, carriers, and suppliers) to create a seamless and efficient supply chain for its clients. 4PLs are often referred to as “integrators” because they combine all the different supply chain elements and manage them as a single entity.
4PLs can offer various services such as transportation management, warehousing and distribution, procurement, and inventory management. They may also provide consulting and advisory services to help clients optimize their supply chain operations.
One key difference between 4PLs and traditional 3PLs is that 4PLs generally have a more strategic and consultative role, working with clients to develop customized supply chain solutions that meet their specific needs and goals. They may also take on more responsibility for managing and integrating the various components of the supply chain, including both logistics and non-logistics activities.
For example, a fashion retailer must source materials from overseas suppliers, manufacture the products in multiple locations, and distribute them to stores and customers worldwide. Instead of managing the logistics by themselves, they hire a 4PL provider to handle everything for them.
The 4PL provider works with the retailer to develop a customized supply chain plan that includes everything from sourcing and production to distribution and customer service. In addition, the 4PL coordinates with the retailer’s suppliers and manufacturers to ensure that materials and products are delivered on time. Finally, they use their transportation and warehousing network to store and ship the products to the retailer’s stores and customers.
The 4PL also provides regular updates and reports to the retailer on the progress of the supply chain. In addition, they work with the retailer to identify opportunities for improvement and cost savings.
Inbound and Outbound Logistics
Logistics is a critical component of any business’s success. However, if you want your supply chain to be as efficient and effective as possible, you must know how inbound and outbound logistics work.
What is Inbound Logistics?
Inbound logistics refers to transporting and storing goods as they flow into a business from suppliers or manufacturers. It is a crucial aspect of supply chain management. It involves coordinating all the activities and resources needed to bring goods into a business and make them available for use or sale.
Inbound logistics can include various activities, such as Procurement, Transportation, Warehousing, and Inventory management.
Effective inbound logistics requires careful planning and coordination to ensure that goods are delivered on time and in good condition. It can help businesses reduce costs and improve efficiency by minimizing delays and waste.
An example of inbound logistics would be: A furniture manufacturer needs raw materials such as lumber, fabric, and hardware from the supplier to produce its products. Therefore the manufacturer’s inbound logistics team is responsible for coordinating the procurement and transportation of these materials.
First, the team works with the manufacturer’s purchasing department to identify the necessary materials and negotiate prices with the suppliers. They then coordinate with the transportation department to arrange for the materials to be shipped from the suppliers to the manufacturer’s warehouse. Once the materials arrive at the warehouse, they are inspected for quality and stored until they are needed for production.
Features of Inbound Logistics
- Coordination of procurement and transportation of goods from suppliers or manufacturers: Inbound logistics involves coordinating all the activities and resources needed to bring goods into a business from external sources. This includes identifying and purchasing the necessary materials and components from suppliers, as well as arranging for the transportation of the goods to the business.
- Storage and management of goods in warehouses: Once goods are received from suppliers, they must be stored in a designated facility until they are needed for production or distribution. This could be a warehouse, a distribution centre, or other storage facilities.
- Tracking and control of inventory levels: Inbound logistics also involves tracking and controlling inventory levels to ensure that the right amount of goods is available when needed while minimizing excess inventory.
- Quality inspection of incoming goods: Ensuring that incoming goods meet the required quality standards is an important aspect of inbound logistics. This may involve inspecting goods for defects or damage upon receipt and taking appropriate action if any issues are found.
- Use of advanced systems and technologies: Inbound logistics professionals often rely on advanced systems and technologies to facilitate their operations. These can include transportation management systems, warehouse management systems, inventory management systems, and other types of software and hardware that help to automate and optimize logistics processes.
- Collaboration with suppliers and other partners: Inbound logistics often involves working closely with suppliers, carriers, and other partners to ensure that goods are delivered on time and in good condition.
What Are The Outbound Logistics Of A Business?
Outbound logistics refers to transporting and storing goods as they flow out of business to customers or other end users. It involves coordinating all the activities and resources needed to get goods from the business to their final destination.
Outbound logistics can include various activities, such as order processing, transportation, warehousing, inventory management, tracking and controlling inventory, distribution, and delivering goods to customers.
An example of outbound logistics would be: An online retailer sells various products to customers worldwide through its website. Therefore when a customer places an order, the outbound logistics team receives the order and retrieves the necessary products from the retailer’s warehouse. They then pack the products in a suitable shipping container, apply any necessary labels or markings, and arrange for the order to be shipped to the customer’s address.
The outbound logistics team uses its transportation network and third-party carriers to deliver orders to customers. They also manage the retailer’s products’ inventory levels, ensuring a sufficient supply on hand to meet demand while minimizing excess inventory.
Logistics distribution refers to moving goods from a central location to multiple distribution points or the end user. It is a crucial aspect of supply chain management, as it involves coordinating all the activities and resources needed to get goods to their final destination efficiently and cost-effectively.
There are many factors to consider in logistics distribution, such as:
- Transportation: Selecting the most appropriate mode of transportation, such as truck, rail, air, or sea, based on factors such as cost, speed, and the type and volume of goods being shipped.
- Warehousing: Storing goods in a designated facility, such as a warehouse, until they are needed for distribution or delivery.
- Inventory management: Tracking and controlling inventory levels to ensure that the right amount of goods is available for distribution when needed while minimizing excess inventory.
- Distribution networks: Designing and implementing a network of distribution centers, warehouses, and other distribution points that can support the efficient flow of goods to customers or other end users.
- Customer service: Providing timely and accurate delivery of goods to customers and responding to any issues or challenges that may arise during the distribution process.
An example of distribution in logistics would be: A food manufacturer produces and packages various products, such as cereals, snacks, and beverages, at its central facility. The manufacturer’s logistics team distributes the products to customers and end users.
The logistics team works with the manufacturer’s sales and marketing department to identify the demand for the products in different regions and markets. They then design a distribution network that includes warehouses and other distribution points in key locations, such as major cities or transportation hubs.
The logistics team coordinates the transportation of the products from the central facility to the distribution points, using a combination of their fleet of trucks and third-party carriers.
Is Distribution The Same As Logistics?
Distribution and logistics are closely related, but they are different. Logistics refers to the planning, coordinating, and managing the movement and storage of goods, services, and related information from the point of origin to the point of consumption. It involves integrating various activities and resources, such as transportation, warehousing, inventory management, and customer service, to ensure that goods are delivered to their final destination efficiently and cost-effectively.
On the other hand, distribution refers specifically to moving goods from a central location to multiple points of distribution or the end user. It is a key component of logistics. It involves the selection and coordination of the transportation and storage of goods and the management of inventory and distribution networks.
So, while distribution is an essential part of logistics, it differs from logistics. Logistics encompasses a broader range of activities and functions necessary to manage the flow of goods and information throughout the supply chain.
What Is Meant By Reverse Logistics?
Reverse logistics is the process of managing the return and disposal of goods that are no longer needed or wanted by the customer. This is a crucial and complex aspect of supply chain management, as it involves coordinating the return of goods from multiple locations and parties and ensuring that they are correctly handled and disposed of. Reverse logistics also involves coordinating all the activities and resources needed to move goods back through the supply chain, either to the point of origin or to another location.
An example of reverse logistics would be: A consumer electronics manufacturer sells smartphones and other devices to customers worldwide.
When a customer returns a product to the manufacturer, the reverse logistics team receives the product and inspects it to determine the reason for the return. If the product is defective, the team arranges for it to be repaired or replaced. If the customer no longer wants the product, the team tries to resell it or find another use for it.
The 5 Rs of Reverse Logistics
- Return: it is the process of returning a product to the manufacturer by customers, either because it is defective, no longer needed, or for some other reason.
- Resell: The process of selling a product that has been returned or is no longer needed by the customers. This can involve finding a new product customer or selling it through a secondary market.
- Repair: The process of fixing a product or component that is broken or not functioning correctly. This can involve diagnosing and troubleshooting the problem, sourcing and replacing necessary parts, and testing the product to ensure it works properly.
- Replace The process of exchanging a defective or unwanted product for a new or refurbished product.
- Recycle: The process of breaking down a product or material into raw materials or components, which can then be used to create new products. Reverse logistics often involves coordinating the recycling of products or materials that are no longer needed or wanted to reduce waste and minimize environmental impacts.
As an eCommerce business, you must know which logistics service is ideal for business. You may need a 2PL operator for fulfilment if you’re a small eCommerce store. Otherwise, a 3PL logistics company is the best if you’ve enough capital and need complete logistics expertise. Or 4PL logistics provider if you need expertise and consultation to optimize your supply chain, expand to different markets, and for end-to-end logistics solutions.
There are logistics aggregators for small and medium eCommerce brands for their end-to-end logistics solutions, such as NimbusPost. These logistics aggregators help negotiate with shipping companies, calculate the shipping cost, and choose the courier partner through their AI-driven platform.
Is Amazon a 3PL?
Yes, Amazon is a 3PL (third-party logistics) company. The eCommerce giants not only offer their customers the means to sell their products online but also offer to store those products in their fulfilment centres, pick, pack, and ship them and provide customer service, including handling returns.
Their service– Amazon FBA provides logistics services to businesses that sell their products through Amazon’s online marketplace. Amazon’s 3PL services include fulfilment (receiving, storing, and packing orders for shipment), transportation (using its fleet of planes, trucks, and delivery vans), and customer service (handling returns and resolving issues). Amazon’s vast network of 145 fulfilment centres worldwide allows it to offer fast and efficient delivery to customers in many countries.