What Is Logistics? Understanding the Basics

Logistics have evolved rapidly with the rise of the internet and the economy's globalization. As the world has become increasingly interconnected and rapid order fulfillment has become the norm, businesses have to adapt to remain relevant. From last-mile delivery solutions to agile, AI-powered inventory software, logistics continue to advance.

Those technical advancements have also led to complex logistics. This guide explains the ins and outs of the meaning of logistics, its key components and how it can assist business performance.

What Does Logistics Mean?

The term "logistics" was initially used to describe transporting military supplies to soldiers. It dates back to ancient civilizations, such as Mesopotamia, Egypt and Rome. Put simply, logistics is the strategic transportation of goods and services from point A to point B. 

While logistics can still refer to getting military supplies to the front line, it now extends to the global supply chain, including procurement, storage and distribution of materials.

The advancement of digital technology dramatically revolutionized the industry with the rise of e-commerce. In the wake of companies such as Amazon offering same-day order fulfillment, businesses need quicker, more accurate supply chain management and logistics to remain competitive.

Logistics vs. Supply Chain Management

While logistics and supply chain management are similar, they each refer to a distinctive part of moving resources. Supply chain management refers to the overarching network connecting global vendors with transportation and distribution providers and warehouses where products are held. 

Logistics refers to the process used to deliver goods from the company to consumers, including purchasing materials, packaging and shipping goods and ensuring all goods arrive at their final destinations.

Much of the supply chain is outside a business' control, such as the cost of raw materials. However, logistics refers to the specific part of the supply chain that a business can control, including packing, transporting, managing inventory and storing supplies and products. 

What Is a Logistics Company?

A logistics company is often referred to as a third-party fulfillment provider or logistics service provider. It plays a key role in managing a company's logistics, ensuring the right items arrive at the correct place on time and in a cost-effective manner.

International vs. Domestic Logistics

International logistics refers to managing the flow of materials and products when the process involves crossing international borders. Domestic logistics refers to the process when all stages occur within a single country. 

International logistics are typically more complex, often requiring several managers who specialize in different areas of the supply chain. Exceptional management and planning are needed to overcome potential challenges, such as speed and cost. Companies like Atlas International can help avoid delays from shipments getting stuck in cross-border inspections and navigate taxes and duties on imported goods and materials.

Key Components of Logistics

Logistics involves several components that work in tandem to ensure efficient movement across the supply chain. The primary components are transportation, warehousing and storage, inventory management, packaging and materials handling.

Transportation

Transportation helps products get where they need to go and involves deciding the best way to ship goods. International logistics often requires companies to choose between sea and air freight, and the right choice depends on the required speed and budget.

Intelligent route planning and optimizing average delivery time and on-time delivery rates can improve a company's bottom line.

Warehousing and Storage

Companies need somewhere to store products at various stages of the supply chain, such as in warehouses and storage facilities. Logistics management can help streamline the supply chain by optimizing warehouse layouts, such as putting bestselling items closer to the sorting or packing stations. 

Modern warehouses often turn to robotics for efficiency, as this technology can utilize path planning in real time and navigate warehouses to collect items for processing and transportation. 

Inventory Management

Inventory tracking involves monitoring inventory turnover to see which products are in demand and utilizing sales data to accurately predict future demand.

Integrating inventory management software can help by reducing the likelihood of human error due to stock automation and gaining the potential to track items that come and go in real time.

Packaging and Material Handling

Optimizing packaging results in fewer materials used to ship products while enforcing sustainability. Properly packaging products can also help reduce how much space they take up in storage and during transportation.

Material handling devices play a critical role in this process. They assist with transporting goods from where they're stored to where they're packaged. Commonly used devices include forklifts, pallets, conveyance robots and conveyors.

Why Logistics Matters

Ultimately, logistics make a major economic impact globally. When logistics run efficiently, they can contribute to national and global economic growth. In 2023, the global logistics industry had a market size of around $8.96 trillion, and current projections expect it to reach more than $15 trillion by 2028.

By streamlining logistics, individual businesses may also see a significant return. Effective logistics allows businesses to fulfill their contracts and ensure timely deliveries with minimal delays or added costs. This contributes to customer satisfaction while creating a competitive advantage as more people become loyal customers. 

Types of Logistics

Logistics is divided into several categories to describe specific focuses within the supply chain.

Inbound Logistics

Inbound logistics involves any transportation of goods or materials into a supply chain. It's how companies obtain the materials necessary to manufacture goods. Any process requiring supplies to be brought from a supplier to a company's storage facilities is inbound logistics.

This process may vary depending on the industry. For example, in manufacturing, it involves gathering all necessary materials to create a final product. A retailer's inbound logistics manages merchandise that will be sold on store shelves.

Outbound Logistics

Outbound logistics refers to moving completed products out of a supply chain by filling orders and delivering items to customers. It covers picking and packing products, shipping them and finalizing delivery. It can also include customer service and troubleshooting after delivery.

If there's something wrong with a company's outbound logistics, customer satisfaction may take a hit. Deliveries may be delayed, get damaged or never arrive.

Reverse Logistics

Sometimes, items are sent back to distributors. This may happen in cases where an item is defective or doesn't sell. Reverse logistics manages products or resources that come back from the final consumer to the supply chain. Sometimes, these items can be recovered or repaired and resold. When this isn't possible, they must be recycled or discarded. 

In a circular economy, reverse logistics boosts sustainability by removing goods that would otherwise sit in a landfill and allowing them to be repurposed, refurbished or recycled. For example, many cell phone providers offer trade-in programs. People send in their old phones to be recycled or refurbished and receive a credit on their next phone. This process is managed with reverse logistics.

Third-Party Logistics (3PL)

Third-party logistics refers to outsourcing logistics to a third-party business. A 3PL company takes control of the hiring company's supply chain functions, such as inventory management or warehousing. For example, an online retailer may partner with a fulfillment center to manage inventory, packing and shipping items for delivery.

Using 3PL providers can bring significant advantages, including:

• Scalability: 3PL warehouses can accommodate a wide range of storage space needs, allowing for easy scaling without searching for new storage solutions. 
• Easy management for fluctuating demand: Rather than hiring a team to keep up with holiday demands and subsequently letting employees go when demand falls, a 3PL business handles this. The 3PL can increase staffing or overtime hours as needed. 
• Cost savings: Due to the economy of scale, many 3PLs can negotiate better rates with carriers or service providers, resulting in savings across the supply chain.
• Expanded distribution: Large 3PL companies often have dozens of locations, contributing to the potential for larger distribution ranges.
• Reverse logistics and returns processing: Many 3PLs also handle returns processing and reverse logistics for e-commerce businesses. This can include covering return processing, merchandise disposal, repairing and testing electronics and repackaging items for resale.

Technology in Logistics

Technology is partly responsible for the massive global scaling of logistics and supply chains. Digital technologies, such as AI and IoT, can eliminate the need for extensive human labor by managing inventories and tracking transportation in real time. These technologies can also improve route and delivery management, calculating the most efficient delivery methods. 

Integrating blockchain technology can also improve logistics by creating a secure way to share and synchronize critical data. A blockchain is essentially a large, decentralized ledger used to record transactions and data in a way that prevents it from being altered. Because overwriting past data requires all subsequent blocks and shared copies of the blockchain to also be edited, this technology can reduce problems with coordination and traceability.

Technological advances have also streamlined data analytics, a crucial aspect of any business. Decision-making and forecasting demand require extensive analytics. With modern technological improvements, real-time tracking and visibility drastically simplify this process.

Challenges and Future Trends in Logistics

Although logistics are projected to skyrocket globally, the industry still faces challenges. Capacity constraints and labor shortages can create bottlenecks in the supply chain, resulting in delays, inventory shortages and potential lost sales. To some extent, this can be mitigated with automation.

Sustainability concerns remain a key challenge, especially as people embrace green companies and products. Certain trends are projected to thrive in response to these challenges and concerns. For example, autonomous vehicles and drone deliveries can offset labor shortages by minimizing the human element. Opting for green logistics can reduce a company's carbon footprint and increase customer satisfaction. Electric vehicle fleets, for example, can reduce operating costs by eliminating the need for gas and oil changes. 

Understanding Logistics Is Key to Your Business' Success

Logistics are necessary for business success. They ensure your supply chain functions optimally and boost customer satisfaction. While some companies opt to manage their logistics, many turn to 3PL solutions instead so they can focus on other aspects of their business. 

Atlas International reaches beyond relocation to provide comprehensive 3PL solutions, including delivery, transportation and warehousing operations. Our robust freight brokerage and 3PL division and Atlas Specialized Transportation create extensive transportation management options for leading retailers. Ready to learn more about our logistics services? Request a free quote online, contact us at 800-446-2079 or supplychain@atlaslogistics.com for a free consultation and assessment.