Logistics is a crucial aspect of supply chain management that involves the planning, implementation, and control of the flow and storage of goods, services, and related information from point of origin to point of consumption. Components of logistics and logistics management, therefore, play a pivotal role in optimizing processes in business and involve strategic decision-making and coordination between other functions of the supply chain ecosystem.
There are several essential components of logistics management to run the supply chain efficiently and scale up your organization. Optimizing the operations is important for the cost-controlled running of logistics processes. Therefore, it has become imperative for business owners to analyze the major components of logistics as it magnifies the processes and ensures customer satisfaction.
The five major components of logistics are mentioned below:
Index
Transportation
Transportation includes the physical movement of goods from one location to another. It can involve different modes of transportation, such as trucks, ships, airplanes, and trains. This includes moving goods from suppliers to manufacturers, from manufacturers to distributors, and from distributors to retailers or end consumers. This is often the biggest cost component, typically ranging from 60% to 65% of total logistics costs.
Example: A company like FedEx or UPS uses various modes of transportation such as trucks, airplanes, and ships to deliver packages and parcels to customers worldwide.
Warehousing
This involves storing goods in a safe and secure location until they are needed. Warehouses can be strategically located near transportation hubs or customer markets. Storing goods in strategically located warehouses to facilitate timely delivery and efficient inventory management. Out of total logistics cost, warehousing cost ranges between 15 to 20 percent.
Example: Amazon operates a network of fulfillment centers where products are stored and shipped to customers based on their location, ensuring fast and reliable delivery.
Inventory Management
Inventory levels are checked regularly by the companies to monitor the flow of goods in and out of a warehouse. It evaluates and identifies how much stock to order at what time and where it should be stored. Inventory management cost typically ranges from 5% to 10% of total logistics costs. Optimizing inventory levels to meet customer demand while minimizing holding costs and stockouts.
Example: Walmart utilizes sophisticated inventory management systems to track sales data in real-time, enabling them to replenish stock efficiently and avoid overstocking or understocking products.
Order Processing
Order processing means managing and fulfilling customer orders. This process can include verifying customer information, authorizing payment, preparing goods for shipment, and tracking the order once it has been shipped. Order processing also involves keeping track of inventory levels, stock availability, and order status. Inventory management cost typically ranges from 2% to 5% of total logistics costs
Example: Online retailers like Alibaba’s Tmall or Amazon employ automated order processing systems that handle large volumes of orders swiftly, ensuring timely shipment to customers.
Packaging
Packaging for food helps in the protection of the product from tampering, contamination and damage. Packaging serves two main purposes. It protects the item from damage, deterioration, and tampering or pilferage. Proper packaging ensures that external factors such as extreme temperatures, moisture, light, etc. do not affect the contents of the packages inside. Protecting goods during transportation and storage while also enhancing the product’s appeal to consumers. Packaging cost typically ranges from 5% to 10% of total logistics costs.
Example: Coca-Cola uses durable and visually appealing packaging for its beverages, ensuring that they remain intact during transit and attract customers to store shelves.
Conclusion
The components of logistics management work collaboratively to ensure that goods flow seamlessly between the different stakeholders and functions. Analyzing and understanding the five components of logistics management thoroughly is a constructive business practice as advances continue to shape the components of logistics management, change the industry, and improve the technologies. These components if managed appropriately enable businesses to reduce costs, meet demand, and optimize resources.
Also read: Open Network for Digital Commerce (ONDC) and Its Supply Chain Management: An Overview
