Achieving a balance between five parameters of procurement i.e. Right Quality, Right Quantity, Right Price, Right Time & Place and Right Source is very important for an efficient procurement process. Before talking about inbound and outbound logistics, let us first understand what is logistics and the difference between procurement and logistics.
Index
Logistics
Logistics is the practical management of the supply of materials, which mainly ensures the ‘Right Time and Place’ and ‘Right Quantity’. In a supply chain, logistics binds successive supplier and customers together. Procurement and logistics are two aspects of the supply chain. Procurement deals with the procedural part of the supply chain while the logistics in mainly concerned with the physical and material aspects of acquisition of external resources. In procurement process, flow and management of information and documents takes place while in logistics the flow and storage of materials takes place.
The term logistics originated in Military in the late eighteenth century where it was used in the context of ‘all that is required to support military operations. Going with the same sense ‘all that is required to support operations’ the term ‘logistics’ was widely used in business environment.
The ‘Council of Supply Chain Management Professionals’ defines the logistics as follows:
“Logistics is that part of Supply Chain Process that plans, implements and controls the efficient flow and storage of goods, services and related information from point of origin to point of consumption in order to meet customer requirements.”
Logistics is broadly divided into two categories, ‘Inbound Logistics’ and ‘Outbound Logistics’. Inbound logistics brings flow of materials and services into the business while outbound logistics is concerned with flow of goods and services out to customers. Inbound logistics costs are generally less than the outbound logistics costs because inbound logistics deals with bulk packages, while outbound logistics deals with smaller packaging. A balance between inbound and outbound logistics is necessary to maintain operations of the organization.
Comparison between Inbound and Outbound Logistics
Both the inbound and outbound logistics have basic functions which has to be managed effectively for successful operation of the business. The functions of both types of logistics are given below:
Functions of Inbound Logistics
(a) Forecasting
Demand forecasting is a method to predict future customer demand of goods to optimize supply decisions by business organizations. There are basically two types of demand forecasting methods. Qualitative and quantitative methods. Qualitative methods basically use expert opinion and other field information to forecast demand while the quantitative methods are mainly based on historical sales data. Demand forecasting is useful in production planning, inventory management, assessing future capacity requirements and making business decisions for entering new markets, etc. Click here to know more about demand forecasting in details.
(b) Procurement
Procurement is the process of obtaining the goods and services from the external sources for the needs of the organization. It includes the activities like need identification, determining the specifications, preparation of procurement document like RFP, RFQ, etc., obtaining proposals from suppliers, evaluation and selection of suppliers, contract negotiation, contract award and contract signing.
(c) Receiving
Receiving is the handling of arrival of new materials, unloading them and arranging them in safe place.
(d) Storing and warehousing
Storage is the management of materials at a safe place before they go out for manufacturing in the manufacturing plant. This process ensures that the materials are kept in a logical manner and the appropriate storage conditions are met.
(c) Inventory Management
Inventory management is the process of ordering, storing, using and dispatching a company’s inventory. This includes the management, warehousing and processing of raw materials and other items. Inventory management objectives include inventory and order accuracy as well as maintaining product quality by preventing damage, theft, obsolescence or spoilage.
(d) Reverse Logistics
Reverse logistics is the process of bring the finish products back to the company from customers due to defects, delivery problems, repair and refurbishment. The recycling firms that process used materials for recycling also obtain their supply through logistics.
(e) Transportation
The transfer of goods and materials from one place to another through different means is called transportation. It is an integral part of inbound logistics because the raw material has to be carried to the stores, warehouses and manufacturing plants for manufacturing of finished products.
Functions of Outbound Logistics
(a) Order Fulfilment
The manner in which the orders are fulfilled is an important part of the distribution network. Prompt order fulfilment is necessary for customer satisfaction. The various order fulfilment channels used are named as below:
- Integrated fulfilment
- Dedicated fulfilment
- Outsourced fulfilment
- Store fulfilment
- Flow- through fulfilment
- Drop- shipped fulfilment
- Vendor Managed Inventory (VMI)
(b) Inventory Management
As discussed above, inventory management is the process of ordering, storing, using and dispatching a company’s inventory. This includes the management, warehousing and processing of raw materials and finished products. Inventory management objectives include inventory and order accuracy as well as maintaining product quality by preventing damage, theft, obsolescence or spoilage. It is an important function of outbound logistics since the finished products have to be handled and stored before dispatching them to the customers.
(c) Warehousing
A company always have some goods or materials on hand to keep them safe before further process. In outbound logistics the finished products have to be kept securely in right conditions before dispatching them out to customers. Inbound and outbound logistics overlap in warehouse management. It is an integral part of both logistics. In inbound logistics, raw materials are stored in warehouses and in outbound logistics, finished products use warehouses for their safety and storage.
(d) Transportation
Transportation is the movement of goods form one stage of supply chain to another. The efficiency and responsiveness of transport system has a great impact on the overall supply chain performance, especially in global supply chains. In outbound logistics the finished products have to carried to different distribution channels like wholesaler, retailer, stores etc. through different modes of transportation, therefore it is an important function of outbound logistics. The different modes of transport include, road, rail, water and air transport. The selection of mode of transport is dependent upon cost and delivery schedule. There is always a trade- off between responsiveness and cost based on the market conditions of the product, therefore, the transportation model is carefully designed for effective performance of a supply chain.
(e) Industrial Packaging
Packaging plays an important role in the flow of finished goods from the supplier to the distribution network and the customer locations. Packaging fulfils the following needs:
(i) Protection
Packaging ensures protection of goods against damage, breakages and losses due to weather or pilferage during transportation, handling, storage and delivery.
(ii) Optimum utilization of volumetric/ weight capacity
Packaging allows goods to be staked, which helps ensure optimum utilization of volumetric and weight capacity of transportation mode, storage facilities and material handling equipment.
(iii) Efficiency in handling
A proper packaging enables faster handling and saving of labor and time.
(iv) Identification
Each package usually contains batch or identification number of the product. Therefore, the packaging helps in identification of consignment for transportation, storage and handling, if it is labelled properly.
(f) Delivery
On time delivery is critical for the effectiveness of the supply chain. The finished products have to be delivered promptly to the customers. It not only enhances customer satisfaction but also saves time. Moreover, the customer’s order must have the corrects items and quantity. The delivery function handles all these issues.
The ways finished product reaches the customer, called distribution channels, affects how the company organize outbound logistics. Distribution channels can be broadly categorized into direct (when you sell directly to your customers) and indirect (when you sell through an intermediary such as a wholesaler or retailer). When choosing distribution channels, various factors like logistics complexity, cost, speed, quality, customer satisfaction and control are considered.
Key Takeaway
(1) Achieving a balance between five parameters of procurement i.e. Right Quality, Right Quantity, Right Price, Right Time & Place and Right Source is very important for an efficient procurement process.
(2) Logistics is the practical management of the supply of materials, which mainly ensures the ‘Right Time and Place’ and ‘Right Quantity’.
(3) Inbound logistics brings flow of materials and services into the business while outbound logistics is concerned with flow of goods and services out to customers.
(4) Inbound logistics costs are generally less than the outbound logistics costs because inbound logistics deals with bulk packages, while outbound logistics deals with smaller packaging.
(5) Functions of inbound logistics are forecasting, procurement, receiving, warehousing, inventory management, reverse logistics and transportation.
(6) Functions of outbound logistics are order fulfilment, inventory management, warehousing, transportation, industrial packaging and delivery.
