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Why logistics is an integral part of supply chain management

Jonas Mehrhoff
Jonas Mehrhoff
May 17, 2022
5 min read

Note on the authors

Heiner Murmann is the founder and CEO of Orkestra SCS, a logistics, technology and services company. In addition, Heiner serves as Executive Chairman for Evolution Time Critical and President of The Five Inc., and as an Advisory Board Member for both Metro Supply Chain Group and Black & McDonald Limited. Notably, Heiner previously held various senior executive roles at DB Schenker, one of the top three global logistics companies, as a Member of the Board of Management responsible for Air and Ocean Freight, and as CEO of the Region Americas.

Arnold da Silva, Senior Ocean Freight Advisor for Orkestra SCS, is head of an ocean freight consulting company where he actively advises global shippers on ocean freight strategy and execution. With 40 years of experience in the ocean freight industry, Arnold served as Executive Vice President for Ocean Freight Region Americas for DB Schenker. Arnold's passion is to conceptualize and implement innovative ocean freight solutions that transform one’s supply chain and promote a shipper's success.

What is logistics and supply chain management

Supply chain management is the holistic management of a company’s processes, ranging from sourcing of raw materials to final customer delivery. This includes oversight into the performance of all stakeholders, selection of the different tiers of suppliers, analysing and monitoring their performance, and interaction with service providers and other partners involved.

The role of logistics operations in supply chain

Logistics is an essential component of supply chain management that involves strategizing ways in which cargo moves from origin to destination using unimodal or multi-modal transport systems. Logistic components include planning, cost, management, and execution of transportation with constant integration of stakeholders and partners involved. It involves the coordination and monitoring of transportation, shipping, receiving, warehousing, inventory management and distribution. Logistics works as the blueprint required for the successful movement of products in a seamless and reliable manner.

Effective logistics management plays a critical role in influencing the movement of products to meet customer demand. By creating partnerships with ocean carriers, freight brokers, warehouse operators, haulers and other entities, logistics service providers can increase productivity in their services and in turn help the customer achieve cost reduction. Logistics service providers should combine this collaboration with real-time supply chain visibility platforms to help reduce costs and ensure on-time in-full delivery to customers.

As customers become more accustomed to a fast-paced lifestyle, their expectation of expedited processes creates pressure on the entire supply chain as it stands. Effective supply chain management requires the implementation of logistics strategies aimed at consistently improving delivery schedules. This allows decision-makers time to respond to disruptions along the chain. These strategies include the usage of visibility platforms that leverage advanced technologies including IoT, Big Data, predictive and cognitive analytics to the customer achieve customer satisfaction in supply chains. The underlying purpose of effective logistics performance is to gain a competitive advantage, increase overall productivity and ensure profitability in the company’s operation.

Logistics Supply Chain

Understanding logistics management

Effective logistics management is key in ensuring timely delivery, particularly now in light of the delays caused by ongoing congestion at ports, high container dwell times and increased cargo delivery lead times. To mitigate these risks in logistics operations, a few areas should be digitalised in order to achieve maximum output.

  • Warehouse automation
  • Inventory management using WMS rather than using outdated legacy ERP systems or manual spreadsheets
  • Deep track and trace at SKU level
  • Managing and tracking of purchase orders
  • Real-time visibility of truck movements and delay predictions
  • Fleet management including demand planning

By implementing the right logistics strategies, companies can achieve several benefits such as;

Adapting to Market Demands: Using various logistics planning scenarios, logistics managers can ensure timely response to changing market demands; in turn helping the company achieve an edge over their competition and ensure that their strategic objectives are met.

Cost Reduction: Increase in the overall value of each shipment leads to customer satisfaction- a key aspect in logistics management. By digitalising critical parts of the business and companies can manage and optimize labour and other resources to achieve required levels of customer satisfaction in supply chain.

Quality of Service: Logistics operations play a critical role in supply chain management as they directly affect the quality of service to the customer. The execution of logistics delivery can easily be tracked using IoT tracking devices coupled with the implementation of real-time visibility platforms.

Cargo Consolidation: Consolidating cargo volumes and reducing the cargo batch size can help control transportation costs, as these costs generally increase depending on the volume of the cargo and the distance traveled.

Infographic---Geography-of-Transport-Systems-769x875

There is a simple relationship between total logistics costs and two important cost components; transport and warehousing as shown above. Based upon the growth in the shipment size (economies of scale) or the number of warehouses (lower distances), a balancing act takes place between transport costs and warehousing (inventory carrying) costs.

Finding this balance is a common goal in logistical operations

- Geography of Transport Systems

Mitigating Risks: Through effective logistics and resource planning, both upstream and downstream, supply chain managers can minimize risks and the likelihood of cargo damage, assembly-line stoppages, and prompt delivery. Third-party services could eat into business profits and by minimising the need for third-party services to implement the supply chain strategies, logistics managers can ensure cost savings. Logistics managers should also make sure that all activities are covered by risk underwriters to avoid any unpredictable disruptions to the supply chain.

Key take-aways

The supply chain’s orchestration of production, shipment, warehousing and delivery of products make it a complex network. When companies look to expand their company, at domestic, regional, national or global level, logistics operations can assist in helping to reduce costs while ensuring the movement of goods from point to point.

Without effective logistics, supply chains cannot achieve business gains or advantage over competition. To meet customer demands and achieve an efficient, cost-effective, and sustainable supply chain; advanced logistics capabilities, lean management, and optimization is a must.

Digitalisation in logistics can help in assisting companies to scale their logistics operations, directly influencing growth in the supply chain from conception to final delivery. The value that logistics provides to supply chain and its management is undeniable as it helps companies to ensure a consistently high level of service to their customers while assisting in cost reduction throughout the value chain.

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Why logistics is an integral part of supply chain management

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