In today’s business environment, logistics is seen as a key strategic element with the potential of bringing a lot of value to the service quality provided to customers. At the same time, organizations that invest in their inbound and outbound logistics processes will often experience cost savings, boost productivity, improve their brand reputation, and gain a competitive advantage, among several other such benefits.
In fact, 79% of organizations with high-performing supply chains consistently achieve superior growth to that of their industry’s average. Comparatively, only about 8% of businesses with less well-optimized supply chains report above-average growth. It’s also important to mention that the reason why around half of all businesses, regardless of size or industry, close down within the first five years of their activity can be attributed, at least in part, to their poor supply chain performance.
However, simply wishing to optimize the supply chain and actually achieving it are not the same thing. It’s also fairly common for organizations to associate the logistics activities that go into the supply chain with the transportation of goods to customers. However, for the supply chain to function properly, there are several other processes that go beyond just the final delivery of products. For that reason, we need to understand the difference between Logistics and Supply Chain Management, as well as understand the concepts of inbound and outbound logistics.
Logistics vs. Supply Chain Management
Even though supply chain management makes up a considerable share of a company’s costs, it’s one of the most poorly understood elements of doing business. It’s for this reason that the logistics and supply chain processes are often haphazardly designed. It also doesn’t help that many use the two terms interchangeably, when, in fact, they tackle different things.
While inbound logistics and outbound logistics processes include the steps necessary to move products and/or raw materials from one point to another, supply chain management covers everything involved in getting the product to the customer. To put it somewhat differently, logistics handles the details, while supply chain management handles the bigger picture. Therefore, supply chain management is strategic while logistics is the practical implementation of that strategy.
Logistics also considers the movement of goods within one company, whereas supply chain management covers the movement of goods and materials through all stakeholders within the value chain. As such, Logistics handles processes such as inbound and outbound managed transportation, fleet management, warehouse, material handling, order fulfillment, demand planning, and inventory management. Supply chain management, on the other hand, is about the larger planning, sourcing, inventory, production, location, transportation, and return of goods strategies.
The Importance of Supply Chain Management
While in the past, logistics and supply chain management didn’t earn as much attention as other business activities like marketing, sales, or research and development, in more recent years it attracted much more needed attention. Optimized supply chain management and logistics are important for the functions of a business because:
- It ensures that customers will receive their orders
- It increases profits through streamlined operations
- It boosts customer satisfaction and loyalty through accurate and on-time deliveries
- It increases the chance of repeat customers
The Differences Between Inbound vs. Outbound Logistics
There are many business functions that fall under the umbrella term of logistics. These include things such as warehousing, fleet management, and materials management, among others. However, the concept of logistics can largely be divided into inbound and outbound logistics processes.
Put simply, inbound logistics management deals with the delivery of raw materials or finished product coming into the warehouse. This also includes the relationships built and maintained between the warehouse and its suppliers. The outbound processes, on the other hand, refer to the transport of goods from the warehouse. This also implies the relationship and services provided to the customers.
Both inbound and outbound logistics processes are important in a supply chain management strategy. So, while the inbound logistics process might include things such as raw materials, vehicles, and tools, outbound logistics is mainly concerned with preparing and delivering products to customers.
Optimizing the Inbound Logistics Process
When it comes to reducing transportation costs, experts call the inbound logistics process “the final frontier.” That said, streamlining this process is often easier said than done and will require some degree of effort and coordination between warehouse operators and supply chain managers. At the highest levels of inbound logistics, the main activities include the following:
● Building Strong and Strategic Relationships with Suppliers
You’ll need to start by discovering your optimal supply route and collaborate with your suppliers to work out a mutually-beneficial implementation of it. Establish an inbound routing guide, which will need to include things such as modes and carriers to use in certain lanes, along with service and rate requirements. These guides can either be physical or online, but digital routing guides are recommended. These can be adapted to changes in the shipping landscape during times such as rate fluctuations. By implementing an inbound routing guide, you can minimize suppliers’ extra expenses. For example, you can introduce rate benchmarks and eliminate the use of non-authorized carriers.
● Developing Vendor Inbound Compliance Standards (VICS)
Some suppliers’ behavior, such as late deliveries, damaged products, no prior notifications, etc., can hinder your ability to maintain a streamlined and efficient supply chain. To prevent these types of issues from happening, it’s a good idea to develop a Vendor Inbound Compliance Standards (VICS) and have your suppliers agree to it before working with your organization.
However, a VICS program shouldn’t be implemented as a means of “punishing” suppliers or demanding delivery improvements. That’s not how you develop and maintain a mutually-beneficial relationship. Instead, the VICS program is a series of goal-posts that are clearly outlined and can be tangibly measured. Everyone involved will be aware of the expectations and violations that need to be clearly outlined from the very beginning. By using some simple analytics, it will become easy to identify any areas that may need improvement. By following these procedures in a collaborative manner, both you and your suppliers will stand to gain. In short, the VICS will help streamline processes on both sides of the dock, providing consistency on both inbound deliveries and internal activities in an equal amount.
● Using a Transportation Management System (TMS)
Many companies accept the freight costs their vendors ask for because of a lack of market rate visibility. With a transportation management system, however, businesses will have access to dynamic rates based on current market conditions. You will be able to use this information about routes and carriers to set real-time vendor allowances. In doing so, you will get the best available freight rates and keep your costs at a minimum.
● Consolidating Inbound Freight Deliveries
Less-than-truckload (LTL) shipments are not always the most efficient delivery methods and can lead to extra costs in terms of both shipping and unloading. In fact, when a company unloads between 10 to 14 LTL shipments, it will spend five times as much than when it’s unloading a single truckload. So, when you’re consolidating your LTL shipments into full truckloads, you will be saving money. However, there are several logistics considerations to take into account when looking to implement this strategy.
These will include things such as specific shipping and handling requirements, shipment weights, truck and driver availability, fuel costs, departure and arrival times, shipping and handling requirements, etc. It’s not always possible for some companies to implement a full truckload transportation strategy on their own. In that case, they could use the services of a professional third-party logistics provider (3PL).
Optimizing the Outbound Logistics Process
If optimizing inbound processes is largely about having strong and effective relationships with your vendors and suppliers, then outbound logistics is about improving your relationship with your own customers. At first glance, this process may seem simpler than inbound logistics. Yet, there are several key elements that need to be carefully taken into consideration in outbound logistics. These include things such as warehousing inventory, order processing, picking and packing products, delivering goods to customers, and, if applicable, working with third-party logistics providers. Whatever the case, using a warehouse management system (WMS).
● Negotiate Your Rates with Your Carriers
If you decide to work with a third-party carrier, it would be in your interest to negotiate your freight rates. There are several areas of a shipping agreement that you can negotiate. Start by reviewing all the aspects of your current shipping agreement, such as surcharges or next-day air rates. Look through your data and discover where you are spending the most. Once you have a better understanding of your shipping activity and business needs, you can negotiate on volume discounts or start a Request For Proposal (RFP) process to solicit the best offers from multiple carriers.
● Lower Your Inventory Costs
Managing your inventory costs will also help keep your warehouse costs down. Since the outbound side of logistics is about getting products to customers on time, one of the main ways of doing this is by ensuring you can quickly respond to demand fluctuations. You can do this by ordering some extra stock and having it on hand in case you need it. However, such redundancy stock will tend to increase your outbound logistics costs. You’ll have to inspect and count inventory, pay employees to do these tasks, pay premiums on insurance, rent more space, and more. You should consider it as a temporary and costly solution. To reduce costs, you should consider using a WMS system and/or focus on improving your warehouse’s flexibility.
● Implement Cross-Docking
Cross-docking is an effective way of limiting the time goods spend in your warehouse. Employees will sort through incoming goods before transferring them to an outbound truck. While cross-docking may not be sustainable for every type of business, it’s still an effective method of minimizing warehouse space and material handling.
This method is also good for increasing product quality, reducing the overall number of product returns, and increasing customer satisfaction. When at the staging process, when products are temporarily kept on the dock just before shipping, warehouse workers can do a quick inspection and remove damaged goods that are to be shipped.
The Benefits of Integrating Your Supply Chain Management Strategy
Every company’s supply chain extends beyond its own facility. It’s made up of a multitude of factories, suppliers, distribution centers, retailers, and warehouses. Raw materials move through the supply chain where they are processed, stored as finished goods, and shipped to end-customers. Traditionally, supply chains operated in silos, and many still do so today. Yet, in such an unintegrated supply chain model, every logistics function operates in isolation and with its own goals in mind.
An integrated supply chain strategy, on the other hand, will not work as a disjointed set of distinct businesses, each with its own separate objectives. Instead, such a strategy will look to centralize its processes, where all managers build relationships with their partners, and all activities flow through a single system. This way, the overall supply chain will become more efficient and less expensive for all parties involved.
Nevertheless, it’s not always easy to build up the necessary technology infrastructure or convince all supply chain partners to join. In some cases, companies will adopt a vertical integration system into their supply chain. So, instead of relying on others for certain areas of the supply chain, they start different businesses specifically designed to fill those specific functions. This strategy does help reduce the dependence on suppliers but will come at a cost.
Regardless, inbound and outbound logistics are key components in a company’s overall supply chain effectiveness. Having a strong inbound logistics process means that companies will be working with the most professional suppliers available, while an effective outbound strategy will ensure that customers are satisfied with your services.
To summarize, you should keep a watchful eye on your workflows and look to develop standardized operating procedures as a means of increasing efficiencies. Look to implement technologies, such as the aforementioned TMS and WMS systems, to gain visibility of the entire supply chain and prioritize your supply chain management to make it work for and not against your business.
If you need help with your inbound and outbound logistics processes, as well as your supply chain management strategy, Redbird Logistic Services can help!! Contact us today and work with a professional 3PL logistics provider!