Published: 2 December 2023
Contributors: Amanda McGrath, Alexandra Jonker
Supply chain logistics refers to the management of the production, transportation and distribution of goods throughout a business’ overall supply chain. It encompasses both inbound logistics (how materials and supplies are brought into a business) and outbound logistics (how the business’ resulting products get to retailers and consumers).
Supply chain logistics plays a vital role in the smooth functioning of businesses and the global economy, supporting the flow of goods worldwide. Implementing effective logistics can help companies build resilience amid global volatility and gain a competitive advantage.
Logistics management involves coordinating activities tied to the sourcing, procurement and movement of raw materials to factories; transforming these materials into finished products; and delivering products to retailers and customers. It includes a range of issues, such as inventory management, warehousing, transportation and distribution, in addition to customer service and returns management.
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Logistics is critical to getting goods to consumers as quickly and easily as possible. Effective supply chain logistics management helps reduce costs and improve operational efficiency across business processes. By optimizing each part of the supply chain, including demand planning, transportation routes, inventory levels and lead times, companies can save money and time.
Logistics can also help maintain customer satisfaction by ensuring customers receive their orders when and where they expect them. Together, these benefits can help drive a competitive advantage. Well-managed logistics allow companies to respond quickly to market changes, offer better delivery terms and address disruption in the most cost-effective ways.
A well-managed supply chain network benefits businesses, consumers and other stakeholders. For customers, efficient logistics means timely deliveries and accurate order fulfillment, all leading to a positive shopping experience. Customers also benefit from well managed “reverse logistics," or the movement of goods from customers back to their point of origin, either as retail returns or for recycling and disposal.
Well-managed logistics can also be a boon to retailers and wholesalers. Efficient inventory management reduces holding costs and effective transportation management cuts shipping expenses, improving overall profitability.
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Supply chain management (SCM) is a broader term that includes supply chain logistics as one of its elements. SCM involves overseeing the entire lifecycle of a product throughout the supply chain process, from the initial sourcing of materials to the final delivery of finished goods to consumers. It goes beyond logistical activities to include procurement strategy, product development, production management and demand forecasting.
As a part of SCM, supply chain risk management (SCRM) is the process of finding and addressing potential vulnerabilities in a company’s supply chain. SCRM aims to minimize the impact of these risks on a company's supply chain operations, its reputation and financial performance.
Many companies are looking for ways to better secure the movement of goods across the global supply chain to ensure resiliency amid disruption. But from production planning to the storage of goods to resolving problems for end customers, logistics is a complex feat.
Coordinating supply chain management activities across multiple suppliers, manufacturers and transportation providers working in different regions adds complexity to planning and organization. Additionally, customer demand is ever-changing, which means to adapt to rapidly changing market trends and customer needs can be difficult. Identifying and mitigating risks, including supplier reliability, transportation disruptions and geopolitical factors, leads to challenges.
Some companies use technology to help with the challenges of supply chain management. Advanced technologies offer new and powerful ways to work with supply chain analytics and improve supply chain visibility and transparency, including:
Sensors, GPS and Internet of Things (IoT) devices can provide a wealth of real-time information on the location and condition of goods at every stage of the supply chain. Supply chain data collected from various points can drive optimization by providing insights into operational efficiencies, potential risks and areas for improvement.
Automation technologies in warehouses, such as automated storage and retrieval systems (ASRS) and robotic picking systems, have significantly increased efficiency. They reduce manual labor, minimize errors and speed up the process of sorting, storing and retrieving goods. In transportation logistics, automated systems optimize load planning and vehicle scheduling, enhancing the efficiency of shipping operations.
As an immutable, accessible ledger, blockchain can enhance transparency and traceability across the supply chain, making it easier to verify the authenticity of products and track the movement of goods.
Artificial intelligence (AI) and machine learning (ML) algorithms can analyze vast amounts of data to identify the most efficient transportation routes, spotlight potential disruptions or inconsistencies and gain insight into environmental impact. Simulation software can help with modeling potential scenarios to predict risk and develop contingency plans, making logistics operations more proactive and less reactive.
Cloud computing can provide scalable solutions for data storage and sharing, information systems and other components that make it easier to collaborate and exchange information at every stage of the supply chain.
Several key roles contribute to the smooth operation of supply chain logistics. Logistics managers oversee logistics operations, including transportation and warehousing and help align decisions with broader company goals. Procurement specialists manage purchasing of raw materials and goods, while transportation operations managers and warehouse managers are responsible for maintaining efficiency in their respective areas.
Inventory planners maintain the right levels of stock and customer service representatives take order inquiries and manage returns or problems. Most supply chain professionals hold multiple roles1 in the span of their careers. For logistics-specific work, they often seek certificates or bachelor’s degrees that specialize in the field.
More companies are seeking ways to reduce their environmental impact, by limiting greenhouse gas emissions, pursuing decarbonization and setting net-zero goals. Supply chain sustainability plays a critical role in reaching these goals.
The Council of Supply Chain Management Professionals (CSCMP) defines supply chain sustainability as the management of environmental and social impacts within and across networks consisting of suppliers, manufacturers, distributors and customers in line with the UN Sustainable Development Goals.2 These efforts span every phase of the supply chain, from raw material sourcing and extraction to product use and the end of the product's life.
Effective logistics planning is an important part of supply chain sustainability. For example, optimizing transportation and distribution routes and using eco-friendly vehicles may help reduce fuel usage and overall emissions across the supply chain. Supply chain logistics can also help companies promote circular economy principles—by reducing waste and aiding recycling efforts—and identify areas for improvement in manufacturing processes.
Advanced technologies like AI and supply chain data analytics allow logistics teams to coordinate effective, responsive networks that adapt quickly to changes, avoiding overproduction and excess inventory that can undermine sustainability efforts. Through well-managed logistics, companies can operate through a more sustainable business model and contribute to a healthier planet.
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Footnotes
1Operations and supply chain management career paths and patterns (link resides outside ibm.com), Report for APICS, Association of Supply Chain Management, 2014.
2Defining supply chain sustainability (link resides outside ibm.com), State of Supply Chain Sustainability 2023, MIT Center for Transportation & Logistics and Council of Supply Chain Management Professionals, October 2023.