Logistics has three types; inbound, outbound, and reverse logistics.
As the name suggests, inbound logistics is concerned with activities related to the incoming flow of resources needed to make a product or a service. Inbound logistics processes may include managing suppliers, costs, inventory, and transportation to ensure the right components or subassemblies arrive in your factory on time. Inbound logistics is generally complex because hundreds of parts are coming in to manufacture one final product, therefore, it tends to be more intricate than outbound flow.
Procurement is the major element in inbound logistics as it deals with sourcing and transporting raw materials from the supplier to buyer’s factory.
The size and nature of procurement affects inbound logistics in many ways. For example, a company who purchase simple items such as office supplies does not require much resources to manage its inbound logistics. While a firm who buys machineries or perishable goods from overseas would have a complex inbound logistics as products need to be handled, stored, and transported according to required handling, packaging, or temperature.
Figure 15. The inbound logistics activities.
There are risks associated with inbound logistics. In 2020, the coronavirus pandemic that starts out of China has severely disrupted the global supply chains. As lockdowns have implemented in most countries to contain the outbreak, travel and manufacturing activities have shutdown causing so much constraint in moving products freely in the global supply chain. Companies ordering raw materials from other countries had encountered production and shipment delays.
To reduce risks and improve your inbound logistics, it is best to;
1. Conduct a supply chain mapping
– Identify and map out your material sources. Where did they come from?
– Use a spreadsheet or software to model your map for complete full supply chain visibility
2. Find alternative sources
– Research potential suppliers from other locations. Leverage the data gathered in the supply chain mapping.
– Match your requirements with the potential suppliers to ensure the vendor meets your supply chain needs.
3. Determine challenges and opportunities
– Determine potential risks each supplier and supplier’s suppliers (tier 1, 2, 3) are exposed to
– Identify constraints – long lead time, regulatory, supplier responsiveness, capability, etc.
– Develop plans to address constraints (e.g. find alternatives to reduce lead time and cost)
– Discover potential suppliers you think can support your requirements
– Engage direct or indirect suppliers for improvement efforts
4. Strategic distribution location for inbound shipments
– Locate distribution center close to shipping ports
– Locate distribution center close to manufacturing sites
5. Consolidate shipments
– Integrate operations requirements/production schedule with distribution center to avoid frequent or expedited delivery
– Use FCL wherever possible. Combine items in a single shipment
6. Consider working with third-party logistics (3PL) providers
– 3PL companies are expert in the local market, identifying capacity constraints, and regulations
– Buyer can focus on core business competencies
– 3PL reduces costs in inventory, transportation, and warehousing
Outbound logistics refers to activities in delivering the right product at the right time to customers at a minimum cost. Customer satisfaction is the primary objective of outbound logistics, that is why many organizations especially e-commerce companies are competing for last-mile or same-day delivery to their customers. Companies bring out their value proposition to their customers and back it up with their outbound logistics capability.
Distribution system plays a critical role in outbound logistics. The distribution channels and transportation system should support the value the company is trying to provide to customers (e.g. quick response to the customer, customer service level, etc.). The prevalence of e-commerce in the retail industry intensifies the need for an optimized outbound logistics flow. Retail e-commerce sector operates heavily in outbound logistics than any other industries. Look at Amazon, Walmart, and Lazada, they take bold steps innovating technologies and building facilities to accelerate their logistics performance.
Figure 16. The outbound logistics flow.
Reverse logistics is the process of moving products from end-user back to the origin to recover value or for proper disposal. The value is recaptured from products recovered from customers through rework, refurbishment, reuse, scrap recycling, or government incentives for recyclable products.
A refurbished iPhone is a good example of reverse logistics. If an iPhone sold to the customer is found defective within the warranty period, the customer returns it to the carrier network and then send it back to the Apple factory for refurbishing. Apple inspects the iPhone to determine the issue and replace it with new parts or software. A new iPhone is then labeled with a new serial or model number for reselling. A refurbished iPhone is re-sold to the customer, thus, creating value to Apple.
Product returns come in different forms including the commercial return, recall, refurbishment, or product’s end-of-life. Companies must have systems and infrastructure in handling returns to minimize recovery costs, increase recaptured value, and increase visibility. In e-commerce retail industry, the rising return rates make retailers suffer from costs associated with returns because customers get refunded for returned products (especially seasonal goods) that cannot be resold at the original price due to wear and tear, obsolescence, or damage. Implementing a return policy can mitigate reverse logistics costs as it controls and limits customers from returning goods.