Inbound and Outbound Logistics Why

Inbound and Outbound Logistics

Why is managing inbound logistics important to an organization?

Inbound logistics is a vital part of any business, and relates closely to its outbound logistics and ultimate profit margin. Inbound logistics refer to all issues surrounding the inventory that a company purchases and stores on its premises until the point of sale. There are many associated issues that are important in this regard.

It is for example important to have a well-organized inbound logistics system. If the system is not organized, it means that the customer perceives the business as ineffective in meeting his or her demand for a timely product or service. In order to operate in a smooth and seamless manner therefore, inbound logistics serves as the basis for smooth outbound logistics. The latter in turn translates to a favorable customer experience and a favorable outlook for the company.

In short, inbound logistics is therefore of vital importance to an organization, as it serves as a basis for the company's image in the mind of the customer. Disorganized and ineffective inbound logistics means that the company has not provisional basis from which to provide its customers with effective and timely goods or services. The connection between inbound and outbound logistics is therefore vital in order to maintain a favorable business paradigm and provide services and goods that customers will return for.

Q2. What is the relationship between operations and purchasing, and how does it affect inbound logistics?

The purchasing department of a company operates on several levels. It purchases goods for the purpose of inventory, and also for the company's particular operations needs. Operations and purchasing are then closely linked to each other, and need to be considered in concomitance with inbound logistics in order to function effectively.

In terms inventory, the purchase department has a set requirement for the amount of inbound materials to be received. These should correlate with the amount of outbound materials within any given time in order to ensure the maximum profit margin and the minimum wastage. This is particularly so in terms of bulk inbound logistics of consumable and degradable products. The outbound logistics of these is dependent upon a time constraint in order to prevent a health hazard to customers or employees. Inbound logistics and outbound logistics should therefore be carefully correlated in order to mitigate this constraint. This is subject to careful investigation and analysis.

In inbound logistics, several factors play a role in operations. There is a significant conflict between the just-in-time manufacturing and inbound logistics and transportation needs. Just-in-time manufacturing means low inventory, low shipment sizes, and higher frequency of goods delivered in outbound logistics. This however means a higher inbound transportation cost, as goods are not bought in bulk. Some types of business however prefer a higher visibility of goods, which entails lower transportation and overall storage costs. The choice of balance between the two should be the result of careful analysis in order to achieve cost optimization.

Because inbound logistics can become very complicated and interfere with optimal operations, some companies prefer to outsource their non-core functions to third-party logistics services providers. These providers then focus upon analyzing the supply and demand flows within the industry. Warehousing and lead times can then be optimized according to predictions resulting from these analysis.

IT systems are often used to help with this by analyzing information sets and yielding optimal inbound logistics programs. By using these systems, third party logistics suppliers then save time and money by consolidating and analyzing all the fragmented information available for inbound logistics. In this way, an optimal lead time is combined with optimal storage options. The main purpose of inbound logistics programs is then optimization in terms of costs and time. In terms of specific costs, frequency and lot size decisions are based upon a comparison of inventory vs. transaction costs. These are then added to basic unit costs, which yields a cost of a unit until its point of sale.

Q3. How does outbound logistics contribute to an organization's "bottom line"?

While inbound logistics have not enjoyed optimal focus within general business paradigms, outbound logistics are generally accepted as the lifeblood of the Supply Chain organization. The reason for this is perhaps that it relates much more directly to the bottom line than inbound logistics. Outbound logistics moves inventory towards the customer, who moves revenue directly to the supplier.