What is logistics?
Logistics describes the planning, management and control of information, material and goods flows in a company. The aim is to ensure smooth production and deliver products to customers on time.
Many people often only associate logistics with the coordination of forwarding agents and the loading of goods. In fact, its field of application is much broader: logistics begins with the ordering of materials, continues with the communication of information about goods inside and outside the company (e.g. delivery times, stock levels) and extends to the disposal of product returns and waste.
Logistics objectives
The core objective of logistics is to develop and optimize processes in such a way that the company ultimately delivers goods in a cost-efficient, timely and environmentally friendly manner.
Particular attention is paid to the management of material and inventory levels: bottlenecks must be avoided so that customers do not have to wait for products. At the same time, companies should avoid overfilled warehouses in order to reduce unnecessary costs for storage space.
In den letzten Jahren rückte die Resilienz der Supply Chain in den Fokus. Denn Kriege, Pandemie und Naturkatastrophen haben zu Ressourcenknappheit und Verzögerungen von Transporten geführt. Die Logistik muss heutzutage sicherstellen, dass Abläufe so flexibel sind, dass sie sich bei unvorhergesehenen Ereignissen schnell anpassen lassen und Kund*innen von Schwierigkeiten im besten Fall nicht berührt werden. Hier kommen digitale und zunehmend KI-basierte Systeme ins Spiel, die eine vorausschauende Planung vereinfachen.
Probably the best-known model that comprehensively describes the objectives of logistics is the “Seven Rights” model according to E. Grosvenor Plowman, known as the 7R model for short. Although it was developed back in the 1960s, it is still frequently quoted and used. At its core, it has lost none of its relevance.
The 7R model:
- Correct product: The exact product that meets the requirements is supplied.
- Correct quantity: Raw materials and products are available in the required quantity, without oversupply or undersupply.
- Correct condition: Materials and products reach the recipient in perfect condition and in the agreed quality.
- Correct location: The product is delivered to the intended destination.
- The right time: The delivery is on time. Reading tip: How to increase your adherence to delivery dates.
- Correct costs: The logistics processes are organized in a cost-optimized manner from procurement to delivery.
- Right customer: The product reaches the intended target person or organization.
Over the years, the model has been expanded by industry experts to take account of the changing requirements for transparency and sustainability. They have turned the 7Rs into an 8R or 9R model. The right process (8R), which ensures that processes are efficient and resource-saving, and the right information (9R) as the ninth factor are then also taken into account. This is because logistics must ensure that information is accessible and transparent along the supply chain.
Logistics tasks
The economy and its processes have changed dramatically since the years of the economic miracle and even since the turn of the millennium. These changes have also affected logistics, but some tasks remain at the heart of the discipline. They determine everyday working life, regardless of the sector or sub-discipline of logistics.
Transportation
Logistics plans and organizes the transport of goods between a starting point A to a destination B – cost-efficiently and at the agreed time.
While transportation describes the movement of goods from a starting point to a destination, delivery involves the distribution of smaller quantities of goods from a starting point to several destinations.
Storage
Another area of logistics deals with the storage of materials and products (warehouse logistics). The goods must be stored safely and within reach of the material before they are sent to the next process step. Logisticians must choose suitable storage environments, such as conventional warehouses, refrigerated or deep-freeze warehouses.
Find out more: How to optimize your inventory with ERP support
Picking and packing
Logistics specialists assemble goods for transportation according to a production or customer order. They then pack them professionally to protect them from damage during transportation, for example from temperature fluctuations, knocks and falls.
Goods handling
Goods are loaded, reloaded or unloaded at various points in the supply chain along the transportation route. The task of goods handling is to make this process from one logistics center to the next transport as efficient and clear as possible.
Distribution
Distribution organizes the flow of goods to the end customer. While transport concentrates on the operational implementation of the delivery, strategic decisions are the focus here. Which delivery routes, means of transport and logistics partners does a company choose in order to best meet customer expectations? The answers must be found by those responsible in distribution.
Sub-areas of logistics
The tasks of logistics arise in different contexts. Business management therefore distinguishes between four sub-areas or special areas. Together, they cover the entire value chain – from procurement to disposal.
Procurement logistics
How can companies organize the flow of materials from suppliers to their own warehouse as efficiently and resiliently as possible? This is what procurement logistics is all about. As just-in-time production has become increasingly popular in recent years in order to save storage costs, this area of logistics is currently one of the most frequently discussed.
Also interesting: Material requirements planning with AI – 3 top use cases
Production logistics
Production logistics is the link between procurement and distribution logistics. Its task is to store materials and goods within the manufacturing company, take care of packaging and optimally coordinate the processes in terms of time. The better this is done, the faster and more cost-effective delivery and dispatch management can be.
Distribution logistics
Tasks for the delivery of goods from the manufacturer to logistics centers, wholesalers, retailers and end consumers are summarized under the term distribution logistics. Other terms are distribution and sales logistics or outbound logistics. In addition to the speed of delivery, this area of logistics is primarily concerned with avoiding shipping errors and damage to delivered products in order to ensure customer satisfaction.
Disposal logistics
When customers return products or manufacturers offer to take back old products, it is the task of waste disposal logistics to ensure smooth processes: from the receipt of goods to destruction, further recovery or processing for recycling. Waste generated during the production process itself must also be disposed of properly.
Software solutions for logistics
Companies can use various software solutions to organize their logistics. These are either integrated into the ERP system or networked with it.
Modern ERP systems for SMEs generally offer integrated logistics modules. In this way, companies can simply add the functions they need – for warehouse management and supply chain management, for example. The individual processes are thus digitally interlinked without the risks of interface programming.
However, if ERP systems do not provide sufficient logistics options, companies can purchase stand-alone applications. They have the freedom to choose lean software that is limited to essential functions, which saves costs, especially for smaller companies. Larger companies, on the other hand, can use third-party solutions in addition to the logistics functions of their ERP system to cover special requirements and benefit from new technology.
Current developments and future trends in logistics
Climate crisis, wars, scarce resources and cost pressure – companies are facing numerous challenges and must also rethink their logistics processes. They need innovative solutions for coordinating the flow of goods and materials if they want to remain competitive and sustainable.
Future approaches are discussed under terms such as Logistics 4.0 or Smart Logistics. What these concepts have in common is that they are based on digital technologies, artificial intelligence and automation. The trend is towards objects and processes that control themselves independently thanks to intelligent digitalization and organize themselves according to user-defined goals.
Four megatrends at a glance:
1. networked digital ecosystems
The more effectively the players in the supply chain work together, the greater a company’s resilience and the more cost savings can be realized. Digital solutions that cover the entire supply chain and enable real-time data exchange between the players are at the heart of future-proof logistics.
Instead of a simple flow of information in the supply chain, companies ideally create a digital ecosystem. In this ecosystem, data from the supply chain as well as from production, sales and purchasing is available in all process steps. The different departments work on a shared, networked database and can make more informed and faster decisions in complex contexts.
2. internet of things and blockchain
Da Maschinen und Objekte zunehmend mit Sensoren (z.B. RFID) ausgestattet und zu cyberphysischen Systemen erweitert werden, kann die Transparenz innerhalb der Wertschöpfungskette deutlich verbessert werden. Beispielsweise lassen sich Lagerbestände kontinuierlich überwachen, Warenbewegungen in Echtzeit dokumentieren und über Temperatursensoren optimale Lagerbedingungen für Materialien gewährleisten.
With the help of blockchain technology, the entire life cycle of a product, from manufacture to delivery, can be documented in a tamper-proof and seamless manner. The technology makes it easier to prove the authenticity of products and speed up checks during transportation (e.g. customs).
3. artificial intelligence in all areas of logistics
Die umfassenden Datenbestände aus internen und externen Quellen bilden die Basis für den produktiven Einsatz von künstlicher Intelligenz. Sie wird schon in wenigen Jahren in allen Teilbereichen und Phasen der Logistik unterstützen.
- Procurement: AI systems are able to create demand and requirement forecasts. This enables companies to easily optimize their order quantities and delivery times. In addition, inventories can already be monitored today with the help of smart sensors and automatically kept at the desired level.
- Production: When warehouse staff wear smart glasses, they can read information about goods directly on the shelf and note the processing status in the system with a few gestures once the order has been completed. Without delay.
- Transport: GPS tracking helps companies to track products to the meter during delivery. AI systems provide real-time traffic data so that users can optimize delivery routes and customers receive up-to-the-minute delivery notifications.
- Waste disposal: AI systems can compare waste with photo databases and thus support the sorting of materials. Intelligent data evaluation also makes it possible to predict the volume of waste. This gives companies the opportunity to proactively manage their waste disposal processes and save costs.
4. focus on sustainability
The pressure on companies to operate more sustainably is growing. As logistics has a decisive influence on a company’s carbon footprint, many existing practices will be questioned in the coming years and redesigned in an environmentally friendly way.
AI systems that optimize transport routes help to save both time and fuel, and the automated control of lighting and air conditioning systems reduces energy consumption. But it is not only digital solutions that are driving sustainability. We are already seeing an increase in electric vehicles and hydrogen trucks in the transportation sector. Sustainable or reusable materials are also increasingly being used in packaging logistics.
The cradle-to-cradle approach is becoming increasingly important. It strives for a circular economy in which products are recycled after their first life cycle. This would improve the ecological footprint of products. At the same time, companies could counter the increasing scarcity of resources and reduce their cost pressure. For the cradle-to-cradle approach to succeed, however, logistics must continue to develop and take on more coordinating tasks.
