Inbound and outbound logistics play a crucial role in the overall supply chain strategy. In general, any business dealing with physical goods needs both inbound and outbound logistics processes, whether they manage it themselves or through an intermediary.
Also read: Inventory Days on Hand: Calculation, Definition, Examples
Logistics is seen as a critical strategic element with the potential of bringing a lot of value to the quality of service provided to customers. At the same time, organizations that invest in their inbound and outbound logistics processes often experience savings on unnecessary costs, a boost in productivity, an improvement in their brand reputation, and gain a competitive advantage, among several other such benefits.
What are inbound and outbound logistics?
Inbound logistics refers to the movement of supplies, raw materials, and finished goods from a manufacturer or any other distribution channel to a warehouse or a retail store.
With a sound inbound logistics process, a business can restock their best-selling items just in time for the holidays and the festive season, introduce new products for sale, even-out process returns, and so much more.
Outbound logistics on the other hand deals with the movement of end products from a distribution or fulfillment center to the end consumer. Generally, the outbound logistics process starts with a placed order, then it moves on to warehouse packing, and finally ends with product delivery.
Supply chain management is heavily reliant on inbound and outbound logistics, and understanding the correlation and difference between the two can provide insights for developing a comprehensive supply-chain management strategy.
Before we go further into inbound and outbound logistics, we need to address the issue of people having a common misunderstanding between logistics and supply chain management.
Let us first understand the difference between the same.
Benefits of inbound and outbound logistics
The benefits of inbound logistics include:
- Cost savings: Efficient inbound logistics can reduce transportation costs and minimize inventory carrying costs, resulting in cost savings for the company.
- Improved supplier relationships: Effective inbound logistics can help establish and maintain strong relationships with suppliers by ensuring timely deliveries and reducing the likelihood of stockouts or delays.
- Increased efficiency: Proper inbound logistics management can streamline the process of receiving and storing materials, reducing the time and effort required for these tasks and increasing operational efficiency.
The benefits of outbound logistics include:
- Customer satisfaction: Efficient outbound logistics can ensure timely and accurate delivery of products, leading to higher levels of customer satisfaction.
- Enhanced reputation: Effective outbound logistics can help build a company’s reputation for reliable and timely delivery, which can contribute to brand loyalty and increased sales.
- Improved inventory management: Proper outbound logistics management can help reduce inventory carrying costs and prevent stockouts or overstocks, improving overall inventory management.
The inbound and outbound logistics procedures
Inbound Logistics:
- Receiving, storing, and distributing raw materials and goods from suppliers.
- Starts with the purchase order, which specifies the type, quantity, and delivery date of the goods required.
- Supplier prepares goods for shipment and arranges for transportation to the company’s production facilities or warehouses.
- Upon arrival, the goods are typically inspected and verified for accuracy and quality before being stored in the warehouse.
Outbound Logistics:
- Storing, transporting, and delivering finished products to customers.
- Starts with the order receipt, where the customer specifies the type, quantity, and delivery date of the product required.
- The company prepares the product for shipment and arranges for transportation to the customer.
- Upon arrival, the product is typically inspected and verified for accuracy and quality before being delivered to the customer.
Logistics vs supply chain management
Even though supply chain management has a significant impact on the expenses of a business, it is still among the most misunderstood terms out there. In fact, many of them interchange the meaning between logistics and supply chain management.
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 in simpler terms, logistics handles the finer details, while supply chain management handles the bigger picture. Therefore, supply chain management is a planned process while logistics is the practical execution of that plan/strategy.
Logistics handles processes such as inbound and outbound transportation, warehousing, material handling, inventory management, order fulfillment, fleet management, and demand planning. Supply chain management, on the other hand, is all about sourcing, and larger planning of things like production, location, transportation, and return of goods.
Why is the supply chain important?
When done effectively, supply chain management helps a business to gain a competitive advantage by delivering products more quickly to customers. Here are a few ways in which SCM gives you a competitive advantage without requiring the company to lower prices:
- SCM lowers the cost of doing business by reducing purchasing and production expenses. Purchasing directly from the source effectively gets you better pricing for your desired products.
- SCM helps the business balance the supply of products with the demand in the market. Using the grocery store example, if you are buying goods directly from the manufacturer, you can better negotiate directly with the same on the quantity you can buy from time to time.
- SCM supports the strategic plan for the business and helps to build the infrastructure to support future growth. If you, as a business owner, develop strategic partnerships with the manufacturers early in your business operation, you are better able to scale those partnerships as the business grows.
- SCM allows for more efficient and effective customer service. Customers receive their products quickly and as promised, which increases their satisfaction and effectively increases the chances of repeat purchases.
The primary objective of effective supply chain management is acquiring higher profits through improved customer satisfaction and lowering business costs. When such costs are controlled and reduced where possible, profits are healthier, and operating costs go down when the expenses of buying raw materials and producing goods to sell go down.
When people order items online, they expect prompt, on-time delivery, order tracking features and easy return processes for unwanted purchases. An online store loses value when one of the mentioned factors isn’t available, so you have to make sure that you have the right insights in e-commerce marketing to frame the blueprint for your business.
Optimizing the Inbound and outbound logistics process
Many entrepreneurs and marketing professionals consider the inbound logistics process the last crucial step for companies who wish to reduce transportation costs.
Since the process of simplifying this is difficult, it requires considerable effort from supply chain managers and warehouse operators.
Generally, both inbound and outbound logistic processes primarily focus on the transportation of goods from one distribution network to another. So, knowing how each process works is crucial to optimizing the supply chain, reducing logistics costs, and better management of customer expectations.
How to optimize the inbound logistics process
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Build strong relationships with suppliers
Firstly, you need to start off by figuring out your ideal supply route and collaborate with your suppliers to work out a mutually-beneficial implementation of the same. Secondly, you have to establish an inbound routing guide, where you will need to include things such as modes and carriers to use in certain lanes, along with service and rate requirements.
Also read: E-commerce Shipping: Best Strategies and Practices
The mentioned guides can either be physical or online, but in general, digital routing guides are advised to use. These can be adapted to changes in the shipping landscape during times such as fluctuations of shipping rates.
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Strengthening inbound freight deliveries
There are several logistics considerations to take into account when looking to implement this strategy. It includes things such as specific shipping and handling requirements, shipment weights, driver’s availability, fuel costs, arrival and departure times, etc.
If at all It’s not feasible for some companies to implement a full truckload transportation strategy on their own, there is always the option of opting to use the services of a professional third-party logistics provider.
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Make use of a Transportation Management System (TMS)
Many companies accept the freight costs their vendors ask for because there is 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.
How to optimize the outbound logistics process
If we assume that the inbound optimization processes are largely about having strong and effective relationships with your vendors and suppliers, then outbound logistics is all about improving the relationship with your own customers.
Though this process may seem simpler than inbound logistics, there are several pivotal factors that need to be carefully taken into consideration in an outbound logistics process.
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Implement cross-docking
Cross-docking is the process of unloading goods from one carrier to an outbound carrier without spring any material in between. it an efficient method of minimizing warehouse space and increases the scope for better material handling.
This method is also good for increasing product quality, reducing the overall number of product returns, and increasing customer satisfaction. When products are temporarily kept on the dock just before shipping, warehouse workers can also do a quick inspection and remove damaged goods that are to be shipped that will help you save unnecessary return costs.
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Negotiate the carrier rates
It would be in your interest to negotiate your freight rates if at all you decide to work with a third-party carrier. Since there are several areas of a shipping agreement that you can negotiate, you can start off by reviewing all the aspects of your current shipping agreement, such as surcharges or next-day air rates.
It is also advisable to look through your data and discover where you are spending the most and make effective strategy changes to your business blueprint accordingly.
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Lower your inventory costs
Managing your inventory costs will also help keep your warehouse costs down. As one of the primary aspects of the outbound side of logistics is about getting products to customers on time, ensuring that you can quickly respond to demand fluctuations is one of the primary ways of doing so.
Speaking of unnecessary returns…
Yes, we do feel the pain when a seller tries to sell the desired product and gets it returned along with a few extra charges. These canceled orders amount to huge RTO losses for online businesses. Not only do you have to bear the costs of double logistics, but it’s also likely that you won’t be able to resell the returned item!
Also read: How To Enable Automated Order Confirmations On Your Online Store
At Razorpay Thirdwatch, we help businesses reduce RTO rates and detect impulse purchases and fraudulent orders using AI. Also, you can identify complete and incomplete addresses, detect risky orders based on various data points collected, get RTO insights, get information about the reasons behind your RTO orders.
Last but not the least, the software adapts to your business needs and improves with time, providing you detailed insights and easy ways to communicate with your customers about non-deliverable and incomplete addresses.
What are the challenges of inbound and outbound logistics
Inbound and outbound logistics face several challenges that can impact the cost, productivity, and customer satisfaction levels of a company. Inbound logistics face challenges such as ensuring timely delivery of goods, quality control issues, inventory management, and transportation costs. While outbound logistics challenges include timely delivery of products, inventory management, transportation costs, and customer service issues. In managing logistics, there are also coordination challenges with multiple stakeholders, technological challenges, and sustainability concerns. These challenges can be costly and time-consuming, making it essential for companies to carefully plan and coordinate their logistics operations to optimize their processes and reduce any potential challenges.
Frequently asked questions
What is inbound and outbound delivery?
Inbound delivery refers to the process of receiving, storing, and distributing raw materials and goods from suppliers. Outbound delivery, on the other hand, refers to the process of storing, transporting, and delivering finished products to customers.
What are the different types of logistics?
There are several types of logistics, including inbound logistics, outbound logistics, reverse logistics, green logistics, and third-party logistics (3PL). Inbound logistics refers to receiving and storing raw materials and goods, while outbound logistics deals with transporting and delivering finished products. Reverse logistics involves the management of product returns, while green logistics focuses on sustainability in logistics operations. 3PL involves outsourcing logistics operations to a third-party provider.
What are examples of inbound and outbound logistics?
Examples of inbound logistics include receiving and storing raw materials from suppliers, while outbound logistics involve transporting and delivering finished products to customers. For example, a manufacturer receiving raw materials for production is an example of inbound logistics, while a retailer delivering products to customers is an example of outbound logistics.
What is the basic cycle of logistics?
The basic cycle of logistics involves planning, implementing, and controlling the flow of goods and services from the point of origin to the point of consumption. It includes activities such as transportation, storage, and inventory management. The goal is to ensure that products are delivered to the customer efficiently, timely, and at the lowest possible cost.
