Inbound and outbound logistics represent essential components of the general supply chain strategy. They are indispensable for all businesses involved in the goods delivery process. They can be conducted internally or outsourced to intermediaries.
Logistics is a strategic factor that brings value in terms of the quality of customers’ service. Implantation in both types of logistics leads to advantages such as cost reduction, increased productivity, boost in brand image, competitive advantage, etc…
What Is the Difference Between Inbound and Outbound Logistics?
Inbound logistics brings supplies or materials into a business for production, while outbound logistics deals with moving goods and products out to the customers. However, both inbound and outbound logistics focus on the transportation of goods.
Parameter |
Inbound Logistics |
Outbound Logistics |
Direction |
Movement of materials from suppliers to your facility |
Movement of finished goods from your facility to customers |
Objectives |
Ensure timely and cost-effective delivery of raw materials/components for production |
Distribute finished products efficiently to customers |
Roles |
Purchasing, receiving, warehousing, and inventory management |
Order processing, shipping, transportation, and distribution |
Process |
Procurement, transportation, receiving, inspection, and storage |
Picking, packing, loading, transportation, and delivery |
Activities |
Sourcing, negotiating with suppliers, freight management, and customs clearance |
Order fulfilment, packaging, freight consolidation, and reverse logistics |
Examples |
Importing raw materials, parts, and components |
Exporting finished products, spare parts, and accessories |
Key Relationships |
Suppliers, carriers, and customs brokers |
Distributors, retailers, customers, and logistics providers |
What is Inbound Logistics?
Inbound logistics is the process of transporting, receiving, and storing goods for a business, which will be used for office operations or production units. In a manufacturing company, the production unit purchases raw materials from its suppliers to produce other goods.
Inbound Logistics Example
For example, a significant automaker obtains engine components for assembly plants, ensuring careful packing and loading of the supplies into trucks/trains. The automaker tracks the shipment based on the respective lead time, production schedule, and inventory level with the advanced tracking system.
Upon arrival, the supplier inspects shipments, for damage before storage in designated areas. Maintaining lean inventory minimises excess costs, optimising supplier relationships, transportation, expenses, and operational capacity.
Inbound Logistics Activities
These are the activities involved in inbound logistics:-
- Sourcing and procurement
- Transportation management
- Warehouse and storage management
- Inventory management
- Receiving and inspection
- Returns management
Challenges in Inbound Logistics
1. Poor Visibility
Due to limited visibility into the item delivery from suppliers to your warehouse, inefficiencies may occur, including delays, inaccurate stock volumes, and the inability to handle exceptions, which may affect your bottom line and customer satisfaction.
2. Fluctuations in Supply and Demand
Surges or drops in demand that are not anticipated can interrupt inbound operations. This is because too much inventory when low demand locks up capital and too little inventory when high demand can slow production.
3. Inbound Shipping Inefficiencies
The wrong transportation choices or poor rate negotiation could raise the cost of inbound logistics and hurt your profitability and competitiveness.
4. Surges in Deliveries and Receiving
Sudden spikes in inbound deliveries can quickly overtake your receiving team, leading to sluggish workflows, backlogs, and issues in the verification and put-away activities.
5. Information Silos
Information gaps between you, your suppliers, and logistics providers make it difficult to communicate and cooperate efficiently, generating many inefficiencies and lost opportunities for improvement.
6. Returns Processing
Incorrect processing of return items can take away time and resources that could be utilised in the inbound process, limiting the procedure’s effectiveness.
7. Driver Shortages and Labour Costs
Due to the ongoing driver shortage and increased labour expenses, you may experience slower inbound shipping processes and increased costs, impacting the efficiency and affordability of inbound transportation.
8. External Disruptions
Geopolitical changes, natural disasters, and fuel price volatility could impact your inbound shipments, leading to shipping delays and supply chain disruptions.
How to Optimise Your Inbound Logistics Process?
1. Build Strong Relationships With Suppliers
Firstly, figure out your ideal supply route and coordinate with your suppliers for its mutual implementation. Secondly, you have to establish an inbound routing guide, detailing things such as modes, carriers, service, and rate requirements for each lane.
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 preferred for their adaptability to changes in the shipping landscape during times of fluctuations in shipping rates.
2. Strengthening Inbound Freight Deliveries
Several logistics factors must be considered when implementing this strategy, such as specific shipping and handling requirements, shipment weights, driver’s availability, fuel costs, arrival and departure times, etc.
If implementing a full truckload transportation strategy independently isn’t feasible, companies can opt to use a third-party logistics provider’s services.
3. 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.
What is Outbound Logistics?
Outbound logistics is the process of packing, shipping, and delivering finished goods from a warehouse to customers. It involves activities such as order processing, inventory management, and delivery planning to ensure timely and accurate product delivery to customers.
Outbound Logistics Example
For example, consider a company that operates in the e-commerce sector and sells consumer electronics. An outbound logistics procedure is activated following a customer’s completion of an order. The steps of this process chain include order processing and warehouse employees picking and packing the products.
The package is then handed over to a logistics company for transfer. After this, it is delivered to the customer’s doorstep while monitoring the route and order progress.
Outbound Logistics Activities
- Order fulfilment
- Warehousing and storage
- Transportation management
- Booking shipping services with carriers
- Dispatching shipments to the designated carrier
- Last-mile delivery
- Returns management
- Customer service
Challenges in Outbound Logistics
1. Meeting Customer Expectations
With the introduction of e-commerce, customer expectations regarding delivery time, accuracy, and affordability have risen. You should be able to meet these expectations if you want to stay competitive and retain customer loyalty.
2. Lack of Supply Chain Visibility
When you have trouble tracking the levels of inventory available or the location at which your customers’ goods are at any given time, you risk running out of stock or getting delayed. It may frustrate customers and make it tough to get them back.
3. Inefficient Delivery Systems
When your delivery routes, warehouse designs, or even your picking process are outdated or inefficiently designed, your entire fulfilment process may slow down.
4. Rising Transportation Costs
Fluctuating fuel costs, increasing demand for transportation services, and congestion are all factors that can affect delivery expenses.
5. Labour Shortages
The shortage of competent employees in the business can impact your warehouse operations and on-time deliveries.
6. Last-Mile Delivery Challenges
The last leg of distribution can be complex and expensive, particularly in rural regions.
7. International Trade Complexities
Exporting your products to other countries can bring significant complexities, like various regulations and tariffs and complex documentation.
8. Inventory Management Challenges
Forecasting demands and balancing order management and inventory control can be complex. Nevertheless, if the best Inventory management techniques are selected, you will not suffer from shortages or overproduction.
9. Returns Management
While a well-defined returns process is essential for customer satisfaction, it can also add complexity to outbound logistics. Reverse logistics and Payment Gateway should be user-friendly to process the refund promptly.
How to Optimise Your Outbound Logistics Process?
1. Implement Cross-Docking
Cross-docking is the process of unloading goods from one carrier to an outbound carrier without springing any material in between. It is an efficient method of minimising 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 to be shipped, which will help you save unnecessary return costs.
2. Negotiate the Carrier Rates
It would be in your interest to negotiate your freight rates if 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 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.
3. Lower Your Inventory Costs
Managing your inventory costs will 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.
Step-by-Step Inbound and Outbound Logistics Procedures
1. Inbound Logistics Procedures
STEP 1: Identifying Needs
This is the first step in identifying the needs and determining what materials, components, or finished goods you must have to keep your business running. Analysing production schedules, sales forecasts, and what’s already in your inventory levels will help you anticipate future needs and avoid stockouts or excess inventory.
STEP 2: Sourcing and Purchasing
Once your needs are known, the next step is to identify vendors who can provide you with the best quality materials or goods at a low price. Researching potential suppliers, getting quotes, and negotiating agreements are all part of the procurement process.
STEP 3: Transportation Planning
This involves planning for the physical movement of the goods from the supplier’s premises to your warehouse or production facility. Consider factors like shipment size, urgency, and the cost-effectiveness of choosing a transportation mode to avoid delays, damages, and cost control.
STEP 4: Scheduling
After identifying the appropriate transportation method, schedule the pickup and delivery dates. This plan ensures timely delivery to avoid disruptions in your production processes.
STEP 5: Recording and Receipts
This step entails formulating a purchase order containing the details of the ordered item, quantities of goods, and agreed-upon costs. Upon arrival of the goods, check the shipment against the purchase order and packing slips to verify the accuracy and completeness.
STEP 6: Load Arrival
This is the physical arrival of your shipment at your warehouse or receiving dock. Depending on the amount of goods, you must schedule dock space and have adequate personnel to unload the shipment you received.
STEP 7: Verification and Inspection
Upon arrival, the goods are verified according to the standards outlined in the purchase agreement to ensure quality, identify damage, and verify quantities received.
Furthermore, it also involves confirming the correct goods received.
STEP 8: Putaway and Storage
After verification, the goods are stored in the warehouse in designated locations. Factors to consider during putaway and storage include the size of the items, weight of goods, and access frequency.
STEP 9: Returns and Reverse Logistics
This involves returning goods to the supplier in the event of damage, defects or excess inventory. This is necessary to ensure that such goods reach the supplier for a credit or replacement afterward.
2. Outbound Logistics Procedures
STEP 1: Order Processing
The process starts when your customer orders via an online store, phone call, fax, or EDI (Electronic Data Interchange). The following steps include entering your order into the order management system, which checks stock and confirms customer details. If there are any discrepancies, the system will flag them for resolution before proceeding.
STEP 2: Order Fulfilment
When the system confirms orders, they are sent to the warehouse management system (WMS) for pickup. The WMS instructs the picker to locate the ordered item in the warehouse using an efficient picking strategy (e.g., zone picking, batch picking). The pickers retrieve the exact quantity of each item. Pickers use a traditional barcode system for authentication during picking before verifying the items.
STEP 3: Packing and Staging of Products
Pickers bring the picked items to the packing stations. The products are packed using appropriate boxes, bubble wrap, or void fill to avoid movement during transportation. Fragile items are handled differently as they require special handling or packaging.
STEP 4: Labelling and Documentation
Shipping labels are developed with the correct customer information, such as address, tracking numbers, and any special handling instructions, which are printed and stuck on the packages. Commercial invoices or packing slips are added for customs compliance or future references.
STEP 5: Shipping and Manifestation
Orders are then transferred to designated staging areas, awaiting pickup by the carrier. Meanwhile, a shipping manifest is created, listing the items on the orders going to a particular destination. The manifests aid in tracking and segregating orders for delivery.
STEP 6: Transportation Management
The chosen carrier will pick up the shipments from the warehouse. Depending on the carrier and mode of transport selected—truck, train, or airplane, the shipment will go straight to the customers or have an additional stop at the distribution centre for further sorting. The shipment can continuously be tracked with the tracking number given during the journey.
STEP 7: Last-Mile Delivery
The carrier delivers the shipment to the customer’s address or a designated pick-up location. Proof of delivery can be ensured through signatures or electronic confirmations.
STEP 8: Returns Management
Outbound logistics can also be responsible for managing returns from customers. A seamless return policy should be drafted, detailing the procedures for returning any unwanted or damaged order. Your returned items will be delivered to the warehouse and inspected on their condition. Respective actions based on your return policy will be taken according to the findings, which may be a full refund, item replacement, or store credits.
STEP 9: Customer Service
Outbound logistics encompasses interacting with customers to address their inquiries about order status, delivery schedules or any issues arising during the fulfilment process. A responsive customer service team will ensure a positive customer experience throughout the delivery journey.
STEP 10: Documentation and Record Keeping
Throughout the outbound logistics process, detailed records are maintained for each order, shipment and return. This information is vital for accurate accounting, financial reconciliation, precise inventory tracking and identifying potential areas for improvement.
Benefits of Inbound and Outbound Logistics
Benefits of Inbound Logistics
1. Cost Savings
High volume will allow you to negotiate better rates with carriers, optimise transportation routes, and minimise warehouse storage time, which will help you keep your overhead low.
2. Improved Inventory Management
Accurate predictions of your material needs and optimal stock levels will reduce the risk of stockouts that could halt production and the costs associated with holding too many materials.
3. Enhanced Product Quality
On-time delivery of materials will ensure that your production lines are on time for the parts. Furthermore, you can identify quality problems with incoming materials before they are incorporated into the finished products.
4. Increased Efficiency
Inbound logistics aims to speed up the receiving process so that the goods arrive faster and with accuracy. This will help you improve the efficiency of your entire production process and enable you to fulfil customer orders more quickly.
5. Predictable Raw Material Costs
You will have more control over costs by developing solid partnerships with suppliers and optimising purchasing strategies. You will be able to avoid cost fluctuations.
6. Steady Production Rates
Efficient inbound logistics ensure a smooth flow of materials, preventing disruptions in production schedules and allowing you to maintain consistent output.
7. Supplier Relationship Management
Proper inbound logistics enables a closer and more engaging relationship with suppliers, helping to establish long-term partnerships and secure high-quality, consistent supply chains.
8. Risk Mitigation
Good inbound logistics practices ensure that disruptions in the supply chain are reduced to a minimum, meaning that natural disasters, international relations issues, or suppliers’ instability have a reduced effect magnitude on the organisation.
9. Improved Forecasting
The correlation between material consumption, upstream times, and suppliers’ performance can be included in forecasting formulas, increasing the accuracy and quality of demand planning.
10. Environmental Impact
Efficient transportation, shipment consolidation, and waste reduction significantly reduce the organisation’s carbon footprint, contributing to an environmentally sustainable image.
Benefits of Outbound Logistics
1. Improved Customer Satisfaction
With fast, accurate, and dependable deliveries, customers are more satisfied. Outbound logistics ensures effortless picking, packing, and shipping, allowing you to deliver as promised to customers or buyers, and minimising errors, lost items, or damaged goods.
2. Reduced Costs
A more optimised warehouse space, the best-value methods of shipping, and the least packing materials used contribute to a lean operation.
3. Increased Sales and Revenue
A quicker delivery can increase sales and subsequent revenues. Consumers are more willing to purchase if they know their goods can be delivered quickly.
4. Enhanced Brand Reputation
A suitable delivery experience solidifies your brand reputation. If customers can rely on your business to consistently deliver their orders on time and in perfect condition, they will not hesitate to trust and promote you to others.
5. Greater Visibility and Control
Outbound logistics frequently includes tracking technology, which enables tracking the shipment location in real-time. Therefore, you gain more control over the delivery process and the opportunity to deal with issues on the spot.
6. Improved Inventory Management
Knowing precisely what items are in stock and where they are located reduces the likelihood of stockouts and can optimise your fulfilment process.
7. Reduced Damage and Loss
Proper packaging and care taken during the handling process also significantly reduce the chance of damage or loss during transportation.
Logistics vs Supply Chain Management
Inbound and outbound logistics processes include the necessary steps 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 inbound and outbound transportation, warehousing, material handling, inventory management, order fulfilment, fleet management, and demand planning. On the other hand, supply chain management is all about sourcing and planning things like production, location, transportation, and return of goods.
Why Is the Supply Chain Important?
- 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 buy goods directly from the manufacturer, you can better negotiate directly with them about the quantity you can buy from time to time.
- SCM supports the business’s strategic plan 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.
Speaking of unnecessary returns…
Yes, we feel the pain when a seller tries to sell the desired product and gets it returned along with a few extra charges. These cancelled 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, and get RTO insights and information about the reasons behind your RTO orders.
Last but not least, the software adapts to your business needs and improves with time, providing you with detailed insights and easy ways to communicate with your customers about non-deliverable and incomplete addresses.
Conclusion
Effective inbound and outbound logistics are instrumental to organisational performance in the modern competitive business environment. The former is concerned with sourcing materials and components, while the latter is about delivering finished products to consumers. Optimising these processes via technology and managing relations with suppliers and transportation partner firms may reduce costs and improve consumer satisfaction.
Frequently asked questions
1. What are the different types of logistics?
There are 6 major types of logistics, which includes:
- Inbound Logistics
- Outbound Logistics
- Reverse Logistics
- Green Logistics
- Third Party Logistics (3PL Logistics)
- Fourth Party Logistics (4PL)
2. Which is more important inbound or outbound logistics?
Both inbound and outbound logistics are equally crucial in supply chain management. The key is to ensure a smooth flow in both directions for an efficient supply chain.
3. What is the new term for logistics?
While the term “logistics” hasn’t changed, the industry increasingly uses the concept of “supply chain management,” which indicates the flow of material, information, and finances in all stages of interaction, from suppliers to end customers.
4. What role does inventory management play in inbound and outbound logistics?
In both terms, inventory management is essential. Maintaining an optimal stock level reduces carrying costs and supports the availability of materials and goods, ensuring the smooth running of businesses.
5. How do companies optimise inbound and outbound logistics processes differently?
Companies optimise inbound logistics by focusing on the efficient receipt and storage of goods from suppliers, ensuring the timely availability of materials for production. Outbound logistics is optimised by streamlining the processes of moving goods from the company to the end customer, including inventory management and shipping strategies.
6. How do inbound and outbound logistics impact customer satisfaction?
Inbound logistics ensures that products are available without any stock-outs or delays. On the other hand, outbound processes fulfil orders faster and deliver more precisely, and they also have reverse logistics for returns or exchanges. Both have a massive impact on overall and long-term customer satisfaction and loyalty.
7. Are there any key performance indicators (KPIs) used to measure inbound and outbound logistics efficiency?
Delivery lead times, order accuracy rates, transportation costs, inventory turnover, and perfect order fulfilment rates. As a part of performance measurement, companies also monitor Inventory Days on Hand and payment gateway processing times.
