Every business relies on logistics management to ensure shipment, delivery, and supply chain operations run as smoothly as possible. Many don’t think about logistics as a marketing function but it’s one of the 4Ps of the marketing mix that forms the core of the marketing function. Plus, unlike some other aspects of marketing, every dollar you save from your logistics function is another dollar in profit. So, today, let’s turn our attention to 5 ways to improve your logistics function.
What is the logistics function?
Logistics involves the physical movement of goods from raw materials through to the end user. Not only must you ship goods but you must also store them until needed and assemble elements from your inventory to satisfy orders from your customers. In some industries, the logistics function is the most costly direct cost associated with the goods they sell. That means savings on your logistics translate directly into higher profits for your company.
Not only is logistics a costly operation but it greatly impacts your success in other ways. We saw this during and after the pandemic when supply chains were impacted by shutdowns and the absence of critical workers so they didn’t run efficiently. We’re still dealing with the aftermath of the pandemic and its effects on supply chains, especially those out of China where lockdowns are still common due to that country’s 0 Covid policies. As supply chains get longer, involving long distances between manufacturers and their customers, the criticality of efficient supply chains grows. Without a functional supply chain, cars piled up in manufacturer’s lots waiting for chips to arrive from overseas partners and stores faced shortages for everything from toilet paper to PPP (personal protection products) early in the pandemic to infant formula more recently. Such supply chain issues are the fundamental cause of global inflation that affects businesses and consumers around the world.
As a business, maybe you’re not as concerned with the failures of the global supply chain. You still must concern yourself with meeting customer demands for products and, if you don’t meet these demands, consumers will likely switch to a competitor who can. Imagine your favorite brand of orange juice isn’t available at your local store. It’s unlikely that you’ll visit other stores until you find your preferred brand. Instead, you might pick up another brand of orange juice. Now, if you make orange juice, maybe losing one sale doesn’t matter much in the scheme of things, even if many people make this substitution. The problem becomes what happens with these stock-outs occurring over time so customers aren’t willing to take a chance on finding their favorite orange juice or when the customer finds he/she really likes the substitute product better. You’ve now lost a customer; potentially forever. Now, imagine that the customer isn’t an end user but a large retail chain like Walmart. That really takes a bite out of your profits, something you may not survive.
If you operate a business, you must get the right product to the right place at the right time. In a world where Amazon delivers in 2-days or even the next day, an inefficient logistics function might make you uncompetitive.
What does a supply chain look like?
Below, you can see what a typical supply chain looks like.
The logistics function involves multiple independent companies, each trying to maximize its own profits. You can’t just order another company to do something or impact the prices it charges unless you’re a heavyweight like Walmart. Here are some of the players in making a bottle of wine:
- vineyards that grow the grapes, sometimes grapes from multiple growers are combined in a single bottle of wine. These vineyards need fertilizer and equipment to plant, prune, and pick the grapes.
- transportation from the vineyards to the wineries
- storage facilities at the winery to house the finished wine, as well as other necessary components such as bottles, labels, and corks
- wineries that turn the grapes into wine. These wineries need specialty equipment like casks, as well as ingredients like yeast. Some wineries grow a portion of the grapes they use but most must still buy some grapes
- bottle-making, cork-making, and label-making plants to produce the bottles needed for the finished wine. You must transport these bottles and other materials to the winery.
- equipment to fill, cork, and label the bottles. You need other equipment, like conveyors to move the bottles through the plant and finally package them in cases for distribution.
- transportation from the winery to the wholesaler
- storage at the wholesale plant to hold the wine until ordered by the retailer. This involves both package handling equipment and information processing equipment to take orders and track inventory. You also need a system for packing and shipping the orders placed by retailers.
- transportation to the retail stores
- retail stores store the wine until purchased by a customer. Retailers need a host of supplies such as shelves, cash registers, and refrigerators
- reverse logistics to handle bottles damaged in transit and return bottles for reuse
And, this is a fairly simple product. Imagine the supply chain and logistics function for the manufacture of something complex like an automobile. Because logistics operations inherently involve multiple players in a complex game, coordination among your supply chain partners is critical for success. Let’s take a look at 5 things you can do to improve your logistics function and stay ahead of the competition.
1. Build strong relationships with businesses making up your supply chain
Remember what I said above about the supply chain partners being independent businesses? That means you must build good working relationships with these partners and establish relationships with alternate suppliers for when situations at a supplier, such as a strike, shutter their operation.
In the old days, it was common to have arms-length transactions between buyers and sellers. A company, like a car manufacturer, might buy a sub-assembly such as a transmission from multiple manufacturers. The car company specified the product needed and negotiated the price. There was little or no cooperation between the buyer and seller. In today’s world, more companies choose a single source of supply (or a very small number of suppliers) for each product needed and work closely with the sellers so the chain works more efficiently. For instance, a company will communicate with a seller as soon as they anticipate production, such as when they receive an order, rather than waiting until they need the product. This gives the seller a chance to develop its production schedule rather than requiring overtime or other costly methods to get the product ready in time to fulfill the buyer’s needs.
We’ll talk more about the technology used to ease these supply chain communication issues below.
2. Optimize warehouse management
Proper warehouse management is essential because it impacts lead times, inventory control, and product quality. You should note that the type of goods significantly impacts warehouse operations’ efficiency. Regardless of the items you need to store, you can speed up operations and reduce waste by making a few adjustments. For instance, you can use technology such as RFID to identify products, eliminating the need to use dedicated storage to find products quickly, overspending by buying materials you already have in stock, or wasting time searching for a particular product.
RFID technology, developed for the military, involves using a chip in each crate of product. When the warehouse manager needs a particular product, he/she enters a code into a hand-held device and all the crates containing that product emit a sound and light so the manager can quickly find what he/she is looking for.
Cross-docking is another strategy to optimize warehouse management. As you can see in the image below, cross-docking is efficient when materials don’t stay in the warehouse but more from incoming to outgoing trucks. This saves time and involves fewer movements of the material. This saves money since moving materials takes time and costs money.
3. Make smart transportation choices
Setting up your logistics function involves making smart choices among the alternatives available to your company. Some factors that impact these choices are:
- available alternatives for partners and transportation options. For instance, waterways are an inexpensive option for moving bulky goods like coal but you need a waterway to manage this. If you’re in a landlocked location, you can’t use this option. Similarly, pipelines are an efficient way to transport products in a gaseous or liquid form but they involve great expense in building a pipeline.
- characteristics of your product. Bulky items are costly to ship while perishables must reach their destination quickly
4. Reduce overspending
For some businesses, the entire process of shipping the items is expensive, which negatively affects their profits. For instance, heavy or bulky items often incur higher transportation costs than smaller items. Effective solutions for lowering the cost of your logistics are crucial to maintaining the quality of your services without going over budget. Optimizing warehouse space, grouping shipments, and DTC fulfillment significantly save costs, so keep this in mind.
Logistics within your operation are also important to consider as moving materials around the plant from one location to another adds expense and offers the potential to damage the material during manufacture.
5. Update your standard operating procedures
Technology has greatly impacted the logistics function. For instance, EDI (electronic data interchange) helps manage information flows between partners, including prompt payment of invoices. It also reduces the potential for human error that happens when information is re-entered as it moves between partners.
Improving your logistics business is beneficial for many reasons. Hopefully, You’ll consider these strategies to achieve the best results.
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