In a company, there are many coexisting functional areas that make business work properly: management, finances, administration, production/operations, quality, marketing, human resources, project management, process, logistics. In order to reach its organizational objectives, it is vital that all these areas have the same purpose and business strategy.
Next, we are going to delve into the Logistics area: what is it, which are its main functions, its biggest challenges, etc.
What is the Logistics area of a company?
Business logistics can be summarized in the word "supply". It is in charge of the execution, planning and control of all the activities related to the obtaining, storage and move of the materials in the commercial circuit. This includes the necessary raw materials in the first stages of the production process and the finished products that are given directly to the final customer. This way, we can say that logistics is a key part of the production or supply chain of any company.
Thanks to the different activities that are carried out in this area, both internally and externally, products and services can be provided to customers at the right time at the right place, adding value to the purchase and improving the customer experience. In order to achieve this, it is necessary to carry out a previous study and planning to design a control system of all the logistics activity of the company and make it more efficient and effective.
A short history of its conception and development over time
The origin of Logistics can be traced back to Ancient Greece and the Roman Empire between 2900 and 2800 b.C., when the "logistikas" (i.e. military officers) were in charge of providing resources to the army. What we have to take into account is that no matter the time logistics has always been about calculations (at a variable scale) of provisions.
In the 20th century, logistics changed completely since it started to implement computing as a measuring tool and for product control. At this point, it was possible to know what happened in a supply chain and the resources needed to assure that everything was going to turn out as expected.
At present, this process has a complete specialized development of devices, QR codes, Just in Time, traceability systems, routes and fleet management, prior notices for the delivery to customers, among others. Logistics started to experience a frenetic technological development which, in many cases, is the "tip of the iceberg" for the future implementation of new inventions.
Today, we understand Logistics as the organization of activities related to the material provisions, half-finished objects and components, from the supply sources in the production centers to transformed products by the productive process in the distribution platforms or storehouses so that they reach the market in a perfect state and with a minimum cost.
Structure of the area
The comprehensive logistics of a company is made up of both internal and external logistics. Both parts work together to assure the connection between the internal processes of supplies of the company and the external ones. While one of them is in charge of the reception, movement, and supply of the goods internally, the other one deals with the communication with the customer to guarantee excellent service.
Functions of the Logistics area of a company
Business logistics encompasses the elements and processes that must be managed correctly since, otherwise, they can complicate the situation of the company. Therefore, the efficient organization and planning of the logistics of a company allow you to optimize processes and reduce costs.
Among the functions and activities that are carried out by this area, we can highlight the following:
- Customer service. Thanks to Logistics, the sales area can manage the products or services according to the needs of the customers to speed up time and response.
- More adequate designing and planning of the transportation routes as well as the mode and medium that can be used to deliver the products to the customer.
- Controlling inventories. Storing both raw materials and half-finished products; it means to have a thorough stock control.
- Processing of orders. Good stock management and planning allow you to process orders more quickly so that you can satisfy your customers' demands more efficiently.
- Information management. It allows you to know your product and storage system better. You can get a lot of information regarding requests, great order concentration times, error detection, etc.
- Order monitoring. The most important part if we talk about transportation will be traceability management of orders; that is to say, you have to pay attention to the localization and control (in real-time, if possible) of the order, for which you need to monitor it by using special applications.
All these functions are carried out to provide excellent customer service with a minimum cost for the company.
Specification: internal and external logistics
The comprehensive logistics of a company encompasses both internal and external logistics.
Internal logistics can be defined as the processes of the supply chain that are carried out in the company; that is to say, the complete circuit from the moment the company receives the goods in its facilities to the moment in which they are delivered to one of the workers from the area or to the addressee of a consumer.
The greatest advantage of internal logistics is that it knows a lot about the needs, processes, and particularities of its company. On the other hand, it has to face some difficulties as well.
Internal Logistics as a process has four phases:
- Receipt. Every company receives goods in an initial state so the area must have the necessary resources for this: facilities, equipment, staff, and specialized software to deal with the storage of information, bookkeeping, and monitoring of the products.
- Location. Location is not just about filling shelves with goods but about distributing them among other supply points. It is also necessary to study the location of the stored materials to facilitate their movement. If a product needs rotation, it would need to be more accessible (i.e. it would have to be located in the nearest halls, placed at a low height, having no other elements in front of it, etc.)
- Value increase. Here we find all the processes that add value to the company, such as real-time stock management which adds more value than storage. For material handling, we should also acquire specialized equipment such as radiofrequency devices to scan products.
- Delivery. Internal logistics is also in charge of delivering goods correctly, which involves having an adequate distributor. It is very important to monitor goods constantly once we have handed over them; in order to do this, we need to see the traceability of shippings and integrate it into our own system, if possible. We should never lose sight of goods once we have handed them over to the people in charge of transportation.
On the other hand, external logistics is the most visible part of the process which has direct contact with the customer. However, we do not have to forget that behind every interaction, we have a planning and management task as well as a comprehensive view of the logistics operations (both internal and external) that are carried out in a company.
It is not possible to reach an excellent execution level in the external logistics operations without adequate global planning and management; so, external logistics activities should not be taken as independent activities from the supply chain planning. Its main activities are:
- Assuring good storage of finished products and adequate stock management.
- Being responsible for the correct rotation of products (thus, with adequate thorough planning in the supply chain) and correct delivery of products.
- Achieving efficient distribution of "reverse logistics". The distribution and returning of goods allow you to be in direct contact with your customer, so their strategic importance is key. This depends on correct management and execution of the delivery of products and even of adequate route planning, among other things. For instance, when a customer complains, the company should work to replace the faulty product immediately.
Problems and challenges it has to face
Among the most common problems it has to face, especially internal logistics, we can find resource availability. The more parts of the supply chain are in the hands of the company, the more time, people, and materials it is going to need to function correctly. And whenever the logistic complexity rises, more training will have to be provided to workers.
Another common problem is that designing the whole process involves additional expenses so, if logistics management is not correct, processes will tend to complicate and be inefficient.
Moreover, companies find it difficult to deal with the volume of products. For a logistic worker that has wider templates will be difficult to take over peaks of production. At the same time, the long-term growth or reduction of the volume of the company's products can bring about more problems such as the need for improving the facilities or training the staff better.
As regards the economic field, the economy of scale complicates competing against external logistics companies in terms of costs; this factor also helps them to offer high-level services. Therefore, internal logistics has it difficult in terms of quality and price.
Apart from the possible problems you may have, achieving good internal logistics has great benefits, such as getting greater cooperation among the areas of the company, more fluent exchange of information, and deeper insight of the business on the part of employees.
Tips to design a comprehensive logistics area in a company
First of all, you need to detect the processes that do not add value and eliminate them. You need to go through every process in your company and ask yourself why and how this process takes place and if you need to keep carrying it out. Also, it is very important to use Performance Indicators to orient you.
This way, it is vital to have a small number of relevant indicators that show you clearly how the company is functioning. Besides, they must be also efficient because if you have to wait too long for the result of the indicators, it would be harmful to you when making changes; moreover, the changes introduced could be obsolete.
It is also important to keep training the staff because, in internal logistics areas, it is very common that just one person knows how to carry out a specific task, which brings about obstacles known as "bottlenecks" since if that person does not attend work, the productive chain is blocked. In order to avoid this, you should train every worker in the area to do a specific task so that when somebody is on vacation or misses work, the others can carry it out.
Logistics is considered to be a key part of companies' success, that is why new global companies based their success on the improvement of their supply chain. This overview and history of logistics show us two things: first, the importance that logistics has had and will continue to have in our world, and second, the close relationship between its development and the creation of new technologies.
As quality and development indicators are improved in a company, it is possible that logistics strategies are improved as well. Today, new software tools allow you to unify all the information regarding the quantification of raw material, its movement, the quantity and quality of orders, etc. This facilitates the solutions for every problem the area can have since we have more and more agile devices to assure the success of companies.