Logistics Operations: Optimizing Supply Chain Management
By Komal Puri | June 29, 2023
Whether a business is making money or losing money while trying to deliver its goods or services depends on the optimization of their supply chain processes. While logistics play a central role in the supply chain it holds the key to success of the business as a whole.
In this blog we will go deeper into what logistics operations are, the hidden world of its optimizations and unlocking the levers to maximize the efficiency of the operations.
What are Logistics Operations?
Logistics operations stands for the movement of products and services from the source of origin to the end desitionation where a consumer will end up consuming that product or service. This flow of activities is made up of multiple parts such as procurement, movement, warehousing and fulfillment.
The single most important goal of a successful logistics operation is to deliver right the first time. Meeting the need for speed, accuracy and precision of a delivery makes the difference between a profitable operation and a cost-center for the business. The goal is to strike that balance between customer satisfaction and cost of delivery.
Why are Logistics Operations Important?
Balancing the need for customer satisfaction and cost of delivery is what makes the logistics operation crucial. Let's go deeper into what makes each of these parts more than the sum of their parts.
While it is straightforward to say reducing the cost of deliveries is important, we need to understand the direct and indirect impact of higher cost of deliveries. A delivery not only has a cost impact due to the vehicle, driver and packaging but also the holding cost of deliveries and the multiple attempts required to make that delivery successful. Reduction in cost of a delivery requires the whole business to take calculated steps to reduce overheads and wastage across all steps of the process included but not limited to route optimization's, exception management, returns and reattempts.
On the other hand customer satisfaction has a very high correlation with repeat business. A satisfied customer not only leads to repeat business but also improves the chances of referenceability of the business. Ensuring the delivery experience becomes a catalyst for future business is what sets apart a successful supply chain business.
What are the key steps in a operations management in logistics
Logistics and operations management encompass numerous vital processes that are essential for the seamless functioning of supply chains. Let's explore some of these processes:
Forecasting and predicting demand: Having a precise forecast of how much needs to be produced, procured and stocked allows companies to save upto 40% of their sunk costs. By looking at historical data companies are able to forecast to a certain extent the expected load. But adding macro-economical factors to the mix takes the forecast to another level of precision.
Procurement: This part of the supply chain business involves sourcing and procuring raw/ semi finished products required for the finished product/service. An efficient procurement process leads to cost-effective business which in turn leads to lesser waste and more profitability.
Delivering and transportation: It is no hidden fact that transportation costs the most in a supply chain since that includes a lot of moving parts, humans and assets. There is substantial cost involved in setting up networks for transportation. Having an optimized delivery network, efficient supply chain organizations can reap benefits of upwards of 35%.
Warehousing and inventory keeping: Warehousing is a critical part of fulfillment. For every delivery waiting to happen there needs to be a product that is ready and stocked in a warehouse which is strategically located to reduce the cost of delivery. The cost of holding the product should also be factored while looking into the overall profitability of the warehousing operations. Practices such as JIT (just in time) and vendor-managed inventory or shared warehousing are becoming crucial to the success of the healthy supply chain
Distribution and fulfillment: the final part of the supply chain process is the order fulfillment and successful distribution. The fact that consumers are looking for same-day or next-day deliveries and expecting the cost of deliveries to go down each day leads to companies finding smarter ways into how orders are to be fulfilled. This is where micro-fulfillment centers are coming. An efficient last mile operation not only makes the overall operation more cost effective but also helps in reducing the overall impact of distribution on the supply chain.
5 Optimization techniques and practices to enhance your supply chain
To optimize supply chain management, businesses can focus on implementing the following operations:
Network planning: By planning and optimizing the delivery and fulfillment network companies have been able to dramatically reduce the overall cost of fulfillment. This involves a data-first approach to analyzing the demand and supply chain efficiency for that region.
Move towards CPFR (Collaborative planning, forecasting and replenishment): By integrating and involving stakeholders and sharing transparent information across the supply chain companies are able to reap the benefits of a more collaborative planning and forecasting.
Get leaner and sharper: Employing practices from lean principles to logistics operations allows companies to eliminate and reduce wasteful spends and exceptions. This starts with reducing excessive inventory holding and warehousing costs. The positive impact has a trickle down effect on fulfillment and delivery operations as a whole.
Reverse logistics and returns: Not every delivery is a closed delivery. With more customers being exposed to home deliveries the appetite for deliveries have definitely gone up. This has led to more orders being placed and a significant increase in returns and need for reverse logistics. By investing in smart reverse logistics operations a company can start saving significant costs by recovering lost value from products.
Onboard technology partners/solutions: By working with dedicated partners and leaders that bring in best practices across the supply chain and delivery optimization companies are able to fine-tune their operations and get the most out of their delivery processes.
How are logistics management and operational management different?
While logistics and operations management sound similar in the context of supply chain both the fields are highly nuanced and require very specific understanding of each field. Logistics management is all about effective and efficient handling of products across the supply chain. While operations management is a broader field revolving around taking inputs and converting to outputs. This includes forecasting, demand planning, network optimization and warehousing.
Challenges in Logistics Operations
Operations management in Logistics face several challenges that can hinder supply chain efficiency. Some common challenges include:
Global supply chain complexities: as supply chains become more optimized using various techniques and methods. Introducing the complexity of multiple time zones and regulatory compliances makes it ever more difficult to manage.
Warehousing and inventory management: the goal of a successful operation is to reduce the time a shipment stays within the four walls of a warehouse. The cost of inventory keeping at times increases the overall cost of making the delivery happen.
Transportation cost and capacity: Managing and balancing the capacity of the fleet being used is a widely accepted challenge that requires dedicated use of technologies. As soon the businesses hit a tipping point in terms of scale capacity planning becomes a problem of not only managing assets but also strategic network placement.
Last Mile delivery: Last mile deliveries require a whole different level of execution as compared to the other parts of the deliveries. It is attributed to over 50% of the total cost. With players like Amazon pioneering the customer experience, the cost of a successful high satisfaction delivery is becoming ever more difficult to meet consistently.
Sustainability: the impact of logistics on our planet has never been felt more. From packaging to the GHG emissions that the logistics industry contributes to is one of the highest across all industries. Given the nature of the business it is to be expected that the reduction in this could only be triggered by optimisation in how we do our business and not by reducing the scale of our businesses.
Technology and Innovations in Logistics Operations
Technology and innovation have revolutionized operations, enabling companies to overcome challenges and optimize their supply chains. Here are some key technological advancements in this fieldtest blockchains are still 10x slower than the closest traditional alternatives.
1. Digitization and data-first approach to optimization
More and more traditional players in logistics are aggressively leaning heavily on technology to carry out basic operations that were once paper-heavy. With digitization the industry opened to new facets of optimization using real-time analytics, internet of things (IoT) and predictive analytics. The data first approach allows these players to optimize parts of their operations that were once hidden behind the stacks of paper-based processes. While these technologies do open up areas for companies to track, measure and improve their processes it also opened the industry to a potential new challenge.
Challenges: With all the data that is being generated and captured the concern of consumer data privacy and security started becoming a real threat.
Ensuring that all sensitive information is protected from the growing threats of the digital age is the first and foremost challenge to overcome for anyone looking to get their business into the digital age. While the benefits of digitisation are substantially more, the cost of successfully implementing the same includes not only significant capital expenditure but also significant change management.
2. Automation and robotics
One of the major metrics for logistics companies is to reduce the time a delivery spends within the walls of the warehouse. Global leaders are employing automation and robotics to enhance their warehouse and in-wall operations. Using such tools and processes there is a scope to fine-tune every inch of warehouse space and time to dispatch. The use of AGV or Automated guided vehicles within the warehouses are reducing errors in shipment handling and reducing exceptions at a scale higher than ever seen before.
Challenges: With deep rooted automation practices and employment of autonomous robots for daily chore-like works opens up the threat of job displacement. Logistics companies must be able to strike the balance between automation and keeping a motivated skilled workforce. Moreover, with heavy reliance on automation, companies should always have a backup plan in case of technical failure such that the manual team can pick up the work without impacting the day to day operations while the tech is brought back up.
3. Artificial intelligence (AI) and Machine Learning (ML)
AI has been slowly taking over how we operate the supply chain especially in fields like route optimization, exception prediction and forecasting. This has a direct impact on reduction of wastage and wasted delivery attempts. With the likes of GPT/Bard and other LLM models there is a huge opportunity for improving the long lasting issue of address parsing and geocoding. Moreover, AI and ML technologies are enabling predictive analytics that are able to predict and forecast both orders and exceptions thus having a direct impact on the delivery attempts and fraud detection.
Challenges: AI/ML have a lot of potential in terms of optimisation and productivity. Onboarding and integrating AI/ML technologies require large-scale data pipelines and skilled professionals. Further the challenges of AI/ML are still being explored and AI-governance is also becoming a serious research topic.
4. Innovation in Last Mile Delivery
Last Mile deliveries contribute to over two-thirds of the total delivery cost. The opportunity for optimisation is higher than any other part of the delivery process. With the surge of demand for online deliveries the impact of technology is higher than ever. Companies are testing drone deliveries, automated delivery vehicles and robots, smart pickup and drop parcel lockers and integrated omni-channel delivery channels. Consumers are more cost conscious than they have been when it comes to deliveries and last-mile. While consumers are ordering more the appetite for delivery cost is at its all time low.
Challenges: While drones and other automated delivery options have the potential of reduction in cost and time they post another threat of UAV traffic and integration of such modes with traditional modes of consumer. With the increased adoption of AI the rising need for AI-governance is taking over. The concerns around AI is also a legitimate challenge that companies looking to integrate AI needs to look at before an extended release of this technology.
5. Sustainability and green supply chains
The need for saving our planet is more real than it was a few years ago. What was once a regulatory requirement is a critical aspect to ensuring we are moving towards a sustainable future. Companies are moving towards adopting electronic vehicles and using alternative fuel and power sources. Packaging is another area where companies are innovating the use of recyclable materials. Such sustainable options not only are moving the logistics industry to a more sustainably conscious industry but also appealing to the more informed and aware customers. With over one-third retail customers willing to opt for sustainable deliveries at the expense of speed and cost.
Challenges: Sustainability is still a high-cost initiative. EV and alternative fuels are still a topic for research and companies are working towards reducing the cost of moving to these options, but we are still further from the ideal solution for mass adoption. Even though there are regulatory bodies for sustainability initiatives a lot of regions are still to take this with the same seriousness as the more developed economies.
6. Blockchain for a decentralized Supply Chain:
Blockchain or more technically known as DLT (distributed ledger technology) provides a way for recording and managing transactional information which is immutable and completely traceable. Blockchain has a very real application to the supply chain where data flow is critical. Companies are experimenting with DLTs and blockchain for maintaining and transacting shipment records where authenticity and integrity of data is of utmost importance.
Challenges: While blockchain and similar technologies have the potential to introduce a lot of transparency the technology is not ready for real-time like systems. The technology is still being worked on in terms of its speed and throughout. The fastest blockchains are still 10x slower than the closest traditional alternatives.
7. Move to accurate predictive forecasting
Demand forecasting has been one of the most researched topics in data analytics and prediction. Specifically for the supply chain industry where being prepared for a surge in demand is what differentiates a profitable logistics operation from a bottom-line draining operation. By analyzing historical data ML models are able to predict with high accuracy the potential increase or decrease in demand of deliveries. This coupled with established sales and manufacturing forecasting models are leading to much more efficient vehicle and fleet management practices.
Challenges: As with any other ML based innovation forecasting requires substantial investment in both data pipelines and qualitative understanding of the macroeconomic environment. Coupled with lack of highly skilled ML professionals this is a challenge for mass adoption and development in-house. This is where companies like FarEye step in.
8. Internet of things (IoT)
Internet of things is an established and well adopted technology and has seen high adoption specifically for asset tracking and long-haul trucking. Even within larger premises or warehouses IoT is being adopted for tracking of movement of goods within the larger area. This coupled with geofencing technology where entry and exit of assets can be tracked. There is a strong use case for temperature sensitive goods with the detailed level of tracking IoT brings to the fray.
Challenges: Cybersecurity is the biggest threat to IoT based deployments. Thus protection of these devices/systems against such threats is the biggest challenge. Even though the globe is moving towards a higher quality internet connectivity, IoT is still heavily dependent on network connectivity.
9. Autonomous vehicles and long-haul logistics
Self-driving vehicles are being tested across different geographies with varying success. However, by reducing the reliance on drivers for long distance trips companies are bringing in optimization at a whole different scale. This has the potential to disrupt the industry at an unprecedented level.
Challenges: Autonomous vehicles while promising a much higher scale of optimisation there are significant regulatory and geographical challenges with the adoption of such technologies. Both from a job displacement and front he security and safety perspective of other vehicles sharing the road.
10. Warehouse operations enhancement using Augmented Reality (AR)
AR is being tested and used within warehouses with devices such as smart glasses, visual aids and AR supported loading devices. The use of AR is a game changer when it comes to integrating optimization to the real world. This has a positive impact on training times, improves accuracy for order picking and overall efficiency in warehouses.
Challenges: Change management and requirement of devices capable of handling AR is the deterrent in widespread adoption of the technology.
11. Data-first supply chain
Logistics industry generates more data than any other industry ranging from order data to delivery critical data. With the large amount of data being generated there is a huge opportunity in handling and managing that data to turn it into insights. Effectively utilizing the data and turning it into insights open up hidden opportunities in the supply chain processes.
Challenges: While generating huge amounts of data holds a large opportunity of insights it also brings the challenge of security and processing this scale of big-data. This requires substantial investment into data capabilities and a dedicated team of data scientists to manage and improve the quality of insights.
12. Ecommerce Integrations
There has been a constant upward trend in ecommerce orders with more familiarity of customers and trust with buying online. With this trend a lot of direct to consumer brands are opening up their online stores using a mix of platforms like Shopify. This upsurge requires logistics companies to be able to accept and manage orders for these customers directly from their ecommerce stores. With advanced tech companies are able to onboard such partners on day one and start shipping.
Challenges: Although this is a quick fix in terms of aligning stores to a potential carrier. This requires a certain level of technical maturity with both the carrier and ecommerce store.
Komal Puri is a seasoned professional in the logistics and supply chain industry. As the Senior Director of Marketing and a subject matter expert at FarEye, she has been instrumental in shaping the industry narrative for the past decade. Her expertise and insights have earned her numerous awards and recognition. Komal’s writings reflect her deep understanding of the industry, offering valuable insights and thought leadership.
