What is Inbound and Outbound Logistics?
There are many people who use the word ‘logistics’ while referring to a warehouse. However, if one were to check out this word and examine it closely, this is far from the fact!
An understanding of the word ‘logistics’ would help us to appreciate the terms inbound and outbound logistics better.
The word ‘logistics’ came from ‘logistique’ in French. It is originally a military term that was used to indicate the organization, movement, and accommodation of soldiers and storage of military equipment.
Since these operations were quite complex to execute, any activity or process that was complex was referred to as ‘logistics’. Soon, this term came to be used in the commercial process of acquiring, storing, and distributing goods.
Typically, these days, the word ‘logistics’ is used to refer to the coordination of functions such as dispatch, delivery, transport, and the storage of goods.
It is the process whereby documentation, transport, storage, segregation, and labelling of goods are executed efficiently and effectively.
Especially at a time when ‘customer is king’ logistics is directed more towards meeting customer requirements in a timely and economical manner.
Many logistics companies resort to outsourcing of services to cut down on costs, such as costs on infrastructure and manpower.
Outside party logistics service providers (also known as 3PL, 4PL, 5PL, etc.) are organizations that provide logistics services at a cost allowing a company to focus on its core business activities, for example, sales and marketing.
These service providers can take care of a company’s requirements from transport to storage to the management of inventory and its related technology.
For more details on outside party logistics providers please refer to this article – Freight Forwarding Process – Everything You Wanted to Know
Having said all this, let us move on to our topics on hand – inbound and outbound logistics.
As the name implies, operations for the receipt of goods at a location are referred to as inbound logistics.
Outbound logistics, on the other hand, is the process of moving materials from one location to another.
Goods and materials could be raw materials or finished products that are transported by any of the different modes of transport such as by land, sea, or air.
Looking at these two processes as a whole, we can say that for any material trading process to be complete, it requires a combination of both inbound and outbound logistics.
One party sends the goods (outbound) while the other receives it (inbound). For example, an inbound process could be the receipt of raw materials while the sending of finished goods to customers will be the outbound process.
A clear understanding of these two separate processes will help strengthen any logistics network that is crucial for the success of a business operation.
While it may sound very simple, inbound and outbound logistics vary from organization to organization. It depends on the operations of each organization.
Inbound logistics is the process of receiving goods. It includes the planning, physical receipt, checking, and stacking in the right locations that help goods pickers to take out these goods based on pre-agreed picking rules.
Inbound logistics may also include the movement, transport, and customs documentation of the cargo from its origin to destination.
An efficient inbound logistics system is necessary for any organization to ensure the uninterrupted flow of goods into its warehouse.
It may be raw materials to be processed or finished goods to be dispatched to customers upon sale.
Certain organizations include forecasting and the purchase ordering process in their inbound logistics process while others look at it from a totally physical perspective of receiving and storing goods in their warehouse.
Various forecasting tools help organizations to predict the stocks that are required at a later point in time for sale or distribution to customers.
These days, organizations do not want to carry extra inventory while at the same time they do not want to run out of inventory when there is a demand for it. Lost sales due to out-of-stock situations can be detrimental to a business.
Forecasting tools make use of calculations based on historic data and trends to arrive at the right order quantities.
Let us take a look at two of the basic methods of forecasting used in the industry.
The Straight-line Method
This is one of the easiest methods of forecasting. The straight-line method uses the growth rate based on historic sales or demand and assumes that the trend will continue for the next 2 – 3 years. This growth rate percentage is used to calculate future demands.
An example of the straight-line method of forecasting would be if your business revenue has grown by 4% over the last 3 years, you would assume this percentage to be the expected growth rate in the next 3 to 4 years.
The Moving Average Method
The moving average method can be calculated for any number of years depending on the historic data that is available. It is mostly used for calculating long-term trends and is calculated from several subsets of data. This method helps to smoothen fluctuations in forecasts to a certain extent.
However, the forecaster decides the period that best suits the business. It may be 2-year, 3-year, 4-year or more. The more the number of data subsets that are used, the more it helps to smoothen sharp spikes or fall in demand. The longer period helps to smoothen these fluctuations in forecasts.
For example, if you have data for the years 2010 to 2013 and want to find the 3-year moving average, you would calculate the average of subsets for this period such as 2010 to 2011, 2011 to 2012, and 2012 to 2013.
There are various other methods used in forecasting such as the Simple Linear Regression method, Multiple Linear Regression method, etc.
With the hundreds of forecasting software tools that are available in the market today, it must be remembered that no matter how good the tool is, the plain old common sense that comes with experience in the field, is a key factor in arriving at accurate forecast figures.
Warehouse Management System
A Warehouse Management System or WMS mainly helps identify specific, vacant storage locations in the warehouse for put-away or stacking of goods. These locations are usually storage racks in the warehouse that have pre-determined system addresses.
A WMS specifies these locations based on complex algorithms that help in the easy picking of goods at a later point in time based on the different methods of picking such as the First-in First-Out (FIFO), First-Expiry First-Out (FEFO), Last-In-First-Out (LIFO), etc.
Warehouse management systems also help in carrying out inventory checks (mainly for audit purposes).
Outbound logistics kicks into action when you have sales orders from your customers or need to move your physical inventory from one location to another.
It mainly involves the picking of goods, its packing and labelling according to government and customer requirements, and subsequent transport of these goods to their destination after fulfilling customs formalities as required.
Outbound logistics includes load and route planning, liaising with the customers, customs, or other relevant government authorities as required, and arranging the right type of transport.
Sales Order Processing (SOP) is another function of outbound logistics. It is the receipt of customer orders and their conversion to picking lists and finally invoicing.
Preparation of customs and transport documentation, etc. requires expertise as wrong calculations or incorrect classification of goods under the Harmonized Systems (HS) code may result in payment of the wrong customs duties or subsequent penalties, etc.
Transport Management System
Logistics companies use heavy-duty diesel-powered trucks to transport goods. These trucks may be flatbeds or they may carry the normal GP (General Purpose) containers or refrigerated containers of varying sizes.
The Transport Management System or TMS is an important tool that helps in planning deliveries or to pick up goods from several other locations during a trip. It may also include Reverse Logistics.
TMS helps to optimize the route taken by the truck and therefore its fuel consumption. It saves time by selecting the optimum drop-off and pick-up order and the best routes to be taken for achieving this.
What is Reverse Logistics? In certain cases, the containers or packing materials of goods that are dropped off at a customer’s premises will have to be picked up by the supplier.
These may include empty cardboard cartons, wooden crates, pallets, empty beer kegs, etc. This process is called Reverse Logistics.
Reverse Logistics is usually completed during subsequent drop-off of goods to the customer however, it has to be planned meticulously taking into consideration other deliveries, pick-ups, etc. during the trip.
A good TMS helps to plan and execute all these activities logically and economically.
Enterprise Resource Planning
Most logistics companies go in for the ERP system these days. An Enterprise Resource Planning software (ERP) takes care of all the above requirements including supplier and customer relationship management, human resources management, and finance.
By opting for an ERP system companies save on money that would have been otherwise spent on the different software for the different processes of the company. Such different software may also not communicate easily with each other.
An ERP system offers the seamless integration of a company’s core business processes.
Infrastructure and Equipment
State-of-art warehouses have advanced racking systems that help to stack goods as well as pick them easily as and when required. Racks are heavy-duty, large-scale shelves installed in warehouses. The layout of a warehouse has to be planned in such a way that storage and operational space are optimized without compromising on other details.
Picking conditions may be different between different types of warehouses such as temperature-controlled warehouses and ambient storage facilities.
Then we have warehouses meant for the storage of specific items such as meats, pharmaceutical drugs, sensitive electronic components, or fruits and dairy products. The temperatures of these warehouses range between -18° C (-0.4° F) or less to 24° C (75.2° F).
The different types of racks are Selective Racks that are the most basic, Mobile Racks that make the best use of available storage space, Cantilever Racks to store long or Out-of-Gauge items (OOG), etc. For more details on racking please go to this link – Guide To Types of Warehouses for Shipping
Modern MHE (Material Handling Equipment) makes the processes of storage, transport, and movement of goods easier. These include equipment such as pallet jacks, hydraulic ramps, forklifts, cranes, etc.
The Different Methods of Picking Goods
The FIFO method helps to pick the oldest goods that are in the warehouse thereby preventing old stocks from accumulating and going past their expiry.
The FEFO method takes this a step further by suggesting to pick goods that have the earliest BBD (Best Before Date) or expiry date.
The Last-In-First-Out method (LIFO) is usually followed by department stores, pharmacies, etc. This method of picking helps them match the latest cost of goods received with their stocks. It is beneficial to such organizations, especially in the case of products with frequent increases in price etc.
For more details on FIFO, FEFO, and LIFO please check out this link – Guide To Types of Warehouses for Shipping
While technology and Artificial Intelligence (AI) aids in taking the right decisions and the efficient running of operations, it must be remembered that they are all only as good as the people behind them.
Efficient staff is necessary for the running of such software and technology and taking the appropriate actions based on the output from them.
The location of a warehouse is extremely important for its successful operation. It should be ideally located within proximity to a seaport, airport, or transport hub. Warehouses should also be easily accessible to industries and trading centres.
When customer expectation is at an all-time high, inbound as well as outbound logistics functions have to work efficiently and in tandem to meet these expectations.
The labour, equipment, and other resources required for this have to be available with such logistics organizations. Getting the services of an experienced service provider is a good option whereby there are considerable savings on costs without compromising on the quality of services.
A good 3PL or 4PL service provider will have the resources and expertise in meeting these requirements.
Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.
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Hari Menon is a Freelance writer with close to 20 years of professional experience in Logistics, Warehousing, Supply chain, and Contracts administration. An avid fitness freak, and bibliophile, he loves travelling too.